The Right to Manage came into existence as part of the 2002 Commonhold and Leasehold Reform Act. The government of the day saw RTM as a simple right to allow leaseholders rather than landlords to control the destiny of the site.
Why your site needs RTM
It will over time give you the lowest costs for the level of service you want and is very likely to add to the value of your home.
The logic of why any site not controlled by the leaseholders through an RMC of a share of the freehold should have RTM is fairly clear. A landlord has no interest in the success of a site once the properties have been initially sold. Their liability is to ensure the terms of the lease are met and their income derives from whatever profits accrues from ground rents. The reality is of course a good number of landlords make additional income from providing the insurance, owing the property management company, doing dodgy deals with suppliers and inventing large administrative charges.
The idea that the landlord or managing agent somehow pays for part of the site is also a common misunderstaniding. The only circumstance where this happens is where they also own one of the leases. You pay for everything. Yes it says the landlord will keep the site in good repair but it also says the landlord will collect all the money for doing this from you and your fellow leaseholders.
Why do landlords dislike RTMs
From previous reports on the web site readers will know some landlords do all in their power to stop an RTM. It could be they genuinely think they somehow do have an interest in ensuring the building well looked after or it could just be it’s the extra money they make.
The benefits of RTM is that nobody is making a profit from the services you have, the managing agent is working for the leaseholders and their best interest is in ensuring the building works well.
Again some landlords will claim an RTM will look to cut corners to save money in the short term but if that were true why is it so many new buildings have their servivc charges set too low. To help the long term future of the building or maybe to help sell the flat in the first place?
The idea that a landlord somehow has a long term interest in the building is a common myth some in the sector promote. Were a building has a 999 year lease the truth is the building will be long gone before the landlord reclaims the site. Even with shorter 125 years leases often used in the retirement sector provided the leaseholder acts before there is less than 80 years to run a lease extension can always be added at low cost. So in almost all cases the landlord is never going to take the building back
Important note on length of lease and lease extensions
Almost all properties have the right to have their lease extended for a cost. If the property is a house or bungalow the Leasehold Reform Act 1967 gives the right to extend by 50 years at a time. In the case of a flat the extension if for 90 years under the Leasehold Reform Housing and Urban Development Act 1993 (the potentially huge advantage of doing this via the tribunal is that the lease extension is that the cost is set at a rate which causes the ground rent to be reduced to a peppercorn). Check the length of your lease and please remember you need to extend it before there is less than 80 years left to run. Once a lease is below 80 years to cost of extending goes up dramatically and you or the person who buys your home in the future will not be able to get a mortgage which will have a dramatic impact on the value.
Do RTMs go wrong
Sometimes an RTM can fail but there should be no reason for doing so. Sometimes the wrong agent can be appointed sometimes there is a dispute about how to run the site. However running an RTM should take less effort than it does to run a residents association. Unless a site is small the first thing any RTM should do is appoint a professional agent to do the work. Under almost all circumstances the agent’s advice should be taken on what’s best for the building –they are the experts. If the new agent does not work out then change them. The agent works for the RTM so can be removed at the end of the contract (which should be no more than a year) or before the end of the contract if they have breached the conditions of the contract. Under all circumstances do not think the best option might be to go back to being managed by the landlord.
The one and only thing an RTM should never do is allow itself to fail. We were contacted by a site a while ago where the directors had done just that. They had written to their member’s explaining if no one wanted to come forward to help the board they would close the company. Nobody came forward so they folded the company and landlord took over the site. When that happens the leaseholder’s have then lost their right to form a new RTM for a number of years. What can we do asked a leaseholder – too late.
Why not just ask the landlord to change our agent
In both the residential and retirement sector we are seeing some landlords encourage those sites who are unhappy with their existing agent to move to a new company the landlord happens to know. Perhaps a company run by people with previous experience at the top of major property management companies which the landlord used to own. Companies where you may even recognise the names of those directors.
There is of course a very good reason why a landlord would far rather you go to a company they recommend and why under all circumstances they would rather you did not go RTM for the reasons set out above.
Which brings us to Peverel/FirstPort. Over the years we have written many articles about their poor management and things like collusive tendering or insurance commissions. Readers are invited to consider to what extent those problems sat with Peverel/FirstPort and to what extent they came out of the fact they worked for the landlord and was at various points owned by them.
The reality is we know of at least some sites who have appointed FirstPort to work for their RTM and have succeeded. When they work for the landlord he is the client and they have to work to his best interests which is why you need an RTM
Who will stop you taking RTM
The problem with trying to take RTM is that you are often faced with a professional lobby campaign against you by the agent, the landlord and maybe even the house manager. You may be accused of all sort of things by those who have a vested interest in keeping things as they are. You will almost inevitably be faced by some leaseholders who are scared or do not want to see they have been overcharged in the past.
The options of how to get to RTM
There are three main routes to RTM. Unfortunately, the one company who cannot help is the existing managing agent because they work for the landlord who will not welcome them acting for you. Even if you want to keep your agent you will need to find a company to help you.
1) To collect the money to pay a solicitor or surveyor to take on the technical work. Sadly the law as currently drafted is mechanistic and technical so it’s very easy to make a mistake. These mistakes will be ceased on by landlord’s barristers and may cause your claim to fail. You need the lawyer to make sure everything is right – but even they can still get things wrong. You will also have to select your managing agent as the process moves forward
2) Appoint a company who specialises in RTM. These sorts of companies either charge a fee per flat or ask for a “good faith deposit”. Some of these companies recover their costs via a fee from the appointed managing agent. Which of course means you can only choose from a limited list of agents willing to agree this sort of contract. It also means the managing agent is going to have to indirectly charge you extra to recover those “fees”
3) Find an managing agent who you think will do a good job. One with experience of RTM. Find out if the agent will agree to a one year contact in exchange for them doing the work in helping get the RTM going. Many agents are willing to do this and to cover a number of your costs as it’s a good way to get new business. You will still have things like court fees and company setup charges to pay for.
Our view would be that option 3 offers you the most flexibility. Option 2 may or may not be attractive but remember you will pay the fees one way or another. Most importantly remember that the managing agent who offers the cheapest fees or the RTM arranger who offers the lowest charges is not going to get you the best value for money. Optoin 1 is potentially the most expensive but should ensure you comply with the law -but as we have reported you need to find the right solicitor.
When RTM is not allowed
The RTM legislation has a number of limitations which may prevent or make more complex the process.
1) A site must not have more than 25% commercial content. Surprise surprise a number of new sites are built with 26% commercial element.
2) Leasehold houses do not qualify to be part of the process.
3) Multiple blocks now have to apply for separate RTM’s following a flawed judgement in the court of appeal.
4) Blocks must be physically separated. Readers will not some of the more fanciful claims that a building was joined and cannot form an RTM.