Which leaseholders qualify?
Subject to a few exceptions, any long leaseholder of a residential flat will qualify whether or not he/she lives at the premises and regardless of how long he/she has owned it. A long lease is a lease with a term of over 21 years.

How must leaseholders be organised?
There must be an RTM company set up for the sole purpose of acquiring the Right to Manage and, by the time a claim notice (see step 4) is served on the landlord, at least 50% of the qualifying leaseholders must be members of that company.

Joint tenants of a flat count as one; in other words there can be no more than one qualifying tenant per flat. If there are only two qualifying flats, the leaseholders of both flats must be members.

Which premises qualify?
Premises qualify if:
· They are a self-contained building or part of a building, with or without appurtenant property.
· Self-contained" effectively means structurally detached.
· Qualifying tenants hold two or more flats at the building. ("Tenant" means the same as "leaseholder" or "lessee" for the purposes of the 2002 Act.)
· The total number of flats held by qualifying tenants makes up at least two-thirds of the flats in the building.
· No more than 25% of the internal floor area is used for non-residential purposes.
· The landlord is not a local housing authority.
· RTM has not already have been exercised in the previous four years.
There are a few more obscure exceptions, particularly if the landlord is resident at the building. If you are in any doubt, ask a lawyer to check the facts against the criteria of section 72 and Schedule 6 of the 2002 Act.

What about estates of more than one building?
Even though an estate with a number of buildings may be under common management, or have a common service charge fund, RTM may be exercised in respect of just one of the buildings, or any of them independently.

Additional complications will arise in such circumstances however (especially as regards common amenities and services and accounting), and it would best if the leaseholders of the various buildings worked together, or at least if maximum co-operation can be obtained from the landlord or current manager.

Why is setting up the company the first step?A Right to Manage company, set up in accordance with the Act, is the only vehicle allowed to exercise the new right to manage. Of course, there is nothing to prevent groups of leaseholders negotiating outside the Act to come up with an alternative format. This is achieved most frequently by purchasing the freehold, or entering into a head-lease.

Such a step however will not enable the leaseholders to use the machinery under the Act, and no alternative mechanism would have the statutory force of an RTM company. What sort of company complies?The Act lays down that an RTM company must be limited by guarantee (as opposed to shares), and it should use the prescribed form of Memorandum and Articles of Association.

These are set out by Statutory Instrument (2003 2120) which can be accessed at www.hmso.gov.uk. It will not be an RTM company if it owns the freehold or if there is already an RTM company in respect of the same premises. Who can help?It is essential to ensure that the company complies with the 2002 Act and its Regulations, otherwise the attempt to exercise RTM will fail. Consequently, it is preferable to obtain advice and assistance in setting up the company. A range of professional advisers could assist: lawyers, accountants and company agents for example Jordans.

Companies House can help. Alternatively, if the leaseholders intend to appoint managing agents to act on their behalf, they are likely to be in a position to guide the leaseholders, or set the company up themselves. How many original members are needed?

By the time the claim notice is served, the company must include at least 50% of the qualifying leaseholders. Since there will be little point in pursuing the matter unless there is confidence that the numbers will be sufficient by the time of the claim notice, it may be as well to have as many original members of the company as possible, if only to cement the commitment of leaseholders.

Two is the bare minimum for setting up a RTM company. Note: If RTM is acquired then the landlord is entitled to membership of the RTM company from the acquisition date. What codes of practice apply to RTM companies?RTM companies are not strictly required to sign up to a code of practice. If they employ managing agents, the agents should comply with one or more of the relevant codes of the RICS (Royal Institution of Chartered Surveyors), ARHM (Association of Retirement Housing Managers) or ARMA (Association of Residential Managing Agents).

If professional agents are not employed, RTM company directors should make themselves aware of the provisions of these codes. If their standards of management are challenged, it is usual for these codes to be seen as a yardstick. In any event, the codes of practice supply a useful guide to how a block of flats should be managed.

Management

So, you have decided to take control of the way your building is managed and have started out along the legal path to Right to Manage (RTM), helped by the questions and answers in the Legal section of righttomanage.co.uk
Before you go any further, give some thought to how you want the building to be managed in future:
· What improvements will RTM enable you to make? Have you identified what is actually wrong at the moment - and prioritised what you want to change.

· Are people's expectations aligned and realistic? If one person expects a wholesale refurbishment and the other is looking for lower service charges, you may be in for a battle!

· Will you be adding value to individual leaseholder investments or just creating a lot of work for a few hardy volunteers? Surveys by flats insurance specialist Deacon show that management comes down to very few people at the end of the day - and that they usually feel that their efforts are rarely valued or appreciated by co-lessees!

· Will the current enthusiasm still be there when there are drains to clear, noisy neighbours to reason with and service charge budgets to account for? There are many boring, repetitive jobs that you will be legally required to do - or to arrange to have done.

You will also need to give notice to anyone engaged on a long-term contract (over 12 months) be they the current managing agent, the gardener or the door entry system provider.

This will apply whether you intend to dispense with their services or re-engage them under the auspices of the new RTM company

To whom is the notice given?
This notice (under section 78 of the 2002 Act) is a mandatory stage.
The RTM company is required to serve it on every qualifying tenant who has not already joined or agreed to join the company. Since "agreed to join" may be open to interpretation, it would be prudent simply to serve it on any leaseholder who has not actually taken up membership.

What form does it take and what information must be included?
The notice is in a prescribed form and has prescribed contents. The prescribed contents are listed in Statutory Instrument 2003 1988 which can be viewed at www.hmso.gov.uk. The prescription for the form is reproduced here.

Additionally, the notice must be accompanied by a copy of the company's memorandum and articles of association, or details of how and where they may be inspected or copied.

How may it be served?
The Notice Inviting Participation (as with other notices under the 2002 Act) may be sent by post or served at the flat unless the qualifying tenant has notified the RTM company of an alternative address for service in England or Wales.

Must respondents be included in the company?
Each qualifying tenant is entitled to join the company, and must be admitted to membership if they apply to join, as long as they are prepared to give the necessary guarantee (probably, simply to pay £1 if called upon to do so).

What are the consequences of errors in the preparation or service of the notice? Section 78(7) of the 2002 Act states:
"A notice of invitation to participate is not invalidated by any inaccuracy in any of the particulars required by or by virtue of this section". This should not be taken as licence to make deliberate or careless mistakes!

A notice which does not comply properly with its fundamental requirements may lead subsequently to the whole process of RTM being challenged for lack of validity and possibly disallowed. If so, the participating leaseholders will lose time and money, and have to start again from scratch several months down the line. Moreover, such a reverse may see support evaporating among a crucial number of leaseholders.

What information is the company entitled to at this stage?
Section 82 of the 2002 Act entitles an RTM company to information which it reasonably requires for the purpose of ascertaining the particulars it needs to complete the claim notice which formally advises the landlord of its intentions.

As will be seen below under Step 4, this information is limited and will largely relate to details of the leases affecting the premises and the parties to those leases. The company may request facilities to inspect records "in a readily intelligible form" and, for a reasonable fee, copies.

From whom may it be requested?
The information may be requested from "any person". "Any person" is not defined by the Act. No doubt it includes the landlord's managing agents. The definition could conceivably stretch to the landlord's solicitors or accountants. All that can be requested is information in the relevant person's possession or control.

What if there is no satisfactory response?
The recipient of a request for information under section 82 is required to comply with it within 28 days. If necessary, the county court can enforce a request, and penalise the recipient in costs.

What are the risks of asking now?
The right to information under section 82 arises before service of the claim notice. Accordingly, receipt of it would constitute an early intimation that leaseholders are intending to exercise the Right to Manage.

Secondly, a request which asked for a good deal of information about a number of leaseholders would give the landlord a clue that the RTM company has yet to achieve widespread support, and give him the opportunity to attempt to deploy counter-measures.

Thirdly, without sight of the claim notice, the landlord will have had no opportunity yet to assess the validity of the claim. He may suspect a fishing expedition, and use this to buy time.

How might information be obtained without warning the landlord of impending RTM?
There are a number of possible alternative sources of information. Principally, details of the leases and, to a certain extent, the parties, can be obtained from H M Land Registry. Failing that, the simplest approach may be just to ask leaseholders (or their sub-tenants) direct. If they do not possess the information required, their solicitors or mortgage lenders will.

When may it be served?

The claim notice under section 80 of the 2002 Act (which is the formal notification of the claim to exercise the Right to Manage) can only be served:
· At least 14 days after the Notice Inviting Participation.
· When the membership of the RTM company has reached at least 50% of the qualifying tenants. For this purpose, joint tenants of a flat count as one; in other words, there can be no more than one qualifying tenant per flat. If there are only two qualifying flats, the leaseholders of both flats must be members.

Upon whom is it served and how?

The claim notice has to be served upon:
· Any landlord under a lease of all or part of the premises (which would include head landlords and head-lessees).
· Any third parties to such leases (which might include a residents' management company).
· Any Manager who had been appointed by the court or LVT.
Copies must also be sent to all qualifying tenants (whether or not they are members of the RTM company). If a Manager had been appointed, a copy must go to the court or LVT who appointed him.

The notice may be served by post. So far as qualifying tenants are concerned, the rules for service are the same as for the Notice Inviting Participation. With the landlord, service may be effected at the last address for service notified by him to a member of the RTM company, unless he has notified the RTM company of an alternative address for this purpose (in which case, that address must be used so long as it is in England or Wales).

What form does it take?
The notice is in a prescribed form and has prescribed contents. The prescribed contents are listed in Statutory Instrument 2003 1988 which can be viewed at www.hmso.gov.uk. The prescription for the form is reproduced here.

What information must it include?
The contents of the form will be clear from the sample form. One point which needs special attention however is the computation of the acquisition date. The acquisition date is the date upon which the Right to Manage is acquired, and thus the date when management responsibilities are transferred to the RTM company. Although subsequent events can change the date, the claim notice should be prepared on the basis that the acquisition date inserted will be effective.

The acquisition date must be at least 4 months from the claim notice. It can be later, but no earlier. From a practical point of view, there are some dates which should be avoided. Most obviously, Christmas and other public holidays would be impractical; it would also be wise to keep clear of crucial anniversaries, such as the annual renewal date for insurance - otherwise there may be a risk of finding the property uninsured on the first day of RTM, and key dates for other contracts for essential supplies or maintenance.

Should it be registered?
Section 104 of the 2002 Act enables a caution to be registered against the freehold title at H M Land Registry to warn potential purchasers of the exercise of RTM at the premises. At the end of September, however, section 104 was not yet force.

How long does the landlord have to respond?
The claim notice must include a date, at least a month afterwards, by which the landlord or any other recipients may respond with a counter-notice. Any counter-notice served after that date will be ineffectual.

What if the whereabouts of the landlord are unknown?
Section 79(7) of the 2002 Act clarifies that the claim notice need not be served on any parties who cannot be found or identified. If, however, this means that no relevant parties can be found, section 85 provides a procedure for applying straight to the LVT (Leasehold Valuation Tribunal) to determine whether the claim to RTM should succeed.

What is the position regarding costs?
The RTM company is liable to the landlord (and any third parties to the leases and any manager appointed by the court or LVT) for their reasonable costs following service of a claim notice. It will also be liable for costs if the LVT subsequently dismisses the claim. What costs are reasonable is to be determined by the LVT, in the event of disagreement. If RTM ceases or is withdrawn or deemed to have been withdrawn, the costs liability is shared by the company and its members individually on a joint and several basis.

Can the landlord dispute the claim and on what grounds?
As the Right to Manage is exercisable without proof of fault on the part of the landlord, the only ground upon which the landlord can dispute the claim therefore is validity. To oppose the claim, the landlord must assert that the claim does not comply with the 2002 Act.

On receipt of the claim notice, the landlord has three choices:
· Take no action.
· Serve a counter-notice admitting the claim.
· Serve a counter-notice disputing the company's entitlement to RTM.
It is only necessary for the RTM company to show it was entitled to RTM on the date of the claim notice. The landlord cannot oppose it if, for example, membership subsequently falls to fewer than 50% of qualifying tenants.

When must the landlord serve a counter-notice?
The counter-notice must be served by the date specified for the purpose in the claim notice (which must have been at least a month after the notice is served), or not at all.

What is its effect?
Either a counter-notice admitting the claim or the absence of a counter-notice will mean that RTM will be acquired on the acquisition date shown in the claim notice which will be not less than four months after the original claim notice is served . A counter-notice alleging a dispute will put a hold on RTM, at least temporarily. It will also render the planned acquisition date null and void.

Can a counter-notice be withdrawn?
A counter-notice can be withdrawn simply by the person who gave the counter-notice admitting in writing the entitlement to RTM. If that happens, the acquisition date will then be fixed at the date three months after the written admission. To a certain extent, a landlord serving a counter-notice can take control of the date upon which RTM is acquired.

What should the RTM company do if it receives a counter-notice?
The first step on receipt of a counter-notice should be to check its contents. If its assertions are correct, the claim notice should be re-drawn or abandoned, as appropriate.

The prescribed contents for a counter notice are listed in Statutory Instrument 2003 1988 which can be viewed at www.hmso.gov.uk. The prescription for the form is reproduced here.

If however the RTM company remains convinced of its entitlement, and unless the counter-notice is withdrawn, the company must apply to the LVT to determine the issue. The application must be made within two months or the claim to RTM will be deemed to have been withdrawn.

Obtaining further information
Under section 93 of the 2002 Act, the RTM company may serve a request for information upon landlords, third parties to the leases or any Manager appointed by the Court or LVT. The entitlement at this stage is to information reasonably required in connection with the exercise of RTM. Consideration needs to be given to what information may be required. Accounts and details of contracts are dealt with separately.

Information must be supplied within 28 days after the request, but not before the acquisition date. It would be wise therefore to make the request at least 28 days before the acquisition date. Does this make sense?

The company also acquires a right of access to the premises, which may be particularly useful in relation to common parts and structure. Exercise of the right of access may be delegated to an appropriate agent: for example, a surveyor.

Budgeting
The RTM company will be responsible for fulfilling the management responsibilities for the building immediately from the acquisition date. Funds may be limited, so it would be advisable to carry out a budgeting exercise comfortably before the acquisition date to determine priorities and ensure essential works and services are maintained.

Who is to manage the building?
As information starts to flow in following service of the claim notice, the RTM company may wish to re-think who is best placed to deliver management services after the acquisition date. It may already have decided to employ managing agents for this purpose.

Generally, commentators and advisory bodies are now agreed that RTM companies should be encouraged to appoint managing agents, both in their own interests and in the interests of leaseholders generally. Managing a block of flats is never straightforward, and is not an endeavour which should be undertaken lightly. Names of managing agents may be obtained through a number of means: advertisements; the Leasehold Advisory Service (LEASE); professional bodies and trade associations such as the Association of Residential Managing Agents (ARMA) or the Association of Retirement Housing Managers (ARHM); or, perhaps best of all, recommendation by other leaseholders or RTM companies.

Contractors
The legal position affecting existing contracts after the exercise of RTM is full of complexity. The generally accepted view is that contracts will terminate on the acquisition date. Consequently, so will works and services provided under those contracts.

RTM companies will be given an opportunity to enter negotiations with existing contractors if they wish to do so. In any event, to ensure continuity of supply, RTM companies should have contractors ready to go from the acquisition date.

Funding
Although RTM companies will be entitled to take over any unexpended credit balances in service charge funds, they will not know until or after the acquisition date how much will be available (if any). Neither will the company be able to collect service charge contributions from day one.

It is essential therefore that any RTM company should take steps well before acquisition to ensure that it has sufficient funding, at least for essential works and services and at least for a lead-in period of several months.

Maintenance programme
It is foreseeable that the landlord will have been scaling down his commitment to repairs and maintenance programmes from the point at which he became aware of impending RTM. It is unlikely that an RTM company will have the luxury of coming into management with little or nothing outstanding.

Accordingly, the company should prepare a realistic maintenance programme for implementation immediately from the acquisition date.

Insurance
Depending upon the proximity of the renewal date for buildings insurance to the acquisition date, the RTM company may need to have alternative insurance ready, possibly simply by confirming with the current insurer that the landlord's cover can be continued.

RTM company directors should also ensure that they have adequate cover for directors' and officers' liability, public liability and (if appropriate) employers' liability.

Knowing the leases
Generally, what the RTM company can or cannot do, and what it can and cannot recover will be governed by the terms of the leases. The company and its advisers should familiarise themselves with the contents and effects of the leases concerned (including any leases which affect the premises other than the qualifying flats).

Notice to contractors
From the "determination date", the landlord must give notice to any existing contractors who provide services in relation to the premises (including managing agents for example) that RTM is being exercised. The "determination date" is either the date by which counter-notice was to have been served, or the date of written admission of the entitlement to RTM after a counter-notice, or the date the entitlement was determined by the LVT. The notice advises contractors to contact the RTM company, if they so wish.

Notice of contracts to the RTM company
Also from the determination date, the landlord or manager must give notice to the RTM company detailing the existing contracts which apply at the premises. Once again, the notice advises the RTM company to contact the contractors, if it so wishes.

Meanwhile, recipients of Contractor Notices are required to give Contract Notices to the RTM company in relation to sub-contractors.

Provide information
The landlord is required to provide such information as is requested by the RTM company under section 93 of the 2002 Act (see above under "obtaining information").

Accounts
Under section 94, the landlord is obliged to transfer to the RTM company any "accrued uncommitted service charges". The duty arises on the acquisition date or as soon afterwards as reasonably practicable. Any dispute concerning the amount is to be determined by the LVT.

To carry out this obligation, the landlord will need to take a full account of service charge income and expenditure up to the acquisition date. As part and parcel of this process, he will no doubt wish to ensure that he has up-to-date billing from all his contractors before he hands over any residual balance. RTM companies can anticipate that this will take some time, and may result in a lower amount than envisaged being transferred to their trusteeship.

When is RTM acquired?
To summarise the position:
· If no counter-notice was served, or a counter-notice admitted the entitlement to RTM, the acquisition date will be that stated in the claim notice (at least four months after the claim notice is served).
· If a counter-notice disputing the claim was served, but subsequently withdrawn by written admission of entitlement, it will be three months from the written admission.
· If the question had to be determined by the LVT, it will be three months from the LVT's final determination (or any appeal).
· If the LVT had to determine the claim in the case of an absent landlord, it will be such date as ordered by the LVT.
Accordingly, RTM will be acquired at least four months after the service of the claim notice, and possibly several more months later if the claim was disputed.

What are the company's duties then?
From this point the RTM company will be responsible for the performance of the landlord's management covenants in the leases (e.g. for maintenance, repair, insurance, accounting and management). The company's duties are owed to all leaseholders, the landlord and any third parties to the leases.

What happens to existing management contracts?
Existing contracts relating to the landlord's management covenants are terminated on the acquisition date, unless the RTM company has entered into its own direct agreements with the contractors.

What happens to service charge funds?
Any credit balance standing to the service charge fund is to be transferred to the RTM company on or as soon as reasonably practicable after the acquisition date. The RTM company is statutorily required to administer such funds as trustees in accordance with section 42 of the Landlord and Tenant Act 1987.

The 2002 Act also introduces other new requirements for service charge accounting, but they were not in force at the end of September when RTM came into effect.

What is the position of common parts and non-residential units?
The RTM company's management responsibilities extend only to such parts of the premises which relate solely or partly to the qualifying flats. The remainder is still under the landlord's management.

RTM companies and landlords would be well advised to establish machinery for dealing with overlapping areas as early as possible. In particular, care will need to be taken over the accounting for such areas.

What are the landlord's rights?
The landlord continues to hold the power of forfeiture (although it is severely restricted by other measures in the 2002 Act), and the RTM company has a duty to monitor and report any breaches of leaseholders' covenants.

The RTM company assumes the landlord's primary role in relation to approvals, licences and consents, but the landlord may exercise a veto (with the LVT determining any disputes).

With regard to the RTM company's performance of his management covenants, the landlord is placed similarly to a leaseholder, in that he may sue for non-performance or make applications to the LVT for determination of service charges or the appointment of a Manager.

Finally, the landlord is entitled to membership of the RTM company from the acquisition date.

How does voting work?
The formula for voting rights in the RTM company are laid down in its prescribed articles of association. If and when there are no landlord members of the company, each qualifying flat is awarded one vote (which is to be exercised by the qualifying tenant of the flat).

Where landlords are members, article 39 provides a complex allocation of votes:
· Each residential unit receives the same number of votes as there are landlord members of the company.
· If there are any non-residential parts of the premises, each such unit shall be awarded votes equal to the votes of the residential units multiplied by a factor which is calculated by dividing the internal floor area of the non-residential parts by the internal floor area of the residential parts. The non-residential votes are then exercised by the immediate landlord of those parts (which may be the freeholder).
· The votes for the residential units are allocated to the qualifying tenants for those units or, if there are none, by the landlord for those units. If however there is no lease for such a unit, it will have no votes.
· Any landlord who is not entitled to a vote by any of the above provisions shall be awarded one vote.

The respective duties of the landlord and the RTM company The RTM company raises and collects service charges due from the acquisition date, but the landlord remains responsible for collecting any prior service charges. In the event that the service charge proportions for qualifying flats do not add up to 100% of the total expenditure required under the leases, the landlord is obliged to meet the shortfall. Enforcing leaseholders' covenantsThe RTM company is required to monitor the performance of leaseholders' covenants, and report any breaches to the landlord; but the landlord is not obliged to act upon them. The RTM company may enforce the covenant to pay service charges through debt recovery means, but only the landlord may use or threaten forfeiture. The same applies to other breaches, save that it may be appropriate for the RTM company (or indeed other leaseholders) to use alternative remedies such as injunctions.

What events lead to cessation?
RTM may be brought to an end by a number of circumstances:
· An agreement between the parties.
· Withdrawal or deemed withdrawal of the claim.
· Insolvency of the RTM company (which is a considerable risk if the company is unable to bring in service charge income or faces law suits by the landlord or individual leaseholders).
· The company being struck off the register or dissolved.
· A Manager being appointed by the LVT.
· The company ceasing to be an RTM company (for example, by acquiring the freehold).
What is the position afterwards?
In the event that RTM ceases to apply, the covenants under the leases remain unchanged. Consequently, it is likeliest that the landlord will still be liable on his covenants and will thus have to resume management.

Alternatively, if either the first or one of the last two cessation events has occurred, future management will have already been dealt with effectively.

No new RTM company may attempt to exercise the right for four years after a previous RTM has come to an end.

What liabilities may be owed by RTM company directors and members?
RTM company members will be jointly and severally liable with the company for the landlord's costs flowing from the claim if RTM ceases or has been withdrawn or deemed to have been withdrawn.

Directors may face additional personal liabilities if the RTM company becomes insolvent and they are held to have carried on trading in the knowledge that the company was insolvent. This is a risk against which RTM company directors may care to insure.

In these circumstances, it is vital that leaseholders considering exercising the Right to Manage should make themselves aware of the possible consequences of things going wrong and take all possible steps to prepare, using professional advice and assistance where available.