Residents Management Company vs Right to Manage Company

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By Alan Draper | May 2023

Right to Manage companies work in a very similar way to resident management companies, however, there are some restrictions and further obligations to the landlord that don’t necessarily exist with Resident Management Companies.

A Residents Management Company is a non-profit company that is owned and run by residents in a block of flats who undertake the management and maintenance of the building they are living in.

The Right to Manage (RTM) was introduced through the Commonhold and Leasehold Reform Act 2002. It gives leaseholders the statutory right to take over the management of their property from the landlord by setting up a special company – a right to manage company.

Where a residents management company exists, they will usually be written into the leases for each flat as a party to the lease and may or may not own the freehold interest. Their obligations and responsibilities will be defined in the lease along with other parties (usually the “leaseholder” and “landlord”)

Where a right to manage company is formed, they will NOT be a party to the lease but will take over the landlords obligations and responsibilities as defined in the leases.

When setting up a right to manage company, the legislation requires that the constitutional rules of an English RTM company are set out in The RTM Companies (Model Articles) (England) Regulations 2009. These rules apply to all existing and proposed RTM companies.

Approvals

Part 1, 5(c) of the articles of association states as follows:

(c)           to exercise functions in relation to the grant of approvals under long leases of the whole or any part of the Premises in accordance with sections 98 and 99 of the 2002 Act;

Section 98 of the act requires the RTM company to notify the landlord as follows:

If the RTM company grants an approval relating to assignment, underletting, charging, parting with possession, the making of structural alterations or improvements or alterations of use, 30 days’ notice, or in any other case, 14 days’ notice.

Section 99 of the act defines the conditions in which a landlord may object to the grant of an approval. In practice, they could only do so if the terms of the lease would allow them to deny the approval themselves if the right to manage had not been exercised.

Remedying breaches of the lease

Part 1, 5(d) of the articles of association states as follows:

(d)          in accordance with sections 100 and 101 of the 2002 Act, to monitor, keep under review, report to the landlord, and procure or enforce the performance by any person of the terms of any covenant, undertaking, duty or obligation in any way connected with or affecting the Premises or any of its occupants;

Under section 100 – Enforcement of tenant covenants (3) the RTM company may not exercise any function of re-entry or forfeiture.

Forfeiture is a process often used to facilitate collection of unpaid service charges. The RTM company would not be capable of remedying this WITHOUT the assistance of the landlord. Section 101, obliges the RTM company to keep the landlord informed of any breaches.

In practice, this severely restricts the legal options open to RTM companies in attempting to remedy a breach of the lease and this has been tested in the courts.

In October 2021 Eastpoint Block A RTM Company Ltd, an RTM company, applied to the First-tier Tribunal (FTT) in relation to two lease breaches by Mr Otubaga, one of the leaseholders within the block, under section 168(4) of the Commonhold and Leasehold Reform Act 2002.

Irrespective of whether Mr Otubaga had breached the lease, the FTT ruled that only a landlord could forfeit a lease. Therefore, the RTM Co wasn’t in a position to utilise section 168(4) to obtain a decision upon whether a breach of lease had taken place for repossession purpose

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