Right to Manage your Freehold (RTM)

Right to Manage your Freehold (RTM)

The formal Right to Manage (RTM) procedure provides leaseholders with the power to collectively decide who they would like to manage their block.  This can be exercised even if the existing managing agent is technically "not at fault".

In most cases the "right to manage" (RTM) company will become responsible to all leaseholders for:

  • Services
  • Repairs
  • Maintenance
  • Insurance
  • Management of the whole or part of the premises

What a Right To Manage company can do

So long as thirty days prior notice has been given by the RTM company to the landlord, it can grant approval to any qualifying tenant's request for the following:

  • Assignments
  • Underletting
  • Charging
  • Parting with possession
  • The making of structural alterations
  • Improvments
  • Alterations of use

In all other cases the RTM company cannot grant approvals without having given the landlord fourteen days notice.

The landlord cannot unreasonably withhold such consent.

Obligations under the lease

The Right To Manage company has the legal right to take action to enforce any obligation entered in to by any tenant of the building under a lease.  This can include where a tenant is in breach by causing another leaseholder a nuisance.

Membership of the Right To Manage company

There must be at least 50% of the number of flats in the block to qualify.

The Right To Manage process

  1. We can discuss with you whether taking on the burden of managing your block is the right thing for you.  It may be prudent to get your landlord to comply with their obligations before taking over or perhaps purchase the freehold is a better option which can be followed by extending your leases.
  2. If you qualify for RTM, a company needs to be set up.  It is important that it is set up in the prescribed form.  We will be able to arrange this for you by appointing company formation agents.  At least one flat owner is required to set up the company.  There are no restrictions on who can become a director so it allows you time to appoint an accountant, lawyer or managing agent to help you manage the company and block.  We are able to advise you on how to run the RTM company if required.
  3. The RTM company serves a notice on all the qualifying tenants (except the landlord) who are not members of the RTM company.  This is the Notice of Invitation to Participate.  It informs all qualifying tenants that a RTM company has been set up for the purpose of acquiring Right to Manage for their building and that they are entitled to join in the proceedings themselves should they wish to do so.  At the same time, we will serve a Participation Agreement on the leaseholders to sign which is an agreement between the leaseholders and the RTM company.  In short, the agreement will bind the leaseholders to the process.
  4. No earlier than fourteen days after serving the Notice of Invitation, the company must then serve a Claim Notice on all parties to the lease.  There must be a minimum of 50% of the qualifying tenants as members of the RTM before a valid claim can be served.
  5. Once the Notice is served, the landlord has one month to provide a counter notice.  There are only two grounds on which a Claim Notice can be disputed.  These are that the building does not qualify, or there are insufficient participating leaseholders.
  6. If a challenge is made by the landlord, the RTM company needs to make an application to the LVT (Leasehold Valuation Tribunal) for a determination within two months of the counter notice.
  7. Where no recipient of a Claim Notice serves a Counter Notice, the RTM company will be able to take over the management of their building on the date specified for that purpose in the Claim Notice which must be at least three months after the Counter Notice should be served.
  8. Where successful, the landlord should inform the existing contractors of the intention to appoint a new agent. (We will advise on what the landlord needs to do).
  9. The landlord/existing managing agents have a duty to pay to the RTM company any sums held on behalf of the leaseholders in respect of the building concerned on the date they take over the management for the building (for example, reserve fund and advance payments not incurred/uncommitted).  The landlord is not however required to hand over money that is to be used for costs incurred before the right has been acquired.

Right To Manage Qualification

To be a qualifying tenant you must hold a lease that was originally granted with more than 21 years (Long Lease).  This rule is subject to the list of exceptions listed below.

Exceptions

You are not a qualifying tenant if:

  1. Your landlord is a charitable housing trust and the flat is provided by the charity as part of its charitable work.
  2. You own Long Leases of more than two flats in the block (although you may still qualify for a lease renewal).
  3. You have a business lease.
  4. You have a shared ownership lease where the total share owned is less than 100%.

Your building does not qualify if:

  1. It is a converted property of four or fewer flats, the same person has owned the freehold since before the conversion and the freeholder (or an adult member of their family) has lived in one of the flats as their only or main home for the last twelve months.
  2. It is a property that has been given a conditional exemption from inheritance tax by the Board of HM Revenue and Customs.  (Your landlord will tell you where this applies).
  3. More than 25% of the internal floor area is in non-residential use or intended for such use (apart from common parts, such as stairs).
  4. The freehold of the premises includes track of an operational railway.
  5. It is within the precinct boundary of a cathederal.
  6. It is a converted property of four or fewer flats and the freeholder of the premises is held on trust, and that same person had an interest under the trust since before the conversion (whether or not also a trustee) and they or an adult member of their family has occupied one of the flats as their only or main home for the last twelve months.
  7. It is built on certain land held by the National Trust.
  8. It is owned by the Crown.  However, you may find that the crown authorities will agree to let you enfranchise or acquire RTM.

If you are a qualifying tenant, you can acquire the RTM with a group of other qualifying tenants if your building satisfies the following criteria:

  1. There must be two or more flats in your building.  If there are only two flats in the block, both must participate in the exercise.
  2. At least two thirds of all the flats in your building must be held on long leases.
  3. Not more than 25% of the internal floor area (apart from common parts, such as stairs) of the building is in non residential use or intended for non residential use, for example, as a shop or an office.
  4. The number of tenants participating must also equal at least half the flats in the block.  For example, in a block of twelve flats, at least eight must be held on long leases and at least six long leaseholders would need to participate in the RTM process.

If you would like to discuss these options further, please do not hesitate to contact Selchouk Sami in our Property Department for a swift and professional service.

If you would like to know more about right to manage, here are some options:

  • Fill out our questionnaire / application at the top of this page.
  • Call us for a confidential discussion on 0208 920 3190.
  • Email us using our online form where you can ask questions / concerns. On of our team will respsond accordingly. Click here.

Right To Manage Case Study

What are the benefits of owning a share in my freehold?

The story of the Mr & Mrs Telford and their decision to purchase their freehold

Mr & Mrs Telford came to see me because they were unhappy with their landlord’s choice of managing agents.  Their service charges had risen, some works on the building had not been completed to a reasonable standard, and the managing agents sought to claim historic admin costs from some leaseholders when the costs had already been paid. 

There were 10 flats in the block.  On investigation, I found that the leases in the building had approximately 85 years remaining. 

Having come across this particular landlord before on several occasions, I knew that the only way to get a fair lease extension would be by serving a notice.  However, as Mr & Mrs Telford had not owned their flat for at least 2 years (lease extension) they would have to wait a further year before they would be entitled to exercise their statutory right for a lease extension. 

Mr & Mrs Telford had the option of following the Right to Manage procedure to take over the management of the building or to join in with fellow leaseholders to force the freeholder to transfer the freehold to the leasehold owners (Collective Leasehold Enfranchisement) In both cases, at least 50% of the flats in the block must participate in the Right to Manage or purchase of the freehold under the collective enfranchisement route.

I explained to my clients the benefits of collectively purchasing the freehold with the other leaseholders:

1) The participating leaseholders could extend their leases without having to pay a premium to their landlord. It is common to extend the term to 999 years and reduce the ground rent to nil (also known as a peppercorn). This is usually the right time to also address any defects in the lease and update the lease to enhance its marketability.

2) The participating leaseholders could appoint their preferred managing agents or manage the building themselves.

3) The participating leasehold owners would ultimately have greater control following the freehold purchase.  Residential leases can request that leasehold owners obtain landlord’s consent before:

- Making alterations to the property e.g. changing the windows, extend into the loft, change the layout of the flat

- Subletting the whole or part of the property

- Keeping a pet at the flat

These questions would still need to be addressed once the leasehold owners purchased a share of the freehold.

Mr & Mrs Telford attended a leaseholders’ meeting where it was agreed that a surveyor be appointed to value the freehold and provide the valuation for a lease extension. 

As 7 out of the 10 leaseholders wanted to participate with the freehold purchase it was concluded that the freehold should be collectively acquired.  I was instructed to serve the appropriate notice on the landlord without delay.

After some negotiation on the price the freehold successfully transferred to the participating leaseholders who set up a company to take over the freehold.

If you would like to discuss this or any other related topic, call Selchouk Sami on 020 8920 3190.

Case Study

How Mr & Mrs Telford participated in purchasing their freehold and made sure they didn’t lose money on the way

Mr & Mrs Telford successfully took over the freehold with 7 of the 10 leaseholders in their block.  They then went about appointing another firm of managing agents who charged the same as the previous company but actually did the job!

I advised our clients to obtain 3 quotes for a valuation from 3 experienced surveyors.  Experienced professionals are essential to help save money in this area which is a minefield full of traps for the unwary. 

The valuation recommended the figure that the leaseholders needed to offer the landlord.  The success of the freehold procedure relied on me correctly drafting and serving the notice and responding within the various statutory time limits.  There will be times when negotiations are best left to the surveyors as certain landlords will not adopt a sensible approach and the valuers' are best positioned to conclude the issue of price. 

In this case the price was agreed between the parties almost 6 months after serving the landlord’s counter notice.  However, there was a restriction against the landlord’s title in favour of a third party which delayed completion until consent from the third party was obtained.  The Section 13 notice would have been deemed withdrawn if completion did not take place within 6 months of receiving the landlord’s counter notice.

The implications of deemed withdrawal are that the leaseholders would have to wait 12 months before they could exercise their rights to buy the freehold, during which time the price will have increased, plus they would also have to bear the landlord’s reasonable costs. 

To avoid this, I agreed terms with the landlord which gave us 2 months to complete on those terms, failing which we had the right to apply to court to enforce the transfer.

One week before the end of the 2 month period the landlord’s solicitor confirmed that they held the consent to the transfer in relation to the restriction and we completed.

If you would like to discuss this or any other related topic, call Selchouk Sami on 020 8920 3190.

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