Whether you are new to leasehold life or a seasoned leaseholder, a helping hand can sometimes be needed when it comes to understanding some of the terminology. Not least when you are trying to identify the best route to take more control over how your block is managed.
In this article, we explain the differences between RTM and RMC, and compare RTM against collective enfranchisement as a means to gaining control of your block.
We regularly find at Brady Solicitors that RTM (Right to Manage) and RMC (Residents’ Management Company) are used interchangeably – yet they are quite different legal entities and serve different purposes.
RTM is a statutory right that allows leaseholders to apply for the right to manage their block, whereas RMCs are usually set up by the developer on completion of the building, rather than being a tool to enable leaseholders to gain control of their development.
What are Residents’ Management Companies (RMCs)?
An RMC is usually a party to the lease (along with the freeholder), with the leaseholders as shareholders in the company.
When someone sells their flat, their share will pass to the new owner. Residents can become directors of their RMC (usually on a volunteer basis) if they are nominated by other shareholders. The resident management company directors’ responsibilities are to manage the property on behalf of the freeholder and have control over service charge expenditure. RMCs do not own the freehold.
What is Right to Manage? (RTM)
Right to Manage is a legal process that enables leaseholders to acquire the right to take over the management of the freehold. RTM is often pursued by leaseholders where there is no RMC in place or where the leaseholders are not happy with the standard of management.
As with anything, there are pros and cons to Right to Manage. An RTM has to adopt specific articles of association and must be a company limited by guarantee, and leaseholders are company members rather than shareholders. Similar to RMCs, when a member of an RTM company sells their flat, they must resign from the company and the incoming flat owner takes their place.
What is Collective Enfranchisement?
Leasehold enfranchisement entitles the leaseholders of a block of flats to collectively purchase the freehold of the property. This right was established in the Leasehold Reform and Urban Development Act 1993 and is commonly known as ‘collective enfranchisement’.
Through acquiring ownership of the freehold, collective enfranchisement rights gives leaseholders the most control over their property. As well as taking over the management of the premises, leaseholders can also grant lease extensions and reduce or remove ground rent liabilities.
RTM vs Collective Enfranchisement – how much will it cost?
RTM is often considered the less expensive option because the leaseholders are only responsible for their legal costs and the freeholder’s reasonable legal costs. Unlike collective enfranchisement, there is no premium payable to acquire the management. As well as the premium and legal costs, the leaseholders in a collective enfranchisement matter will also be responsible for both their own and the freeholder’s valuation costs.
RTM vs Collective Enfranchisement – how long does it take?
An RTM process typically takes between 5-6 months to complete from receiving initial instructions. A collective enfranchisement matter can take anywhere between 8-12 months to complete. This is because collective enfranchisement has two elements that require agreement, the premium and the terms of the transfer. Where there is a dispute regarding these elements, leaseholders have the option to apply to the tribunal or the court for a determination which will add to the completion timeframe.
RTM vs Collective Enfranchisement procedure
Both RTM and collective enfranchisement involve the serving of notices and counter-notices. Leaseholders can also apply to the tribunal (and the court in the case of collective enfranchisement) for a determination on issues in dispute. The RTM procedure is generally shorter in timescale than the procedure for collective enfranchisement. Both processes also involve the setting up of a company. Although this is optional with collective enfranchisement, more and more leaseholders opt to form a company as an easier way to manage the freehold.