Is Right to Manage Company Formation Right for Your Building?

Right to manage company formation

In recent years, the concept of Right to Manage (RTM) has gained significant traction among leaseholders in the UK. This mechanism allows leaseholders to take control of the management of their residential buildings without needing to prove any fault with the current management. This article explores whether forming a Right to Manage Company is the right choice for your building, delving into the benefits, challenges, and key considerations involved in this process.

Understanding Right to Manage

What is Right to Manage?

Right to manage company formation is a statutory right for leaseholders to take over the management of their building. Established by the Commonhold and Leasehold Reform Act 2002, RTM allows leaseholders to set up a company that takes over the management functions traditionally carried out by the landlord or a managing agent.

Who Can Exercise RTM?

To qualify for RTM, several criteria must be met:

• The building must be a self-contained block of flats.
• At least 50% of the leaseholders must agree to form the RTM company.
• The leaseholders must hold long leases (typically over 21 years).
• The building must not be a commercial property or a property managed by a local authority or housing association.

Benefits of Right to Manage Company Formation

1. Control Over Management Decisions

One of the most compelling reasons to form an RTM company is the increased control over management decisions. Leaseholders can choose how their building is managed, including maintenance schedules, service charges, and selection of contractors. This empowers leaseholders to make decisions that directly benefit their living environment.

2. Transparency in Financial Management

When leaseholders manage their building, there is greater transparency regarding financial matters. The RTM company is required to provide detailed accounts and budgets, which fosters trust and ensures that funds are being used appropriately. This transparency can lead to more prudent financial management and potentially lower service charges.

3. Improved Service Standards

By taking control, leaseholders can set service standards that meet their expectations. This includes everything from the quality of cleaning services to the responsiveness of maintenance requests. Leaseholders can also select contractors based on their reputation and service history, ensuring that they receive the best possible care for their property.

4. Empowerment and Community Building

The process of forming an RTM company can foster a sense of community among leaseholders. Working together towards a common goal can strengthen relationships, leading to improved communication and collaboration. This shared responsibility can create a more harmonious living environment, making it easier to address concerns and resolve issues.

5. Reduced Reliance on Managing Agents

Many leaseholders have experienced frustrations with managing agents who may be unresponsive or mismanage funds. Forming an RTM company allows leaseholders to eliminate this reliance and manage their own affairs, reducing the risk of mismanagement.

Challenges of Right to Manage Company Formation

1. Initial Setup Costs

While the long-term benefits of forming an RTM company can outweigh the costs, the initial setup can be expensive. Costs can include legal fees, registration fees, and expenses related to the formation of the company. Leaseholders must be prepared for these upfront costs and ensure that they have the necessary funds to cover them.

2. Ongoing Management Responsibilities

Once an RTM company is formed, leaseholders take on the responsibility of managing the building. This includes overseeing maintenance, managing finances, and ensuring compliance with legal obligations. Not all leaseholders may feel comfortable or equipped to handle these responsibilities, and it may require time and effort to learn the necessary skills.

3. Potential for Disagreements

Forming an RTM company necessitates collaboration among leaseholders. However, differing opinions on management styles, financial decisions, or contractor choices can lead to conflicts. It is crucial to establish clear communication channels and decision-making processes to mitigate the risk of disagreements.

4. Legal Obligations and Compliance

Managing a building comes with various legal obligations, including health and safety regulations, fire safety compliance, and other statutory requirements. Leaseholders must ensure that they understand these obligations and take appropriate measures to meet them, which can be a significant undertaking.

Key Considerations Before Forming an RTM Company

1. Assessing Leaseholder Interest

Before proceeding with RTM formation, it’s essential to gauge the interest and willingness of other leaseholders. A successful RTM company requires a minimum of 50% support from leaseholders, so organizing meetings or discussions can help determine whether there is sufficient interest.

2. Understanding the Financial Implications

Leaseholders should conduct a thorough financial analysis to understand the costs associated with forming an RTM company. This includes not only the initial setup costs but also ongoing management costs. Creating a detailed budget will help leaseholders evaluate whether they can manage the financial responsibilities effectively.

3. Seeking Professional Guidance

Engaging professionals, such as solicitors and accountants, can provide valuable insights and guidance throughout the formation process. They can assist with legal documentation, financial planning, and ensuring compliance with regulations, making the transition smoother and more efficient.

4. Establishing Clear Governance Structures

Once the RTM company is formed, it is crucial to establish clear governance structures and decision-making processes. This can include creating a constitution, outlining roles and responsibilities, and setting up communication channels. Clear governance can help prevent misunderstandings and conflicts down the line.

5. Evaluating Current Management Practices

Before forming an RTM company, leaseholders should evaluate the current management practices of their building. Identifying strengths and weaknesses can provide insight into what improvements can be made once they take control. This evaluation can also serve as a basis for future discussions on service levels and management expectations.

Steps to Form a Right to Manage Company

Step 1: Gather Support from Leaseholders

Start by discussing the possibility of forming an RTM company with fellow leaseholders. Collect feedback and gauge interest to ensure that there is sufficient support.

Step 2: Conduct a Qualifying Test

Verify that your building meets the necessary criteria for RTM eligibility. This includes confirming the types of leases held by residents and ensuring the required number of leaseholders is on board.

Step 3: Prepare the RTM Company’s Documentation

Draft the necessary documents to establish the RTM company. This includes creating a company memorandum and articles of association, which outline the company’s purpose, governance structure, and operational procedures.

Step 4: Submit the RTM Notice

Once the documentation is ready, submit a Notice of Claim to the landlord. This notice informs the landlord of the leaseholders' intention to form an RTM company and take over management responsibilities.

Step 5: Establish the Company

Upon receiving confirmation from the landlord, formally establish the RTM company. Register it with Companies House and ensure all necessary documents are filed.

Step 6: Transition to New Management

After the RTM company is established, the transition from the previous management to the new management structure should take place. This includes assuming responsibilities, managing finances, and communicating with leaseholders about the changes.

Step 7: Continuous Improvement and Management

Once established, focus on continuous improvement in management practices. Regularly review financial statements, maintenance schedules, and service levels to ensure that the needs and expectations of leaseholders are met.

Conclusion

The formation of a Right to Manage Company can be a transformative decision for leaseholders, offering increased control, transparency, and the potential for enhanced living conditions. However, it also comes with its challenges and responsibilities. By thoroughly evaluating the benefits, challenges, and key considerations involved in this process, leaseholders can make an informed decision about whether forming an RTM company is right for their building.