How Does Right to Manage (RTM) Work?
Leaseholders must send notice to the landlord before they can take over the management. Even so, the landlord would still own the building.
Managing a property means leaseholders would be responsible for:
- Collecting and managing service charges.
- The upkeep of communal areas (e.g. hallways, stairs) and structure (e.g. the roof).
- Handling certain complaints from other leaseholders.
Important: There is no legal requirement for qualifying leaseholders to prove bad management of the building to use the Right to Manage. Furthermore, they can do so without getting agreement from the landlord.
Setting Up a Right to Manage Company
First of all, the leaseholders would need to set up a Right to Manage company and then follow certain rules and procedures.
Once you have set up the RTM company, you can choose to manage the building ‘directly’ through the company, or you can hire a managing agent to act on your behalf.
As part of landlord rental laws, the landlord would have the right to be a member of the RTM company. As a rule, it means they would also be able to cast their vote on any important decisions.
The landlord would get one (1) vote – as a minimum. However, they could be entitled to more votes (determined by the number of flats that they own in the building).
Example about Voting Rights:
Let’s say there is a large block of flats with twenty (20) individual units. The leaseholders own sixteen (16) flats and you own four (4) which you are renting out on assured shorthold tenancies.
In this example, the landlord would get four (4) votes in the RTM company (e.g. one vote for each flat they own and rent out).
Note: Right to Manage companies need to pay for any costs incurred during the management transfer process. This rule applies even in cases where they do not actually manage the building.
Right to Manage Qualification Criteria
Only a RTM company gets the Right to Manage in the United Kingdom. Hence, it must meet certain requirements to qualify, such as:
- The building cannot be a house (e.g. it must be made up of individual flats).
- Two-thirds of the flats must be leasehold and the leases must be for a period of at least 21 years (e.g. when first granted).
- At least 75% of the floor area must be for residential purposes (e.g. a shop in the property must not occupy more than 25% of the total floor area).
- As a rule, landlords need to live somewhere else if the block has less than four (4) units. An exception can apply if it was purpose-built for flats (e.g. not converted from another type of building).
- There is no limit on how many owners can set up the Right to Manage company. But, company members must be from at least 50% of the flats before they can take over the role of managing the building.
‘Right to Information’ Notices
In most cases, leaseholders will contact the landlord after setting up an RTM company. The company may also send a ‘right to information’ notice to the landlord.
In short, a ‘right to information’ notice asks a landlord to provide certain information that an RTM company needs to make a claim for their Right to Manage.
Receiving a ‘Notice of Claim’
A ‘notice of claim’ from an RTM company means they intend to take over the management of the building. Thus, it will state:
- A ‘respond by’ date.
- The actual date that the RTM company intends to take over the role of building management.
Note: Landlords can either accept or dispute the claim (see below). The deadline for disputes must be at least one (1) month from the date the notice was issued.
Disputing a ‘Notice of Claim’
As a landlord, you have the right to dispute the claim. You would need to serve a counter-notice to the Right to Manage (RTM) company.
The counter-notice must state grounds why the Right to Manage company does not have entitlement to manage the building. Valid reasons for disputing a notice of claim include circumstances such as the building fails to qualify, or the:
- RTM company fails to comply with the legal requirements.
- Company members fail to represent at least half of the total number of flats in the building.
Applying to the Leasehold Valuation Tribunal
RTM company members can apply to the Leasehold Valuation Tribunal (LVT) if they believe the landlord is wrong to dispute their ‘notice of claim’.
Applications should take place within two (2) months of the counter-notice date. Leasehold Valuation Tribunals make decisions on whether RTM companies can manage buildings.
Transferring Management to an RTM Company
Management of the building transfers to the RTM company once the landlord accepts the notice (or LVT decides in their favour).
The ‘date of acquisition’ is the official term used for the date that the Right to Manage company takes over its responsibilities, being (either):
- The date stated on the ‘notice of claim’ (if accepted by the landlord).
- Three (3) months after the final decision by the LVT (if the landlord disputed the claim and lost).
- Three (3) months after reaching an agreement (if the landlord disputed the claim but reached an agreement with the RTM company at a later date).
Note: Landlords need to transfer any money received from service charges on the acquisition date (or as soon ‘reasonably’ possible afterward).
Procedures for Ongoing Management
Most approvals only require fourteen (14) days of advance notice. But, Right to Manage companies must inform landlords at least thirty (30) days before they approve (any):
- A charge to leaseholders.
- A sublet.
- Assignment (the sale or transfer of a flat into the name of someone else).
In some cases, a lease agreement may require consent from a landlord on certain issues. If so, RTM companies must give thirty (30) days of notice to the landlord before they approve (any):
- Changes or alterations to the use of the building.
- Changes or alterations to the structure of the building.
Note: You can read more about leasehold property and the Right to Manage on the Leasehold Advisory Service website.