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If you are the landlord or freeholder for multiple dwellings within the same building, such as a block of flats, you may have heard about the ‘right to manage’ (RTM). This ‘right’ refers to how leaseholders can come together and have more of a say on how their property is managed, often taking on several responsibilities which usually belong to a landlord.

The keyword here is ‘right’. As long as tenants/ leaseholders fit the necessary criteria, they can claim their RTM whether or not their landlords approve. However, while such a situation could seem alarming, what it means in practice is rarely a cause for concern.

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What is ‘right to manage’?

‘RTM’ was granted in the Commonhold and Leasehold Reform Act of 2002 in order to give tenants more of a say on how their properties are governed.

In essence, RTM allows leaseholders to take on the responsibilities and authority that come with managing their property, including:

  • Ensuring the maintenance of the building’s structure
  • Collecting and managing service charges
  • Providing relevant services
  • Arranging maintenance and repair work
  • Undertaking any necessary major works
  • Handling budget and reserve funds
  • Hearing complaints about the building from other leaseholders
  • Ensuring the upkeep of communal areas

Leaseholders will claim their RTM by forming a ‘right to manage company’, which will need to be run like a credible business. Because of this, many leaseholders will hire a property manager or estate agent to run the business on their behalf. Depending on the landlord’s previous arrangements, the company may simply continue employing the property’s current manager.

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How do leaseholders qualify for ‘right to manage’?

It is important to note that RTM does not apply to each and every rental property in the UK. For starters, houses do not qualify - only buildings made up of flats do. 

The property in question must also fit the following criteria:

  • At least two thirds of the flats in the building must be leaseholds, with the leases having been for at least 21 years when they were granted
  • At least three quarters of the building’s floor area must be residential
  • At least half of the flats in the building must be members of the RTM company before it can take over management responsibilities

If there are less than four flats in the block, the landlord must live elsewhere. This rule does not apply if the block is a purpose-built block of flats, rather than a converted building

RTM will not apply if the landlord of any of the qualifying tenants is a local housing authority

There is also a ‘resident landlord exemption’ which will invalidate RTM. In this case, each of the following criteria must apply:

  • The premises must compromise no more than four flats
  • One of the flats must be occupied by the freeholder/ an adult member of their family as their only/ principal home for at least 12 months
  • The premises cannot be a purpose-built block of flats

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How do leaseholders claim their right to manage?

Unfortunately for landlords, leaseholders do not need anyone’s permission to claim their RTM. However, when an RTM company is set up the members must send out a ‘notice of claim’ to:

  • Any relevant landlords
  • Intermediate landlords
  • Parties to any of the leases 
  • Managers appointed under Part 2 of the Landlord and Tenant Act of 1987

Once this notice has been served, the ‘company’ has the right to access and inspect any part of the premises related to the claim. However, they must give at least 10 days’ notice before doing so. 

In short, when a group of tenants claim their RTM, the landlords will have a fair amount of time to let the process sink in before deciding on what to do. You may also be happy to hear that the company must pay for costs incurred by the landlords during the management transfer process, including any legal fees.

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How to dispute RTM

While you cannot simply refuse when a group of tenants wishes to start an RTM company, there are a few ways to dispute their RTM under specific circumstances.

Your first option is to dispute the notice of claim by serving a counter-notice to the company. The exact deadline for doing so will be specified on the notice of claim, though it must be at least one month from when the company served it to you. 

In order for your counter-notice to be relevant, it must focus on at least one of these reasons:

  • The RTM company doesn’t comply with legal requirements
  • The RTM company doesn’t represent at least half the flats in the building
  • The building does not qualify for RTM

Keep in mind that these are the only relevant reasons for disputing an RTM claim. 

If the company believes your response is unfair, it can apply to the Leasehold Valuation Tribunal (LVT) within two months of receiving your counter notice. The tribunal will then reach a final decision on the matter.

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Accepting right to manage

Your second option is to simply accept the notice of claim. Whether you choose to do so or the LVT decides against your counter-notice, management of the building will transfer to the RTM company after a certain point. 

The exact date when the company takes over is known as the ‘date of acquisition’. This could be:

  • Three months after the LVT’s decision if you disputed the claim and failed
  • Three months after the agreement you made if you withdrew your dispute and came to a deal with the RTM company
  • On the date given in the notice of claim (if you accepted)

On this date you must transfer any remaining funds you have from service charges to the company as soon as possible.

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What does ‘right to manage’ mean for landlords?

The first thing to get out of your head is the idea that accepting an RTM company’s notice will leave your property in the hands of people with no plan or experience. While Right To Manage means giving up some of your responsibilities as a landlord, it can also leave you in a more relaxed position once the company is up and running.

Firstly, an RTM company must be run as an actual company, with ‘officers’ taking on the roles of directors to manage budgets and ensure that everything in the property meets with legal requirements. Officers must also keep themselves open to criticism from residents and hold regular meetings.

Crucially, an RTM company must have Articles of Association to govern their purpose and day to day operations. Furthermore, these articles must match provisions prescribed by the law.

That said, the RTM company will not need to produce a budget or business plan for the landlord’s inspection.

Secondly, the formation of an RTM company does not mean that decisions can be made without at least informing the landlord first. 

The company must still give you 30 days’ notice for:

  • Approving a sublet
  • Approving a new charge to leaseholders
  • Approving an assignment (selling or transferring a flat to someone else’s name)

Depending on what the leases say, the company may also need to give you 30 days’ notice before approving:

  • Changes to the structure of the building
  • Changes to the use of the building

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For anything else, they must tell you at least 14 days in advance.

Thirdly, an RTM company cannot let the building it manages fall into disrepair. For example, it cannot let the structure deteriorate or cut essential services. It will also need to comply with a government-approved code of management practices, produced either by RICS or the Association of Retirement Housing Managers.

More than likely, the company will still need help from the building’s landlords, at least at first. You will need to provide certain information on the day to day running of the building so that it can continue, including any current contracts or accounts relating to its care. You must also hand over any unspent funds, such as those collected for service charges.

Depending on how much property management experience the RTM company actually has, it may well ask for more help, such as asking for the details of a professional property manager. If the building is currently serviced by employees of the landlord or property management company, they must be kept on by the RTM company.  

It is certainly worth lending advice wherever you can, especially if the building in question in particularly large. Information on insurance arrangements, maintenance contracts and the building’s overall state of repair will be highly valuable and, considering you will still be profiting from rental payments, certainly worth sharing.  

Fourthly, and lastly, even if the RTM company does not want your help, it cannot shut you out of the decision making process. Landlords and intermediate landlords will have the right to join the company and be assigned votes based on the number of units which they hold.

These votes will be allocated pro-rata based on the number of landlords. For example, if two landlords had interests in a single flat, there would be two votes for that unit. However, every leaseholder with sole interest in their unit would also have two votes in order to make it fair.

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Ending a right to manage company

While technically there is no time limit for an RTM company, they can still be closed down in certain circumstances.

These include:

  • By agreement with the landlord
  • Through the collapse of the company
  • Through the appointment of a manager to run the building instead