Managing your building yourself – the advantages and disadvantages
If you’re a leaseholder in the UK, you may have heard about the right to manage (RTM). But what exactly is it, and how does it work? And what are the pros and cons of the right to manage?
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What is Right to Manage?
RTM is a legal right that gives leaseholders the power to manage their building rather than relying on a landlord or managing agent. It was introduced in the UK by the Leasehold Reform, Housing and Urban Development Act 1993. However it only applies to mainly residential blocks (where the non-residential is a maximum of 25% commercial of the total floor area, excluding common parts) – not commercial property.
Right to Manage Pros and Cons – the good news
The biggest advantages of taking over management of your block are as follows:
- RTM gives leaseholders more control over how their building is managed, allowing them to make decisions about repairs and maintenance, which can be a big plus.
- By managing the building themselves, leaseholders may be able to provide a better level of service. And in many cases, those leaseholders who exercise their right to manage save money on service charges and maintenance costs as well as improving living conditions, like keeping the shared parts of the building clean and well-maintained.
It is often possible to respond more quickly to issues. You’ll be able to address it more quickly since you won’t need to go through a third party like a freeholder or managing age
- The RTM company can negotiate directly with contractors for repairs and maintenance, potentially reducing the cost of these services.
- Improved maintenance of your building, especially if service charges reduce as well, can make your flat easier to sell and may well increases value. The freeholder failing to maintain the property is 1 of the most common reasons why leaseholders look to take on the management of their block
- In fact if your block is a small one, you may feel that you don’t even need a management company – if you and your fellow directors are happy to take on that management responsibility yourselves. That can potentially result in significant savings in service charges
Although you will have to pay for your legal costs, unlike enfranchisement ( i.e. buying the freehold of your block together with fellow leaseholders) you don’t need to pay any lump-sum to your freeholder. Depending on factors like the value of the block and length of individual leases, enfranchisement, while giving you much more control than RTM, can sometimes prove a very expensive option
Right to Manage the Pros and Cons – the bad news
But exercising your RTM rights does come with risks and responsibilities – and the most important potential disadvantages are as follows:
- Becoming part of an RTM company means taking on additional responsibilities for managing the building, including collecting service charges and arranging repairs – see below.
- There’s more paperwork – not least with the day-to-day running of your new RTM company. That will include directors meetings, and annual general meeting
- Exercising your RTM can be expensive, with upfront costs for the legal fees are both your solicitor and the solicitor for the freeholder and setting up the management company
- Exercising your RTM can be complex, requiring knowledge of property law and building management. And you may find that the time you take to research and carry out some of the work done in managing the block, will take you much more time than an experienced management company with plenty of specialist experience gained in looking after numerous other blocks
- Unlike buying your freehold, your freeholder continues to own the block – so, for example,their consent will still be needed for lease extensions and leaseholders will still be restricted by the terms of the lease
- If your block has been badly managed historically, you may find that there is a lot of work to be done at an early stage – and this can lead to short-term increases in service charges – something that may not go down well with your fellow leaseholders, especially those who didn’t participate in the right to manage process
- If your block is a big one, not only are your responsibilities that much greater, but it can sometimes be difficult and time-consuming to get agreement on issues surrounding maintenance levels, the need for upkeep and the level of service charges
- Be prepared to be unpopular with your neighbours. You may find that some of the decisions taken by the RTM company are not popular with everyone in the block. And that can be particularly difficult if you live in the block yourself, (as distinct from owning a buy to let flat) – because falling out with your neighbours is never a pleasant experience. and in the worst scenario, you need even need to take action against your neighbours if, for example they breach their lease and this affects the management of the block
- Not only will you have to set service charges – but you are also responsible for collecting them in
Right to manage – don’t underestimate your legal responsibilities
If you’re going to be managing the block yourself, then you will need to be up to speed on a huge variety of issues. They include for example arranging building insurance, organising regular Health & Safety assessments where necessary, assessing fire risks and inspections of fire alarm systems, and testing electrical wiring in shared areas on a regular basis
Am I Eligible for RTM?
The building you lease must meet specific criteria to be eligible for RTM. The building must be self-contained, with two or more flats, and at least two-thirds of the flats must be owned by qualifying tenants.
How Does RTM Work?
If you’re a qualifying tenant, you can exercise your RTM by forming a right-to-manage company (RTM company) with other qualifying tenants. This company will then take over the responsibilities of the freeholder or managing agent for managing the building, such as collecting service charges and arranging for repairs and maintenance.
What Responsibilities Does a Right To Manage Company Have?
A right-to-manage company takes over all the responsibilities previously held by the freeholder.
Here’s a quick rundown:
- A right-to-manage company’s most significant responsibility is ensuring the building is adequately maintained and repaired. This includes everything from fixing leaky taps to repainting the walls. And that means not just maintaining the building but setting and collecting the service charge from all of the leaseholders – who may will be your neighbours
- Ensure the building is adequately insured, including fire, theft, and liability insurance.
- You’ll need to create and stick to a budget. This includes ensuring enough money is available for maintenance, repairs, and insurance.
- Keeping the building and its residents safe is also the responsibility of the newfound RTM company. This includes ensuring things like fire escapes and smoke detectors are in good working order.
- The tenants need to be kept informed about what’s going on. Agree on whether you hold regular meetings or send out newsletters.
- The RTM company is responsible for ensuring it complies with all relevant laws and regulations, such as health and safety regulations.
It’s a big commitment, but if you’re up for it, it can be a great way to control your building and ensure it’s properly managed and maintained.
What Happens to The Managing Agent When The Right to Manage is Exercised?
When the right to manage is exercised, the managing agent’s role changes significantly.
One of the most significant changes is that the contract between the freeholder and the managing agent is terminated. This means that the managing agent is no longer in the building.
The right to manage company transfers the responsibilities for maintaining and managing the building from the managing agent. This includes maintenance and repairs, insurance, budgeting, and safety. The Right To Manage company will need to hire new contractors and find new insurance policies.
Make sure to work with a specialist property lawyer to ensure everything is done correctly, especially if the board of the RTM company lacks previous experience.
To sum up, exercising your RTM is a valuable option for leaseholders who want more control over their building management. However, it’s essential to consider the pros and cons of right to manage before starting the process off.
Why do RTM projects fail?
A recent survey carried out by the Law Commission into the right to manage found a variety of reasons why those surveyed didn’t manage to successfully exercise their right to manage. Among the reasons given were as follows:
(1) Their block or estate simply didn’t qualify
(2) Problems in finding names and contact details for leaseholders
(3) An inability to initially obtain and keep a sufficient number of leaseholders involved in the process. Having flats owned by people based overseas or buy-to-let investors made this particularly tricky.
(4) Problems in getting enough people to take on responsibility to act as directors.
(5) Difficulties contacting the freeholder
(6) Complexity of the legal process.
(7) Concern about the level of legal and other costs.
Want to know more?
Click here to read more about the right to manage
Click here to read more about lease enfranchisement – buying your freehold to take over control of your block as an alternative to exercising the right to manage
Click here to read more about the court-appointed property manager – an alternative way of changing property management which does not require the support of your fellow leaseholders – but does mean you will need to prove fault on the part of the current block manager
