What is the Right to Manage (RTM)?

Right to Manage allows leaseholders of flats to take over the management of their building from the freeholder (in our case L&Q), without needing to prove fault or mismanagement. It gives leaseholders control over services like maintenance, repairs, insurance, and service charges by forming a Right to Manage company (RTM company). 

To qualify: 

• At least 50% of the flats in the building must participate 

• The building must contain at least two flats 

• No more than 25% of the building can be used for non-residential purposes (e.g., shops) 

• Leaseholders must have long leases (usually over 21 years). 

We pursued this in detail in 2017, but at that time the majority felt that it was too risky whilst the cladding replacement was in progress, as we wanted to keep L&Q ‘on side’. The context was that L&Q were not passing on the costs of the cladding replacement to leaseholders. A meeting in 2017 agreed to revisit this after the cladding was completed.  

What responsibilities does the RTM company take on? Does this mean we manage the building ourselves?

No. Usually, leaseholders contract day-to-day management to a professional managing agent. That company will collect the service charges, find contractors to carry out all the necessary services and help us plan and budget properly. We are not obliged to keep any of L&Q’s contractors. 

Some things, such as fire safety checks, are mandatory by law, whereas other things, such as cleaning and gardening, we are free to do as we wish.  

We’ve decided to appoint a local firm, Haus, who have extensive experience with ‘Right to Manage’ buildings. If at any point we’re not satisfied with their service, we can cancel the contract and switch to a different managing agent. A few of us made the decision to work with Haus when we first explored this in 2017. We spoke to several agents at that time, and Haus impressed us the most.  

Haus manages over 350 developments like ours in London, some of which are much larger, and they have a high retention rate of clients.  

Their annual management fee will be £250 per flat. This will appear in our service charges. 

Will we improve the service?

Experience from RTM sites where the freeholder was a large housing provider has shown that leaseholders do get a much better service when they hire a managing agent of their choosing. This is because the managing agent is answerable to the leaseholders, and the leaseholders can terminate the contract and replace them if they are not happy with their performance.  

Our own experience, right from the outset in 2012, has been: 

• a very poor service from L&Q and inability to get simple things done  

• a lack of transparency on how our service charges have been spent 

• a lack of accountability (for example us paying for service used by the boat owners for years and this never being tackled).  

By hiring our own agent, there will be much greater accountability – we will know what services are being commissioned, and we can monitor whether they happen or not, and will not be charged for unnecessary or fraudulent contractor call-outs, as has happened in the past.  

Will we save money? How will we keep costs reasonable?  

There are no guarantees. But we can shop on the open market for services such as cleaning and maintenance, energy for hot water and heating, and so on, and thereby make savings.  

The top priority of the RTM board will be to keep costs down and make sure that we receive excellent services. The managing agent will establish a spending limit for unexpected repairs and small maintenance expenses. Anything above this will have to be approved by the Board.  

We may spend a bit more at the beginning to take care of things that L & Q have neglected (e.g. replacing the lighting, decorating the ground floor areas), but that will be entirely our choice. We will have to approve every annual budget.  

The largest single item is building insurance, so we looked into this. The cost of building insurance on the open market is around the same as we pay now as part of L&Q’s bulk deal.  

For major works that cost any leaseholder more than £250, the usual Section 20 consultation will be applied.  

The RTM Board and managing agent must comply with the property maintenance terms in our leases. However, they can make beneficial financial decisions, such as prioritising essential work and delaying non-essential ones to keep costs down.  

Do all of us need to agree? 

No. We need at least 50 per cent of the leaseholders in each building to agree and become a member of the RTM company for each building (one for Canal Wharf and one for Commercial Wharf). Any leaseholder can become a member of the RTM company, and we must contact all leaseholders to offer them that opportunity. Only members of the RTM companies can vote on decisions.  

Why do we need two companies? And what about the shared areas?  

There is an odd provision in the law that if two buildings are physically separate, even if they share services and have shared areas, each building needs to have its own RTM company.  

Lots of developments are in this situation and there are simple workarounds to make it work smoothly. For example, we can create a legal agreement between the two companies that sets out our intention to work together, commission services jointly and split the costs proportionately. 

Each company will need to have its own board, with a minimum of three directors, but they can work together and act as a single entity for all practical purposes.  

L&Q will remain responsible for the shared areas (courtyard, entrance, CPU heating system, etc.), so we must formally ask L&Q to agree to the decisions that our boards make as to who the managing agent will be, and which contractors are used to manage the site. In recent times, L&Q have taken a pragmatic approach to this and generally goes along with the decisions of RTM companies.  

The managing agent that we choose should have experience in managing sites where there are multiple RTM companies.  

What about the boat owners / CHUG? 

They are not entitled to be part of the process.  

What about outstanding building issues?  

From the day we take over management, we are responsible for all maintenance issues and resolving any problems, whether they be existing problems or new problems.  

What happens to the service charges we have paid, and money that’s in the sinking fund? 

L&Q must hand over all money collected from us, which should include both unspent service charges and our contributions to the ‘sinking fund’ (the money that they have collected from us to pay for major capital works).  

However, the new company cannot collect old debts, so service charge debts must be settled with L&Q before the transfer. This raises a question for the leaseholders who have been withholding service charge payments.  

Where we have complaints about overcharging in the past, for example, where CHUG (the boat owners) have not been paying their share of shared services, we would need to take L&Q to a tribunal to recover these. This is a separate process from RTM.    

What will the cost of doing RTM be?  

Haus, our chosen managing agents, will charge us a one-off fee of £95 + VAT per flat, and will take this from our service charges once it is all set up. This will cover all their project management costs in setting up the companies for us, getting the legal process right, L&Q’s legal fees, and so on. 

They will take this from our service charge after the handover. We only pay this if the process is successful, and we achieve RTM. Haus is working at their own risk.  

If it doesn’t work out, can we change our minds? 

Yes. At any point, we can close the company. By law, this means that L&Q will have to take responsibility for managing the development, which they can do themselves or through a managing agent.

What’s the difference between being a member and a non-member?

A member of the RTM Company has the right to vote at general meetings, stand for election to the board, and participate in key decisions affecting the management of the building.  

A non-member, on the other hand, does not have voting rights or involvement in the internal decision-making of the RTM Company. However, they are still bound by the same lease terms and are managed by the appointed managing agent in precisely the same way as members. The RTM company takes over the landlord’s management functions, and this applies to all leaseholders, regardless of membership status. 

Membership is entirely voluntary but encouraged for those who wish to have a say in how their development is run. 

What is involved in being a director?  

The average commitment is 2-3 hours per month, which will be monthly management meetings with the managing agent, deciding on the annual budget, planning capital development projects, agreeing on contractors, and so on.   

How were the first RTM directors chosen?

The first directors of the RTM company are the volunteer founders who initiated the RTM process. As there are no established procedures at this stage to elect a board of directors democratically, the initial directors have volunteered to establish the RTM company and initiate the process of acquiring members. 

Until the successful RTM process has been completed, the directors’ role is to coordinate the campaign to acquire fellow owners’ support. Once RTM is completed, the intention is that the Board will transition to an elected, representative governing body. 

What are the legal obligations of RTM directors?

The legal obligations of company directors have been established through English law: 

• Duty of Care and Skill: Common law duty requires directors to act with ‘the care an ordinary [person] would take in the same circumstances on his own behalf and with the skill expected from someone with their ‘particular knowledge and experience’. 

• Fiduciary Duty: Directors must act honestly, in good faith and in the company's best interest. They must ensure that they do not have any conflict of interest and make it known if they do. 

• Statutory Duty: Directors must comply with various statutory duties imposed by legislation. 

If the managing agent meets all its obligations, the RTM directors should have no day-to-day responsibilities. However, the RTM directors remain legally liable, and thus, they are insured against claims of negligence or incompetence through directors & officers insurance. 

Are RTM directors paid?

No. It is a voluntary role.

What are the governance guidelines for the Board?

Directors share a common aim: to ensure the owners get the best value for money and the best-in-market service from their chosen managing agent. 

A good managing agent will challenge any director who is not seen to be fulfilling their fiduciary duty or is generally disruptive to the smooth running of the Board.  

Good communication and transparency are vital.  The leaseholders must be confident that the Board is acting in the wider group's best interests and shared aims. This involves publishing board meeting minutes and holding regular meetings with leaseholders, typically every six months. Owners can vote directors off the board if they feel a director is not acting in the best interest of the development. 

How the RTM Board work with the managing agent?

The RTM Board is primarily responsible for hiring and overseeing a managing agent to manage the property. The Board and the managing agent will agree on the terms of engagement, which will outline the professional relationship, expectations, and deliverables. 

As the RTM company has the leverage, it can set favourable terms and fees that benefit both the managing agent and the owners and residents. This ensures a clear understanding of responsibilities and effective management of the property. Furthermore, the RTM Company will specify a set of KPIs (key performance indicators). 

What is the structure of the RTM Board? How are decisions made? Is a quorum required to ensure decisions are made fairly and with sufficient consideration?

Each RTM director has one vote, and any director can call a board meeting by giving notice of not less than seven days. Meetings do require a minimum quorum of two directors. A proper record of decisions made should be kept. 

Is there a requirement to hold meetings regularly, document or otherwise take notes, etc.?

Regular meetings are not required, but they are recommended for good governance. Members can also call general meetings with the agreement of 5% of the membership.

How often will the Board positions change? How long can each Board member stay in the role? How are they appointed?

No legal requirement states how long a director can serve on a company's board. However, the company's articles can be amended through a special resolution. You could, for example, set a maximum term of two years for directors. Following this term, directors would need to be re-elected at a general meeting to continue serving on the board.

For more information, please see the Leasehold Advisory Service