How to Form a Right to Manage Company
Taking control of your building’s management provides leaseholders with autonomy, transparency, and peace of mind. The Commonhold and Leasehold Reform Act 2002 empowers qualifying tenants to collectively assume management responsibilities from their landlord. This legal pathway, known as the Right to Manage (RTM), allows you to make decisions about maintenance, repairs, and insurance without needing to buy the freehold or prove any fault on the landlord’s part.
Navigating the RTM process requires strict adherence to statutory procedures and a clear understanding of corporate governance. One misstep can invalidate your claim and result in costly delays. This comprehensive guide outlines the precise steps you must take to form an RTM company, the risks involved, and the documentation you need to prepare.
Understanding the Eligibility Criteria
Before initiating the RTM process, you must verify that both your building and the leaseholders meet specific statutory criteria. The legislation outlines strict rules regarding who can participate and which properties qualify.
The premises must be a self-contained building or a clearly defined part of a building. It must contain at least two flats held by qualifying tenants. Furthermore, qualifying tenants must hold at least two-thirds of the flats in the building.
A qualifying tenant is someone who holds a long lease, generally defined as a lease granted for a term exceeding 21 years. This category also includes perpetually renewable leases and certain shared ownership leases where the tenant owns 100% of the property. Business tenancies and underleases granted in breach of a superior lease do not qualify. Additionally, there can only be one qualifying tenant per flat, meaning joint tenants qualify together as a single unit.
To proceed with the claim, at least half of the qualifying tenants in the building must agree to participate and become members of the RTM company. If your building contains only two qualifying tenants, both individuals must participate.
Step-by-Step Guide to Forming an RTM Company
Acquiring the right to manage is a structured legal process. You must follow these exact steps to ensure a successful transfer of management functions.
1. Establish the RTM Company
The first official step involves incorporating the RTM company. You must register this entity as a private company limited by guarantee under the Companies Act 2006. This specific corporate structure protects members from personal financial liability beyond a nominal guaranteed amount, usually just a few pounds.
Membership in the RTM company remains open to all qualifying tenants of flats in the building. Once the company officially acquires the right to manage, the landlord also becomes entitled to membership. You must ensure the company’s registration documents explicitly state that its primary object is the acquisition and exercise of the right to manage the specified premises.
2. Serve the Notice Inviting Participation
Before you can make a formal claim to the landlord, you must invite all eligible tenants to join the initiative. The RTM company must serve a formal “notice inviting participation” to all qualifying tenants who are not already members of the company.
This document must follow a prescribed statutory format. You must serve this notice at least 14 days before issuing the formal claim notice to the landlord. This waiting period gives other leaseholders a fair opportunity to review the proposal, understand their potential liabilities, and decide whether they want to participate in the new management structure.
3. Issue the Claim Notice
Once you achieve the required participation threshold and the 14-day waiting period expires, the RTM company can serve the claim notice. You must serve this notice on the landlord, any other party to the lease, and any manager previously appointed by a tribunal.
The claim notice is a critical legal document that triggers the formal transfer process. It must specify two crucial dates. First, it must set a deadline for the landlord to serve a counter-notice, which cannot be earlier than one month after you serve the claim notice. Second, it must specify the target acquisition date, which must be at least three months after the counter-notice deadline.
4. Handle Counter-Notices and Tribunal Applications
Landlords have the legal right to dispute your claim by serving a counter-notice. They usually base these disputes on technical grounds, such as arguing that the building does not qualify or that the RTM company failed to follow the correct procedures.
If the landlord issues a counter-notice disputing the claim, the RTM company must apply to the First-tier Tribunal (Property Chamber). The tribunal will evaluate the evidence and determine whether the company is legally entitled to acquire the right to manage. This process requires robust legal arguments and precise documentation.
5. Acquire the Right to Manage
If the landlord does not dispute the claim, or if the tribunal rules in your favour, the RTM company automatically acquires the right to manage on the date specified in the claim notice. At this point, the landlord’s management functions officially transfer to the RTM company.
Your new company now assumes full responsibility for the day-to-day operations of the building. This includes collecting service charges, arranging insurance, scheduling maintenance, and ensuring compliance with fire safety and health regulations.
Understanding the Risks Involved
While taking control of your building offers significant benefits, it also introduces substantial liabilities. You and your fellow leaseholders must fully understand these risks before proceeding.
Procedural Errors
The RTM process is highly technical and unforgiving of mistakes. Failing to comply with statutory requirements will almost certainly invalidate your claim. Common pitfalls include serving notices in the incorrect format, missing strict statutory deadlines, or failing to accurately identify all relevant parties who must receive notices. If your claim fails due to procedural errors, you will likely have to start the entire process over, wasting valuable time and money.
Landlord Disputes
Landlords often resist RTM claims. They may scrutinise your paperwork looking for technical flaws to exploit. Defending a disputed claim at the tribunal can be incredibly time-consuming and expensive. You will likely need to cover legal fees and administrative costs to fight these disputes, which can strain relationships and deplete the initial funds collected from participating leaseholders.
Financial and Operational Responsibilities
Once you successfully acquire the right to manage, the real work begins. The RTM company becomes entirely liable for the building’s upkeep. You must manage a budget, arrange comprehensive building insurance, oversee complex repair projects, and enforce tenant covenants.
Your management team must ensure the company collects enough service charges to maintain sufficient cash flow. If major unexpected repairs arise, such as a failing roof or a broken elevator, the RTM company must coordinate the necessary major works consultations and gather the funds. Members must honestly assess whether they possess the time, financial resources, and operational expertise to fulfill these heavy obligations.
Corporate Governance Documentation
Proper corporate governance is the backbone of a successful RTM company. You must prepare and maintain specific legal documents to ensure compliance and smooth operations.
Articles of Association
The Articles of Association act as the company’s internal rulebook. For RTM companies, these articles must strictly comply with the Commonhold and Leasehold Reform Act 2002 and specific model article regulations. These mandatory provisions override any inconsistent rules you might try to draft.
If the company wishes to amend its articles after incorporation, it must pass a special resolution requiring at least a 75% majority vote from the members. You must file any amendments with the relevant corporate registry within 15 days, ensuring they do not conflict with mandatory statutory provisions.
Membership Records
Accurate record-keeping is a legal requirement. The RTM company must maintain an up-to-date register of members. Because membership is tied to property ownership, this register fluctuates as people buy and sell flats within the building. If a member sells their flat and ceases to be a qualifying tenant, they immediately lose their membership status. You must meticulously track these changes to ensure all voting and decision-making processes remain legally valid.
Management Agreements
Very few RTM companies manage the day-to-day operations themselves. Most choose to hire a professional managing agent. The RTM company must negotiate and execute formal management agreements with these professionals. Furthermore, you will need to sign clear, legally binding contracts with service providers, such as cleaning companies, maintenance contractors, and utility providers.
Why You Need Specialist Legal Advice
Forming an RTM company is not a standard administrative task; it is a complex legal transfer of power. The legislation governing this process features numerous technical hurdles, strict timelines, and precise documentation requirements.
We strongly recommend securing specialist legal advice before you even hold your first leaseholder meeting. A qualified property lawyer will assess your building’s eligibility, draft the prescribed notices perfectly, and guide you through the intricate corporate governance requirements. Legal professionals also provide invaluable support if the landlord issues a counter-notice, representing your interests effectively at the tribunal.
Taking control of your building is a rewarding endeavor that protects your investment and improves your living conditions. By partnering with experienced legal counsel, you can navigate the risks, ensure statutory compliance, and build a solid foundation for your building’s future.
