Qualification for the Right to Manage
is relatively straightforward in procedural terms, but from
a practical point of view exercising the right carries a number
of obstacles and pitfalls. No-one embarking upon the process
should be in any doubt that they are setting off on a long
and arduous road to achieve RTM, and possibly an even more
tortuous journey to sustain it. It is vital that as much as
possible is prepared from the word "go".
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
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
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.
Premises qualify if:
· They are a self-contained building or part of a
building, with or without appurtenant property.
· Self-contained" effectively means structurally
· 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
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
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
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.
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
This notice (under section 78 of the 2002 Act) is a mandatory
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
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.
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.
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
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
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
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
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.
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
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
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
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
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
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.
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
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.
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
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
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.
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'
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
Meanwhile, recipients of Contractor
Notices are required to give Contract Notices to the RTM
company in relation to sub-contractors.
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").
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
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
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
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
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
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
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
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
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
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).
are members, article 39 provides a complex allocation of
· 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
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
· 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
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
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.