Information for Leaseholders about Right to Manage

In this page we share information for Anchor leaseholders about the qualification requirements and process to follow if you wish to exercise the Right to Manage (RTM).

What is the ‘Right to Manage’ (RTM)?

The Commonhold and Leasehold Reform Act 2002 gives leaseholders in a building containing flats the right to take over the landlord’s management functions by forming a company set up by them - a Right to Manage (RTM) company.

The right to manage isn’t available to leaseholders of houses.

Whilst most RTM companies will decide to appoint a managing agent to manage the development on their behalf, this is not a legal requirement. The RTM company could decide to manage the development itself.

Leaseholders wishing to exercise the right to manage do not need to prove that there has been any mismanagement by the landlord, nor do they need the landlord’s consent. In addition, the landlord can only object to leaseholders exercising the right to manage on the following grounds:

the building does not qualify; or
the RTM company does not comply with the legislative requirements; or
the members of the RTM company do not represent half the flats in the building.

There are qualification requirements and a process to follow that is broadly set out below. If Anchor leaseholders wish to exercise the RTM then we advise they seek their own legal advice.

Qualification requirements for Right to Manage

The building must meet certain conditions and a minimum number of leaseholders are required to take part as follows:

The building containing at least 2 flats.
At least two-thirds of the flats in the building must be owned by ‘qualifying leaseholders’ (leaseholders whose lease was first granted for longer than 21 years).
The RTM company must comprise residents of at least half of the flats in the building.
The building does not qualify for RTM if the non-residential areas, eg shops, make up more than 25% of the whole floor area of the building.
The right relates to individual buildings, so in an estate of separate blocks, each block would need to qualify separately and form a RTM company. In practice, where there are a number of blocks on an estate, the RTM companies will most likely decide to collectively manage/appoint a managing agent to manage on their behalf. Because the right relates to individual buildings, it is possible that at an estate comprising more than one block of flats, residents living in only one block may decide to exercise the right to manage. In such circumstances, it is extremely important that the RTM company and the Landlord enter into a legally binding agreement, which sets out which party will be responsible for the management of common parts of the wider estate.

Procedure for Right to Manage

Participating leaseholders must set up an RTM company. The right to manage is exercised by the company, not by the individual leaseholders, and so cannot be put into practice without the formation of the company. The RTM company must have an Articles of Association which govern the purpose and running of the company.
Any number of qualifying leaseholders may set up the RTM company; it does not require the full number of participants at this stage, simply enough participants to provide a chairman, some directors and a secretary.
Once the RTM company has been registered, with its original members, it must then serve a Notice of Participation on the rest of the qualifying leaseholders. All qualifying leaseholders are entitled to become members of the RTM company and no one can be excluded for any reason.
The right is exercised by serving a Notice of Claim on the landlord no earlier than 14 days after the service of the Notice of Participation.
The landlord may serve a counter-notice within one month. It is limited to either admitting that the RTM company is entitled to acquire the right to manage or alleging that the company does not have the right (and in such case provide reasons to support the allegation).
If the landlord disputes the claim, the RTM company can apply to the First-tier Tribunal (Property Chamber) within 2 months to request a decision as to whether it has the right to acquire the management of the development.
If the landlord admits the right, the RTM company will acquire the right to manage from the date specified in the Notice of Claim (this cannot be earlier than 3 months after the deadline for the counter notice to be served).
After the acquisition date, the landlord is entitled to apply to become a member of the RTM company and will have full voting rights as a company member.
The landlord is responsible for providing RTM company with details of existing contracts which are in place at the development. The landlord must also notify all contractors that the management of the location is to be transferred. The RTM company is not obligated to continue using any contractors which were appointed before it acquired management. However, if it wishes to continue to engage any contractor previously providing services, the RTM company must enter into its own agreements.
The right to manage, once acquired, is not subject to any time limit and will continue until it is terminated. From this point onwards, the Landlord has no involvement in the day to day management of the location.
Staff providing services on an estate where the RTM is exercised are normally subject to TUPE rights.
Any Sinking Fund/Reserve Fund held by the Landlord must be transferred over to the RTM company.

Management of appurtenant property

Any land and common parts over which residents exercising the right to manage have rights to use is defined within the legislation as ‘appurtenant property’. This means that if for example, only residents of one block of flats at a location comprising multiple blocks exercise the right to manage, the RTM company will still acquire the right to manage the wider common parts of the location. In such cases, it is extremely important that the RTM company and the Landlord enters into a legally binding agreement which confirms which party will be responsible for grounds maintenance, communal lounges, laundry rooms/any other common parts and any location manager service and how this will work. Failure to enter into an agreement could result in duplication of obligations on the part of the Landlord and the RTM company.

Acquiring the right to manage

Once the RTM company takes over the management, it is responsible for delivering the services for which the landlord was previously responsible under the terms of the lease. The landlord is no longer entitled to perform those functions.
Typically, these will include:
- Repairs, redecorations and maintenance of the structure of the building and the common parts, including cyclical or seasonal maintenance and the maintenance of plant and facilities, lifts, central heating boilers etc.
- Undertaking any repair/maintenance responsibilities for which the landlord is responsible within individual properties under the lease
- Improvements to the building (where this is permitted in the lease).
- Provision of services such as the lighting of the common parts, heating, cleaning, grounds maintenance, caretaking warden services in the retirement sector etc.
- Arranging the insurance for the building.
- Collection of service charges, accounting and the provision of statutory and other information.
- Compliance with all statutory requirements relating to the management and fabric of the building.
- The day-to-day management of the building.

The RTM company is not able to commence any forfeiture (repossession) proceedings as this is a right reserved to the landlord. The landlord also retains the right to receive any ground rent which is payable under the lease.

Most leases contain provisions requiring the consent of the landlord in certain circumstances; these can include sub-letting, assigning the lease and making alterations to the flat. The power to issue such approvals passes to the RTM company, although it must notify the landlord prior to granting consent.

It is important to note that whilst the management of the development passes to the RTM company, it must deliver the management functions in accordance with the terms of the lease. If it fails to do so, leaseholders will have the same rights to make challenges against the RTM company as they did the landlord.