News story

New rules on flat owners' Right to Manage companies take effect

Companies being formed to enable leaseholders to take over the management of their block of flats (RTM companies) will need to adopt a new-style set of articles with effect from 9th November 2009. The new-style articles follow from the 2006 Companies act, which seeks to make company law more appropriate for smaller companies and replaces the memorandum of association and articles of association with a single document, the articles of association.

“We have been advising anyone wishing to incorporate an RTM company to wait a few days until the new 2009 regulations come into force, if possible, and file the new prescribed articles, “ said Anthony Essien, chief executive of the Leasehold Advisory Service (LEASE), the Government’s specialist providers of free legal advice on leasehold matters.

The form and content of the new articles of association of RTM companies are prescribed by Government and are available on the Office of Public Sector Information website (PDF - 100kb). The new articles are based upon the 2006 Act model articles for private companies limited by guarantee, and will ensure consistency with these wider company law changes.

The right to manage (RTM) introduced by the Commonhold and Leasehold Reform Act 2002 (the 2002 Act) gave long leaseholders the right to join together to take over the management of the premises containing their flats. It required an RTM company to be formed in order to exercise this right.

While the 2006 Act changes came fully into force on 1 October 2009 the new prescribed articles for RTM companies reflecting these changes will only come into force on 9 November.

For existing RTM companies there is a transitional period until 30 September 2010, at which point the new articles of association will automatically apply to all RTM companies, and they will not be required to file the new model articles.

More information on the changes is available on the Communities and Local Government website (PDF - 80kb).

Background information: The Right to Manage

The Right to Manage is one of the easiest ways for flat owners (lessees) to take control of their own building. The Commonhold and Leasehold Reform Act 2002 provides this right for leaseholders of flats to force the transfer of the landlord's management functions to a special company set up by them - the right to manage (RTM) company. This enables leaseholders, who generally hold the majority of value in the property, to get together and take responsibility for the management of their block without incurring the expense of buying the freehold.

The process is relatively simple. The landlord's consent is not required, nor is any order of court needed. There is no need for the leaseholders to prove mismanagement by the landlord. The right is available, whether the landlord's management has been good, bad or indifferent.

In acquiring the right to manage the leaseholders , through membership of the RTM company, become wholly responsible for all decision-making in terms of budgets and reserve funds, standards of management and provision of services, repairs and major works, and with the overall function of the building.

To qualify for RTM, the building must be self-contained with at least two flats and at least two-thirds of the flats in the building must be owned by a leaseholder whose lease was originally granted for an original term of more than 21 years and in addition at least half the total number of flats in the building must participate as members of the RTM company.

More detailed guidance can be found in the LEASE publication on the Right to Manage.

(News story added: 15 October 2009)