Right to Manage (RTM) Companies and Property Management Companies
Right to Manage 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. However a Right to Manage company cannot acquire or own the building.
A Property Management Company is appropriate where the leaseholders share a building that has been separated into individually owned and occupied units, or where leaseholders or freeholders of units within a development share common amenities such as private roads, pumping stations or grounds ("the facilities") and the company may own the property that it manages.
Right to Manage Company or Property Management Company - which company is right for you?
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?
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