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Right to Manage Leasehold Process

Marcus Simpson

07/07/2018

Some Leaseholders can choose to take control of certain management responsibilities that their freeholder/landlord is responsible for by setting up a Right to Manage company (RTM). This doesn't mean the leaseholders own the freehold, however it offers an opportunity for them to manage their maintenance of the freehold and communal areas regardless of whether the freeholder is in breach of their duties to the leaseholders.

The right to manage your freehold is set out in statutory law in the Commonhold and Leasehold Reform Act 2002. We run through the right to manage process, the right to manage costs and how long the process takes.

What responsibilities does the Right to Manage Company take over?

A freeholder is usually responsible for carrying out repairs and maintenance to the building and communal areas as well as ensuring that the property is properly insured. The freeholder collects service charges from the leaseholders to pay for this. Under the Commonhold and Leasehold Reform Act 2002 eligible leaseholders have the right to take over these responsibilities. The responsibilities could include:

maintenance of the lifts;
cleaning of the communal areas;
negotiating new contracts with utility and building insurance providers;
maintenance of the garden; and
planning of major works.

Read on to see the complete Right to Manage Process.

Do you need help setting up a right to manage company?

We have a specialist leasehold solicitor who can help you with:

creating a right to manage company and issuing share certificates
serving of the Notice of Claim
completion of the registration

Get a Right to Manage Quote*

* Fixed Fee – Specialist Right to Manage Solicitor - Registered with ALEP

The Right to Manage Process in 4 simple steps

Briefly, you have to get majority support from the other leaseholders, then form the right to manage company, then inform your freeholder

Establish Eligibility and Support

Although right to manage is a simpler process than the one which accompanies Collective Enfranchisement, there are some similarities in the eligibility criteria:

At least 2/3 of the flats in your block must be let to ‘qualifying tenants’, i.e. those with an original lease granted for more than 21 years. You don’t have to have been resident in the flats at the present time or in the past, however.

You have to have enough qualifying tenants in favour of right to manage such that their number is or exceeds 50% of the flats in the block (both of you if only 2 in the block).

You cannot have more than 25% of your block given over to non-residential (i.e. commercial) use.

You cannot have a resident freeholder in your block where the block isn’t purpose-built, there’s 4 or less flats and one of these flats is where the freeholder or adult member of their family has lived for 12 months.

You have to form a right to manage company and this must be formed of at least 50% of the qualifying tenants.

If the property has more than one block, you can only pursue right to manage on a block-by-block basis, not all at once (although all blocks could eventually be managed by the same right to manage company).

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Form the Right to manage Company

This is essential – the right to manage company must manage the block, not individual leaseholders – and the company’s Articles of Association must reflect its purpose.

You and your fellow leaseholders can incorporate the company yourselves or instruct a solicitor to do so. You have to appoint a chairman, secretary and directors from among the leaseholders, then invite all qualifying leaseholders to join – you cannot exclude anyone.

You must inform the qualifying leaseholders via a Section 78 Notice Inviting Participation. This notice must clearly set down various matters such as that the right to manage company will take over the enforcement of leases and granting of approvals, if relevant.

What are approvals?

Approvals are permissions granted for leaseholder requests for things such as requests to sublet or to make alterations to a flat or assignment of a lease.

Your right to manage company gains the power to issue approvals when it takes over the management.

Before giving such an approval, you have to put the freeholder on notice of the application (30 days for each of the above, but some other approvals require only 14 days). The way approvals work is that the freeholder doesn't have to consent in order for approval to be given but they can object, in which case the RTM company has to go to the LVT before they're able to give the approval.

It's worth getting a survey before the right to manage takes effect so you can start the statutory consultation procedure for major works that need to be undertaken urgently.

You should ensure that your invitation notice is properly served, including, for example, providing contact details for non-resident flat owners who are to be served with the invitation notice (they have to be served with a copy at such different address as they have notified you of previously.

A landlord often uses bad service of the invitation notice as grounds for setting aside the RTM notice subsequently. It helps if you can obtain evidence from each served flat owner of satisfactory receipt by them of the invitation notice. You also have to note as members of the company any flat owners who respond to the invitation notice asking for membership.

If you are intending to employ a management agent you must state their name and address and if you intend to employ the existing one. The Articles of Association must be stated or, at least, there should be clear details about where these can be found. You should consider appointing managing agents to cover everywhere except the smallest blocks.

Setting up a company?

When you form a RTM Company and register it at Companies House, each of the flat owners become members of the company which is limited by guarantee as opposed to shares being issued.
You need to decide on the address of the registered office and who are to become the initial Company Directors and Company Secretary. The process of company formation normally takes two weeks.
The appointed officers of your RTM company have all the normal responsibilities of company directors as well as the responsibility for implementing the company's obligation to carry out the landlord's functions for the property.
You must hold regular - but not necessarily frequent - meetings.
The RTM company must remain solvent at all times so you will have to fund the shortfall where the flat owners don't pay up on time.

It's worth setting up a fighting fund well in advance of the date you are to take over management to help fund initial expenses such as insuring the building and appointing essential contractors (the effect of the RTM Notice is to sever on the takeover date any existing contracts the landlord has i.e. insurance of the building /contract for the maintenance of a lift). You should collect funds prior to starting the procedure so that you limit the risk of the RTM immediately falling due to insolvency on the transfer date.

You must invite the freeholder to join the right to manage company and also make the qualifying leaseholders aware that each member of the right to manage company may be liable for the freeholder’s reasonable costs arising from service of the notice to exercise the right to manage.

Should your freeholder take up membership of your right to manage company, you should be aware that there are complex rules as to the voting rights the freeholder acquires which are designed to reflect the percentage which any flats or commercial parts of the building held by it bear in relation to the building as a whole.

Serve the Notice of Claim

You have to serve your Section 79 Notice of Claim on your freeholder, but not until at least 14 days after you’ve served your Notice Inviting Participation.

The Notice of Claim must:

allow at least 1 month from date of service for the freeholder to serve a Counter-Notice;

propose a date of acquisition at least 3 months after the date proposed for the freeholder’s Counter-Notice; and

state all relevant particulars about the qualifying tenants, the right to manage company, and the eligibility of the building for right to manage. As stated, the Notice must inform the freeholder of their right to membership of the right to manage company.

NB Unlike the procedure for Lease Extensions and Collective Enfranchisement, ‘a [right to manage} claim notice is not invalidated by any inaccuracy in the particulars’, however it must invite the freeholder that they can alert the right to manage company of any inaccuracies in the Notice.

Similar to the procedure for Lease Extensions and Collective Enfranchisement, your freeholder, on receipt of the Notice of Claim, can issue a Section 83 Right of Access Notice, requiring access to flats in your block for inspection, and those affected then have 10 days to respond.

Receive Freeholder’s Counter-Notice and Contractor/Contract Notices

Your freeholder may serve a Section 84 Counter-Notice; this either accepts your claim or rejects it giving grounds. If your claim is disputed, if you wish to proceed with it, you have 2 months from receipt of the Counter-Notice to apply to the Leasehold Valuation Tribunal, who will make a binding ruling.

The application to the Tribunal attracts a fixed fee of £100 and a hearing fee of £200 on receiving notice of a hearing date.

You or the freeholder can appeal to the Lands Tribunal to challenge the ruling by leave of the LVT or the Lands Tribunal. The LVT’s decision becomes final after any appeals are heard or when the period during which an appeal can be made is expired.

Contractor and Contract Notices

Management of any block normally involves employing outside contractors to perform various services, such as electricians, plumbers, roofers etc.

The freeholder is statutorily obliged to serve Section 92 Contractor and Contract Notices if they agree to the right to manage claim and they should do this ‘as soon as possible’ or at latest by the determination date stated in the Claim Notice, or, should the case be disputed, by the determination date set by the LVT, or ‘as soon as is reasonably practicable after’.

The right to manage company then serves the Section 93 Duty to Provide Information Notice. The freeholder must respond within 28 days of the notice, subject to the proviso that he is not obliged to do so until after the acquisition date.

The acquisition date will be:

where the freeholder served a counter-notice agreeing the claim, or did not serve a counter-notice, the date set in the Notice of Claim;
where a disputed claim is confirmed by the First-tier Tribunal (Property Chamber), three months after the final date of the Tribunal determination;
where a freeholder disputes the claim but subsequently agrees, three months after the date of the landlord’s agreement.

A Contractor Notice has to be served on all contractors appointed by the freeholder and essentially tell them that the right to manage company is taking over the management of contractors. They must state the name and registered address of the right to manage company, the acquisition date and that if the contractor involved, with reference to the relevant contract, wishes to carry on providing services, they should get in touch with the right to manage team.

A Contract Notice has to be served on the right to manage company and must include the particulars of each contract and a statement advising the right to manage company to contact those contractors it intends to retain when it takes over the block’s management.

NB The freeholder does not have to provide copies of any contracts but must inform the right to manage company of their existence.

The freeholder can take up membership of the right to manage company and the company has to allocate votes to the freeholder according to their holding in the building.

The freeholder must transfer all uncommitted service charges on the acquisition date or 'as soon after that date as is reasonably practicable'.

Click for further authoritative advice on right to manage courtesy of lease-advice.org

What if your freeholder is absent?

An absent freeholder/absent landlord doesn't stop you from exercising your right to manage.

You can apply to the Leasehold Valuation Tribunal (LVT) for an order entitling your right to manage company to acquire the right to manage. You first have to take all reasonable steps to find the missing Landlord i.e. advertise in press local to the last known address for the Landlord and you must put the other Flat owners in the building on notice of your intention to apply to for the order.

The LVT may require you to carry out further investigations before it will grant the order.

Get a Survey before you take over

It's worth getting a survey before the right to manage takes effect so you can start the statutory consultation procedure for major works that need to be undertaken urgently.

What are the Pros of Right to Manage?

You can save lots of money if you manage the block better than your freeholder’s management company.

Collectively you have power which you previously didn’t; you can influence decisions on ongoing maintenance and for example investment into the block.

What are the Cons of Right to Manage?

You take on the work of a management company and with it the responsibility of managing your block and complying with requisite company law – if you or others don’t ‘pull your weight’, your block can suffer and your freeholder can even dissolve your company via the Leasehold Valuation Tribunal (LVT).

Your freeholder retains the legal right to be a member of the right to manage company: their interests still have to be taken on board.

Can your Right to Manage be overturned or rescinded?

Yes.

Your right to manage company has to comply with the Government approved code of management practice, produced by the Royal Institution of Chartered Surveyors (RICS), just like any other landlord.

If you don't comply with this, particularly with regard to insurance and repairs, this can be one of the grounds which justify an application to the Leasehold Valuation Tribunal (LVT) to appoint a new manager in turn or end your right to manage.

Other grounds include demanding an unreasonable service charge or breaching obligations under the lease.

Your right to manage company can also collapse if it becomes insolvent or is struck off by Companies House, just like any other company.

You can also terminate your right to manage by agreement with the freeholder.

Description	Cost
What are the Right to Manage Costs?
Set-up Right to Manage Company	£240 to £400 INC VAT (if created by a solicitor) You can save money by setting up your own company, however it is complex and you may get this wrong.
Solicitor's Legal Fee	£600 INC VAT (per participating flat)
Online ID fee	£8 INC VAT (per person)
Land Registration Fee - registering the Right to Manage on the freehold Protects the leaseholders in the event of the freehold being sold.	£20
Official Copy of Register	£6