For those owning residential properties, namely flats within an apartment block, there became a new right through the Commonhold & Leasehold Reform Act 2002 to form an ‘RTM’ Right to Manage company. This enables often frustrated tenant-owners to have their own management company to run the shared communal areas and set the service charge, rather than leaving it to the main landlord owner and their agent.
This is one of many rights that residential property owners have which at first glance can be a great opportunity to manage things better and not be left at the beck and call of any landlord and their costs. However the reality of trying to understand what this actually boils down to, and then how you successfully implement alongside other owners can be a minefield, and means that a perfectly good solution designed to help residents can be missed.
There’s a lot of legal advice already available on this, including guides to go through and criteria to meet. This is all good stuff, although often leaves you needing help to unpack just how on earth this works out in reality. From a real-life property management perspective, it’s one thing having the right notice to serve and company ready to go, but another to skillfully apply to your own situation. Often when you’re dealing with a group of residents clubbing together trying to pull off an RTM company, unless there’s a clear focus and action plan it can become confusing, costly, and timely.
Our 6 RTM Company Top Tips
Therefore here are our top tips on this, designed to help you understand exactly what you’re trying to achieve and then some practical pointers on how you can implement:
1. Other Options
Before launching into this, look at other options which may end up being easier, cheaper, and simply less hassle.
If the driving force is an ineffective landlord or their managing agent, try dialogue first to see if things can’t be resolved first. Failing this, there are ways to formally request information from them, and even request that they simply change their managing agent rather than going down this line of a whole new management company.
These managing agents are something completely different to an RTM management company, in that they are an instructed firm who simply carry out the duties of the landlord. Their contract is with the landlord, as the tenant long leaseholders just have a lease covenant direct with the landlord.
Simply getting the landlord to change agent can be easier without formally changing leases – with this RTM company option you’re setting up a whole new legal company which will then take formal legal rights away from the landlord, which might itself have a managing agent to carry out practical duties.
If costs are an issue, particularly service charge, then the landlord has separate responsibilities for correct accounting, holding of monies, timely accounts and budgets being issued, and notices for large or additional costs. It might therefore be going down this line instead.
Another option is purchasing the freehold of the property, which has two aspects out. Firstly, this RTM process can go a step further and force the landlord to also sell the freehold of the property to the company, meaning the leaseholders get the whole property lock stock and barrel.
RTM is simply taking management duties away from the landlord, leaving them to still collect ground rent and deal with direct tenant issues, whereas if the actual freehold is owned then this can increase the value of each leasehold by looking at eliminating ground rents and automatically extending leases. The down side though is that the freehold is worth something, so at least some of the leaseholders will need some capital to but this in.
2. Correct Criteria
If you’re deciding upon the RTM route, then you need to go for it. Because this is drastic measures of creating a new company, even if you have separate issues regarding management, service charge monies, and even interest in purchasing the freehold later on, it is best to knuckle down and get the RTM formed first before muddying the waters and trying to resolve these other issues now. It will be easier to focus on these after the RTM and you have newly-formed legal powers to do so, rather than beating around the bush beforehand.
You then need to check that your particular development meets the criteria for this, the good news is that once it is then the landlord can’t do anything about it. It’s an automatic right they have no choice to refuse, the only legitimate grounds being technical points of the criteria not being met, or notices not correctly served.
The criteria for a RTM falls into three areas. Firstly, make sure there are enough flats in the block, a minimum of two being needed, or more with a resident landlord, and that no more than 25% of the property is used for non-residential purposes, for example ground floor shops or small workshop and office suites.
Secondly, make sure at least two thirds of the flat leases are over 21 years long, and thirdly that at least half of these flat owners agree to being part of this new company.
Now this last point is the hardest in that frustrated tenants will need to club together and get at least half of other tenants to turn their frustrations into tangible action, and all agree to now do something about the situation. This is a huge task, often falling on the shoulders of a few dedicated and diligent tenants to organise.
3. Company Formation
This is actually the easy part, but often misunderstood. You basically need to set up any bog-standard company, and then ensure all on-board tenants become part of this with suitable appointment of Directors etc like any other company formation. It’s that simple, and it needs to be done at the outset, rather than thinking it will be automatically completed afterwards by someone else.
At this stage, it’s worth having a reality check of what this means. The good news is that residents will have a share in a company that makes the call on property management matters, with fair procedures through meetings and notices to others to make a collective decision and not be left in the hands of an unstable landlord.
The bad news though is that the buck stops with the residents, who have some degree of personal liability once they become part of such a company – so if there are huge costs to incur, or allegations of uncompliant parts, then they’re on the hook.
However, although this is easy in principle, it’s worth instructing a good firm of solicitors to do this correctly. The right Articles of Association will need forming, the correct communication and inclusion with residents, and even down to registering the new company at a certain address. Although other advisors will eventually need considering like an accountant for the correct company and service charge accounts, and maybe a managing agent to manage going forward, it will be worth including these at this stage even without a formal instruction as they can help shape this company formation with details like using their office as the registered office.
On a practical note, such solicitors will need an instruction from someone which will probably need to be an individual resident and intended Director. Although the purpose is for an RTM company, because this has not yet been created then a separate person may need to take the lead and instruct in their own name, and maybe even pay fees to get going themselves or with others chipping in, and then an agreement to have these re-imbursed through the management company afterwards and all residents.
4. Formal Communication
Okay, you have things ready to roll now, therefore your solicitor will make sure the formal notice to the landlord, other resident owners, and other third party interest, are all then issued correctly. This can’t be stressed enough – this has got to be in the correct form, in the right timescale, to their appropriate named person, and in the right method; otherwise you’re opening up to claims of it being invalid or delayed. A cheap DIY approach may seem appealing, but getting this right now will save you hassle afterwards.
In terms of how this shapes up, there are three main forms. Firstly, all leasehold owners who are not already on board need formal notice and invitation to be part of. If the landlord actually still owns some flats themselves, then include them as well with this leaseholder’s hat on, in addition to the one below with their landlord’s hat on.
Secondly, a Notice to Claim needs issuing afterwards to the actual landlord stating that this newly-formed RTM company is now going to take over. The landlord has a month to try and refuse and serve a counter notice; if no issues, then the effective date of taking over is four months after this notice date. However if there are objections from the landlord then you need to apply to the First tier Tribunal (Property Chambers) to resolve (or LVT in Wales).
Thirdly, you can serve special notices on the landlord requesting more details about the property as you head towards the eventual take-over date. One of these requests is information on the property and service charge, and another is to actually permit access to otherwise restricted areas like plant rooms to begin delving into what needs doing.
5. Management Functions
Once you’re heading towards the big day when the RTM company actually takes over, you then need to become busy getting to the bottom of what actual property management issues exist. Whether it’s the service charge accounts and actual monies, or the contractors and repairs, you need it all by this date, and the landlord is under an obligation to provide this all.
You’re not forced to take on their contractors or managing agents, so you can begin arranging from new. The important one is a managing agent who will be doing this all for you anyway, and remember that if you’re not continuing with the current landlord’s agent and contractors then it will be worth being amiable and work along side them as they will have various pieces of information and head-knowledge on the property.
If the landlord does not play ball, then keep the pressure on with legal obligations and notice needed if needs be. Keep deadlines sharp, and check that everything historical as well as current stacks up.
6. Counting the Cost
Finally, consider the cost of all this. In most cases it will be worth it longer term of course, but you do first need to first realise this and if nothing else budget for it.
The genuine fees of the landlord in this process need paying, and as above there will be initial set up costs to cover as well directly by tenants but eventually through the RTM management company.
Money wise, make sure service charges can be paid as soon as possible into the new management company and not the landlord, and remember that the landlord will still be receiving any ground rent charges.
Also, check that any separate reserve or sinking funds are moved over from the landlord.
Pulling Off a Good RTM
So if you’re looking at a RTM company being formed for residential property, or you’re trying to unpack how ones currently stands, then these pointers will help knuckle down to the key issues. Whether you’re tenants looking to instigate, a landlord looking to react to an application for one, or an advisor like a property manager or solicitors needing to advice on these, then these pointers will help bring back focus.
Remember to first see if it’s worth all the effort anyway, and all the criteria exists to successfully go through with one. Then make sure the detail is current for when you implement, including clear communication to everyone, and to ensure it’s up and running practically with owners involvement and service charge monies and property services as soon as possible.