Qualifying for the Right to Manage

In order to qualify for the right to manage, the premises must :-

• be a self-contained building or part of a building, with or without appurtenant property;

• contain two or more flats held by qualifying tenants (e.g. those with leases originally granted for more than 21 years); and

• have no less than two-thirds of the flats in the building held by such qualifying tenants.

Some premises are exempt from the right to manage, including those which contain more than 25% ‘non-residential parts’. Where a development contains two or more buildings, a separate claim (and right to manage company) is required in respect of each building.

Setting up the Right to Manage Company

The first step towards exercising the right to manage is to set up the right to manage company (“the RTM Company”). The RTM Company’s constitution is prescribed by Regulations and should include in its name the words “RTM Co Limited”. The RTM Company is limited by guarantee.

Any qualifying tenant is entitled (but not required) to be a member of the RTM Company at any time. A qualifying tenant is only entitled to be a member of the RTM Company that relates to their building. Under the Companies Act 2006, a company need only have one director. However, larger developments are likely to appoint more than one director.

Exercising the Right to Manage

Before exercising the right to manage, the RTM Company must first have served notice of invitation to participate on all qualifying tenants, to invite the residents to join the RTM Company. This is a prescribed form of notice. The qualifying tenants have at least 14 days to respond.

In order to then exercise the right to manage, 50% or more of the qualifying tenants must participate in the claim and join the RTM Company. For developments with two or more blocks, each building individually must have 50% or more of the qualifying tenants from each block participate.

The RTM Company is then to serve a notice of claim on the landlord and any management company, stating that the RTM Company intends to acquire the right to manage. Again, this is a prescribed form of notice. The notice states a date, not earlier than one month, for each party who has been given notice, to respond to the notice of claim with a counter notice. The notice of claim also states the date that the RTM Company intends to take over management, which is not less than three months after expiry of the date specified for the counter notice.

The Counter Notice

The landlord or management company is not obliged to serve a counter notice if they do not dispute the RTM Company’s right to acquire the right to manage, although they may elect to do so. If the landlord or management company disputes the RTM Company’s entitlement, they should state so in the counter notice. Grounds of challenge are limited to circumstances in which the premises do not qualify or the RTM Company is not entitled to acquire the right to manage, for example due to defects in its constitution or some other procedural failing.

Where the Right to Manage is disputed

Where the right to manage is disputed, the RTM Company must apply to the First-Tier Tribunal (Property Chamber) (‘FTT’), for a determination that it was entitled to exercise the right to manage, within two months of the counter notice. If an application is not made within this time, the RTM Company is deemed to have withdrawn its claim notice and the claim to acquire the right to manage comes to an end (although another claim can be commenced).

Acquisition of the Right to Manage

If not disputed, the RTM Company will take over management on the date specified in the notice of claim. Where entitlement is disputed but the FTT finds in the RTM Company’s favour, the RTM Company will take over management three months after the date of the determination.

The RTM Company acquires all the management functions of the landlord or management company set out in the leases, in respect of the qualifying flats and common parts only. This includes the maintenance responsibilities, the placing of insurance and the granting of approvals under the leases. The landlord or management company is required to hand over to the RTM Company all uncommitted service charges. The RTM Company does not collect ground rents on behalf of the landlord, nor does it acquire the rights to forfeit the leases for any breach of covenant, which remains with the landlord.

The RTM Company is required to state in the notice of invitation to participate to the qualifying tenants whether it intends to appoint a managing agent, should the entitlement to claim the right to manage be accepted. The RTM Company does not acquire the right to manage non-qualifying flats and commercial parts.

All existing management and maintenance contracts are extinguished once the RTM Company takes over, meaning that the RTM Company is not bound by them. The landlord is obliged to provide the RTM Company with all details of existing contracts, prior to the date of acquisition, and the RTM Company should notify those contractors whether it wishes to adopt those contracts. Once the right to manage has been exercised, the landlord is entitled to become a member of the RTM Company. The RTM Company will also have ongoing duties to the landlord, which are not covered here. The RTM Company’s interest is also registered at the Land Registry as a notice.

The Landlord’s Costs

The RTM Company is responsible for the reasonable costs incurred by any person on whom the notice of claim is served (e.g. the landlord or management company), whether or not the right to manage is acquired. The RTM Company is also responsible for the reasonable costs incurred by the landlord or management company in any FTT proceedings if the right to manage claim is dismissed by the FTT. The landlord or management company is not, however, responsible for the RTM Company’s costs if the landlord or management company unsuccessfully resists a right to manage claim in the FTT.

For more information about right to manage claims, please contact Faye Didcote at faye.didcote@kdllaw.com.

Disclaimer

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