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News on the Block is a trading name of Premier Property Media Ltd.
© 2025 News On The Block. All rights reserved.
News on the Block is a trading name of Premier Property Media Ltd.
Qualifying long leaseholders of flats are entitled to establish and join a Right to Manage Company through which they may take over management of their building. But there are some potential problems and complications which need to be considered.
How does the RTM company cover its running costs (company secretarial fees, company accounting costs, etc)? Many RTM Companies just put these through the service charge. It’s very unlikely that this is lawful. Most leases allow for the cost of managing the building to go through the service charge but not the cost of running the freeholder.
In Wilson v Lesley Place (RTM) Co Ltd [2010] UKUT 342 (LC), the Upper Tribunal expressed the view that the running costs of the RTM company would not usually be recoverable as a service charge. Therefore RTM company members should know that they will be personally liable for these costs, and the company needs to have adequate cash-flow, independent of service charge income, to meet these costs.
How does the RTM company get the money from defaulting leaseholders? The freeholder, of course, can just issue a debt claim in the county court, get judgment (often in default) and then notify the mortgage company who will pay - even if the case is transferred to the FTT/LVT for a contested hearing.
An RTM company doesn’t have that option. It is left with the same remedies as any other person owed money. A charging order is likely to mean that the money is not recovered until the flat is sold; a third party debt order depends on having details of a bank account held by the leaseholder which has sufficient money to pay the debt; a garnishee order works by taking money directly from wages or benefits and likely takes some time to cover any significant debt. Bankruptcy is obviously extreme and likely to destroy any good relations between the RTM company and the debtor.
RTM companies need to consider the lease mechanism for service charge recovery. It cannot be presumed that a large cash balance (or any cash balance) will be transferred to the RTM company by the outgoing landlord. When the RTM goes through, the landlord is obliged to hand over only whatever monies are currently held in the bank account or accounts relating to the property - not those which should be in the bank account, but which are not.
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The RTM process will not see the landlord’s involvement in the management of the building cease. First, the landlord retains responsibility for any functions which relate exclusively to a non-qualifying part of the building (e.g. a commercial unit). Secondly, the landlord is entitled to join the RTM company and, as such, see all documents and contribute to discussions as any other member. Thirdly, if the lease requires the landlord to grant approval for e.g. sub-letting, that consent must still be given by the landlord, it is just that the RTM company must also consent (s.98) and, potentially, both can charge an administration fee.
Justin Bates is a Barrister at Arden Chambers