Right To Manage (RTM) was created by the Commonhold and Leasehold Reform Act 2002. It is the legal right for leaseholders to take over the management responsibility of their properties from the freeholder.

1. Criteria

To set up a Right to Manage company the following criteria have to be met:

• At least 50% of the leaseholders in a block must support the move and
• two thirds or more of the leaseholders must have leases on their property that were originally of 21 years or longer and
• less than 25% of the floor area must be used for commercial (as opposed to residential) purposes

It is a good idea to informally find who the fellow leaseholders are in advance and if they are interested in forming an RTM company or becoming members. If you believe there is sufficient support we suggest arranging a meeting of all the leaseholders. Once the RTM company is established each leaseholder will be entitled to become a member of the RTM Company.

2. Agree who will be the supporters and the first Directors and Secretary.

Agree in advance who will pay for the setting up of the RTM Company “the supporters”. This could be anyone or all the RTM members collectively

Company directors have legal responsibilities and we recommend that all potential directors seek legal advice prior to agreeing to be a Director. The Company Secretary has specific duties such as maintaining registers of members and issuing membership certificates (maintaining the statutory books). Whilst the Company Secretary can be a leaseholder this role is usually filled by a professional person. Once the company is established the directors of the RTM company will need to be elected or re-elected by the leaseholders in accordance with the provisions of the companies Act 2006 and the Articles of the company.

3. Set up an RTM Company

An RTM company must be limited by guarantee, have special Articles of Association and include “RTM Company” in its name . We are able to register a RTM company for clients for a small fee.

4. Invitation to participate

The company must serve s. 78 Notices in the prescribed format inviting Participation of non-members (i.e. inviting leaseholders who are not already members of the company to join).

5. Serve Notice on the Freeholder

14 days after 50% or more membership is achieved per block, the RTM Company can serve s.79 “Notice of Claim” on the Freeholder claiming the Right To Manage. The proposed date given in the claim is the “Acquisition Date” and this must be at least three months after the date for the counter-notice.

Note: The Freeholder may serve s.84 Counter Notice within 1 month. The only legal ground of objection is if procedure has not been followed or the building does not qualify. Minor inaccuracies are discounted. If no Counter Notice is issued RTM is determined after 1 month. (Determination Date).

Some Freeholders will seek to delay or frustrate the process although most are resigned to the new rights of lessees.

6. Take over management.

The RTM Company takes over the responsibilities for management of the site. It can either do this itself or appoint a block management company of its choice.

The Freeholder may take up membership of the RTM company.  The RTM company must allocate votes to the Freeholder  according to his holding in the building. The Freeholder or his agent must transfer all uncommitted service charges on the acquisition date or ‘as soon after that date as is reasonably practicable’

The supporters are liable for the Freeholder’s reasonable costs in respect of professional services for which he is personally liable. (e.g. legal and accountancy fees in dealing with the RTM application). Whilst most Freeholders may not make a charge it is possible that the landlord may charge for this which will be the liability of the RTM Company. Where the costs are disputed the Freeholder can only recover them by application to a  First-Tier Tribunal (Property Chamber) after paying a fee of £250 which is not recoverable if the  First-Tier Tribunal (Property Chamber) does not agree the costs. This happened with the very first RTM Company application made by a director of Accounting Services Ltd in 2006. He disputed the Freeholder’s claim for costs and the First-Tier Tribunal (Property Chamber) (LVT at the time) agreed that the Freeholder’s costs were unreasonable. Not only did the Freeholder’s claim fail but the Freeholder was also unable to recover the  First-Tier Tribunal (Property Chamber) fee.  On most of the subsequent RTM formations undertaken the Freeholder has not submitted a claim for costs.