Right To Manage (RTM): Definition
Right to Manage (RTM) is the right some leasehold property owners have and it allows them to take over management of the building even if the freeholder doesn’t agree. There are various reasons why leaseholders decide to exercise their right to manage. It may be due to frustration at the way in which their block is being maintained you may be experiencing problems with a difficult freeholder. The Commonhold and Leasehold Reform Act 2002 provides a right for leaseholders to force the transfer of the landlord’s management functions to a company regardless of whether his actions have been performed to the standard expected or required. The first step in the process is to set up a Right to Manage company and at least 50% of the individual property owners within a single building must be willing to be a member of the newly formed company. The company will remain in place over time even if the leaseholders change.
Forming the RTM company is relatively straightforward and it’s now considered a regulatory process which can be organised by a solicitor, by a company agent or by the qualifying leaseholders themselves. It is important to understand whether you qualify before applying for the Right to Manage. The building must meet certain criteria. It must contain at least two flats and a minimum of two-thirds of the properties must be let to qualifying tenants whose lease was granted for an original term of more than 21 years. It must be self-contained or be part of a building which is capable of independent development and no more than 25% of the block can be used for non-residential use. This excludes car parks and common areas connected with the flats.
Right to Manage is only available to leaseholders of flats, not houses and it does not apply when the immediate landlord of any qualifying tenant is a local housing authority. Even if meeting this criteria, the Right to Manage may still be excluded. Although rare, there may be Resident Landlord Exemption. To fulfil this exemption, the premises must be a non-purpose built block and must comprise of four units or less and the landlord or an adult member of his family must have occupied one of the flats as their only principal home for the past 12 months.
The RTM company will have the same duties and obligations of the original landlord and by law are to comply with a government approved code of practice such as The Royal Institute of Chartered Surveyors (RICS). Once the original members have registered the RTM company, they must invite all qualifying leaseholders to join. This is not a matter of choice. Legislation states that no qualifying tenants can be excluded. The landlord is also entitled to membership to the company and can obtain full voting rights providing the outcome wasn’t determined by a Tribunal due to a Landlords mismanagement and negligence. The Notice Inviting Participation must be served in writing as a prescribed form. It must be accompanied by a copy of the Articles of Association of the RTM company or state where the Articles can be located for inspection and copy. After 14 days have lapsed a prescribed Claim Notice must be served.
The freehold will always be worth more to the leaseholders as they gain the most by owning the freehold to their properties. If they decide to purchase the asset, they gain full control of the building which enables them to keep maintenance costs down. They no longer pay ground rent as they are the freeholder and should they wish to make any variations to their lease, they will incur minimal costs.
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