Right to manage: don’t get bitten by adverse costs

Right to manage remains a hot topic among our property management contacts, with many successful RTM companies being established smoothly. Unfortunately a small number of both leaseholders and managing agents are throwing themselves into the RTM process without due consideration of the risks – both financial and professional – associated with a possible adverse costs order.

The implications of an adverse costs order

As highlighted in our recent ‘RTM: Opportunity or Threat?‘ blog, the RTM company is liable for the landlord’s costs and these adverse costs can escalate – to over £17,000 in one recent and well-publicised case – often with no RTM to show for it at the end of the process.

Whether you are a leaseholder wanting more control over your block, or a managing agent looking to growth your portfolio through RTM, it is essential to understand the implications of a hefty adverse costs order on the directors of the RTM company.

Put simply, if the RTM company is unable to pay the costs (a likely scenario given that the company is newly formed and without a revenue stream), the landlord can move swiftly through the statutory demand process to a winding up petition in an attempt to recover his costs.

If the RTM company is wound up, there can be serious professional implications for its directors. Our experience shows that leaseholders interested in the RTM route are often young professionals (solicitors, accountants, surveyors etc) and directorship of a failed company can have a big impact on them and their careers.  One must also consider the role of the managing agent when carrying out an RTM. There is professional obligation to advise the participants of the potential pitfalls and be transparent as to the consequences particularly in relation to cost liability that can arise during the RTM process.

Get the steps right

Most landlords will seek to challenge an RTM application, which means you must be foot perfect in your processes and notices as costs can quickly accrue if the landlord is able to find points to contest.

Right to Manage is a simple but highly prescriptive process and it is worth asking your solicitors to look over your notices and paperwork to ensure that the pernickety, technical elements are all correct and you are prepared for a potential challenge and its associated costs.

In addition to preparing perfect paperwork, an ‘After the Event’ insurance policy (sometimes called litigation insurance) can offer RTM directors valuable peace of mind and protection against an adverse cost order.

Right to manage can be a powerful solution for leaseholders and managing agents alike, but the fiduciary duties associated with directorship of the RTM company must not be ignored. Brady Solicitors can help you move smoothly through the RTM process from start to finish, including post-RTM evaluations and sourcing suitable After the Event insurance.

For help or advice with any aspect of Right to Manage please email us or call on 0115 985 3450.

The Brady Solicitors blog is for information and entertainment purposes only. Whilst we make every effort to ensure all information is accurate and up to date, it does not constitute a comprehensive review of the applicable law and should not be relied upon as such. For help with a specific legal matter or dispute please contact a solicitor (preferably one at Brady Solicitors!)

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With hundreds of years’ worth of combined experience, our experts have dealt with nearly every leasehold property matter you can imagine. If you’re currently in need of legal support or advice, please get in touch.

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