Right to Manage Company or Property Management Company, which company is right for you?
Property Management Comparison
What is a Right to Manage Company?
- RTM companies give qualifying tenants in England & Wales the right to take over the management of the building in which their flats are situated.
- They do not need to prove that the freeholder/landlord is at fault or has mismanaged the building.
- A RTM company cannot acquire or own the building.
What is a Property Management Company?
A property management company is appropriate where:
- The leaseholders share a building that has been separated into individually owned and occupied units.
- Leaseholders or freeholders of units within a development share common amenities such as private roads, pumping stations or grounds ("the facilities").
- The company may own the property that it manages.
The company will (among other things);
- Manage and maintain common parts i.e. staircases, halls, gardens, drive-ways, roads, and other access-ways
- Collect service charges and arrange services – cleaning, decorating, lift maintenance, window cleaning
- Pay insurance, maintenance costs, professional fees, rates, taxes etc.
- Purchase or own the freehold i.e. become the landlord, as necessary.
Can a Right to Manage Company be limited by shares or by guarantee?
RTMs must be limited by guarantee as per the legislation laid down in The Commonhold & Leasehold Reform Act 2002
Can a Property Management Company be limited by shares or by guarantee?
If it is a share company, the company normally issues one share to each flat owner. Each share will have a nominal value and upon payment for the share each applicant shall be entitled to and then become a member of the company and can vote as a member.
This is the simplest form of management company to administer. This is because it is much easier to deal with changes of ownership (the outgoing tenant automatically ceases to be a member when the incoming tenant is admitted as a member) so there is no need to physically transfer shares. Members have one vote for each unit they hold.
Benefits of a Right to Manage Company
- By taking over the management of their building the tenants will be able to undertake any repairs or maintenance that the landlord had previously neglected.
- They may also be able to reduce excessively high service charges.
- Flats in well-managed blocks are usually easier to sell and because they are well managed are likely to be more harmonious places in which to live.
Benefits of a Property Management Company
The benefits of a well-run property management company with on-site directors who communicate regularly with the unitholders are:
- Problem tenants can be dealt with more quickly and effectively.
- Tenants have someone to talk to right away.
- The tenants as a whole have more control over maintenance of the shared areas/facilities and level of service charges.
- Decrease tenant turnovers.
- On-time rent.
- Less stress
What should you bear in mind with a Right to Manage Company?
- An RTM company requires 50% or more of the qualifying tenants to sign up before it can apply for the right to manage.
- Incorporation requires at least one director and two members who are qualifying tenants.
- Directors who are appointed should not take their responsibilities lightly.
- All Directors will have to commit their time and energy to the RTM Company
- Remember the freeholder/landlord will be entitled to a vote as well.
- The company name must end in "RTM Company Limited"
What should you bear in mind with a Property Management Company?
- At least two directors required so that control does not rest with one person
- Typically set up by either the developer as the development takes place and prior to the sale of any unit, or by residents in order to purchase the freehold
- Specific articles can be drafted to meet the needs of mixed developments i.e developments with house and a block of flats. The articles can provide different classes of shares and voting rights for the different property types.
- Failure to file accounts and returns at Companies House on time may lead ultimately to the company being struck off.
- If the company is struck off whilst it owns the freehold, the freehold will pass to the Crown as bona vacantia and the tenants may be unable to sell their units