A Right to Manage (RTM) company is a specific type of limited by guarantee company. It is used by leaseholder owners of individual residential units who want to take over the management of the whole building from the freeholder (‘landlord’).
In this post, we explain what Right to Manage means, how RTM companies work, why leaseholders would set up a Right to Manage company, and the process involved in doing so.
What does Right to Manage mean?
The Right to Manage legislation was introduced in 2002 through the Commonhold and Leasehold Reform Act 2002. It gives leaseholders (‘tenants’) the legal right to set up an RTM company to take over the landlord’s management functions of the wider building.
There is no requirement for leaseholders to get the landlord’s permission to exercise this right. Nor do they have to prove any type of mismanagement or obtain a court order.
However, exercising the Right to Manage can be complex and it comes with significant responsibility, so it’s a decision that does require careful consideration.
How does an RTM company work?
Essentially, a Right to Manage company is a type of property management company designed specifically for leaseholder owners of flats.
To use their Right to Manage, leaseholders need to set up an RTM company and follow certain procedures. The RTM company can manage the building directly or appoint a third-party managing agent to do it.
Once formed, the RTM company is responsible for all building management functions, including (where applicable):
- levying and collecting the management service charge
- arranging buildings insurance
- carrying out fire risk assessments and implementing appropriate safety measures
- the upkeep of communal areas and parts, e.g. stairs and hallways, elevators, plumbing and electrics, exterior doors and locks, door entry and intercom systems, windows, gutters, gardens, boundary walls and fences
- maintaining the building’s structure, e.g. the foundations, roof, floors and ceilings, walls, beams, and columns, communal windows and skylights
- arranging cleaning, maintenance, and refuse collection services
- arranging repairs and redecoration of the building’s structure and common parts
- managing concierge and security services
- dealing with complaints about the building from the freeholder, other leaseholders, and neighbouring properties
The RTM company is required to pay any costs associated with exercising the Right to Manage and transferring the building’s management functions, even if the company is not going to manage the building directly.
Company membership and voting rights
Each leaseholder who agrees to be a member of the company will have voting rights. The landlord also has the right to be a voting member of the RTM company that is set up to manage their building.
The number of votes each person is entitled to depend on the number of flats they own in the building. For example:
- There are 10 flats in a building
- 6 are owned by leaseholders – each leaseholder gets one vote
- 4 are owned and rented out by the freeholder – the freeholder gets 4 votes (1 per flat)
If the landlord does not own any flats, they are still entitled to one vote.
Qualifying criteria for Right to Manage
To qualify for Right to Manage, the following criteria must be met:
- the building must contain a minimum of two flats (leasehold houses do not qualify)
- at least two-thirds of the flats within the building must be leasehold, with leases that were originally granted for more than 21 years
- at least 75% of the building must be residential, e.g. if there is a shop or commercial office within the building, it must not occupy more than 25% of the total floor area (excluding common areas)
- if the building is not a purpose-built block of flats and contains four or fewer flats, the landlord (or an adult member of their family) must not have permanently resided in one of the flats for at least 12 months
- any number of leaseholders can set up an RTM company, but the company cannot take over management until at least 50% of the flats in the building agree to be members of the company
The Right to Manage only relates to a building. Therefore, in an estate with individual blocks, each block must qualify separately and serve its own individual RTM ‘notice of claim’. However, a single RTM company can manage multiple qualifying properties in an estate.
Why would I form a Right to Manage company?
Typically, freeholders appoint property management companies of their choice to manage their buildings. This often leads to disputes with leaseholders of properties within those buildings. For example, if the quality of property management and service is poor, or the service charge is excessive.
In such instances, leaseholder property owners can use their Right to Manage to address the problem and set up an RTM company. This can provide a number of benefits to leaseholders, including:
- financial control and potential cost savings
- control over how the building is managed and when work is carried out
- the ability to select and change service providers and contractors at any time
- making more timely decisions
- decision-making is collective, therefore fair and equal
- third-party property management companies normally manage multiple buildings, whereas an RTM company is dedicated to just one building (or one estate of qualifying buildings)
Whilst the benefits are plentiful, running an RTM company carries a great deal of responsibility. The claim process involved in exercising your Right to Manage can also be costly and complex.
Moreover, leaseholders will need to be comfortable dealing with each other and managing conflicts. Before you start the RTM process, it’s a good idea to make sure you’re familiar with one another and all on the same page regarding how the building should be managed.
To minimise the potential for problems, many RTM companies appoint expert solicitors to guide them through the process and/or managing agents to assist with the day-to-day running of the building.
How to set up an RTM company
You can set up a Right to Manage company online. At Quality Company Formations, we provide a tailor-made Right to Manage Company Package for leaseholders who want to take over the management of their building.
The whole process is completed online and includes a limited by guarantee company incorporated in England & Wales, with the prescribed RTM memorandum and articles of association.
Simply select our Right to Manage Company Package, choose a company name, and complete our easy online application form with the following information:
- Registered office address – this must be situated in England or Wales
- Standard Industrial Classification (SIC) code – this is used to describe your company’s main business activity
- Details of directors – minimum of one; normally the leaseholders
- Details of guarantors – minimum of one; normally the leaseholders
- People with significant control (PSCs) – are usually the same people who are appointed as guarantors
Our Company Formation Checklist provides more information about the details you will be asked to provide during the company formation process.
When you have completed the application, one of our company formation experts will carry out a free Pre-Submission Review to check for errors before submitting your application to Companies House for approval.
When your company has been successfully incorporated (usually within 3-6 business hours), you will receive digital and printed copies of your company documents, access to our free Online Client Portal to manage your company details and filings, and free lifetime company support from our team of experts.
If you have any questions about setting up and running a limited company or need help to form your Right to Manage company, please contact us or leave a comment below.