Right to Manage: what responsibilities transfer to RTMC?

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    Right to Manage: what responsibilities transfer to RTMC?

    Hi,

    I live in a small privately owned estate. There are 2 blocks, one of 6 flats and one of 4 flats, with a car park and some gardens. Every leaseholder (including myself) owns a 1/10th share in the estate management company, which owns the freehold.

    I live in the block of 4 flats, and 2 of us in this block are seriously considering trying to split ourselves off from the people in the block of 6 flats. We want to do this partly because the management company is badly run, and also because our smaller 2-storey building should be much cheaper to maintain in the long run than their larger 3-storey building, which needs scaffolding every time there are major works.

    As far as I can tell we should have the legal right to form our own company and manage ourselves, but there would seem to be a major complication:

    How would responsibility for the communal car-park/driveway/gardens/boundary walls be accounted for? Splitting the freehold for the buildings (both free-standing) seems easy enough, but coming to an arrangement for the other bits seems problematic.

    Would we have to still have to have some sort of legal relationship with the 'other' block?

    #2
    Since the blocks are severable, your block (the smaller one) can detach itself by RTM or RTE.
    Facilities that will remain joint with the larger block can be covered by appropriate covenants. Your block needs detailed legal advice to ensure that this is done correctly and the individual flats remain saleable with good and marketable title.
    JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
    1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
    2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
    3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
    4. *- Contact info: click on my name (blue-highlight link).

    Comment


      #3
      Thanks for the answer Jeffrey.

      Just for clarification:

      As I and the other 3 shareholders own 40% of the existing management company, would/could it mean that once all legal fees etc. were settled that we would be eligible to take 40% of the accrued service charges in the company's bank accounts with us if we were to split from them?

      At the moment there is about £10k in the kitty.

      Comment


        #4
        Originally posted by paramelvina View Post
        Would we be eligible to take 40% of the accrued £10k in the kitty service charges in the company's bank accounts with us if we were to split from them?
        Bump! Anyone have any idea about my last post please?
        It would make sense to get 40% of the kitty, and should be possible. ( As you have been told, you need legal advice ).
        But you will have opposition from the other block if they are to lose 60% of the budget, and someone will have to write a cheque to deposit it into your new bank account, and they could just delay and delay.

        You will still have problems with their Managing company if, as you say, "is badly run", on communal issues.

        You can force issues on upkeep with the present Managing company in your prestent state, but of course, that makes you unpopular, but you could still be unpopular if you go the RTM route, ( so no change there ).

        It could cost you thousands to detach yourself, and have the burden of observing all the laws within the company act.
        Would it be better to spend those thousands ( recoverable in the courts ) on getting the present managing company to "be run properly" or spending thousands, yet again, to get the other block to pay half for communal maintenence ?

        Your choice.

        Sorry for the doom and gloom reply, but always ask yourself, "What if " this happens and that happens, will we have problems.

        R.a.M.

        Comment


          #5
          Before you make any decision to separate , you need to fully understand the responsibilities of the EMC (Estate Managment Company ) and freeholder . I assume that annual ground rent is not collected.

          Is this the same company as MC (Management Company) for administering the Service Charge Account ?

          EMC ( freeholder ) is responsible for :

          - maintaining the Register of Leaseholders and Mortgage Charges
          - appointing the "Management Company" or "Managing agent"
          - annual returns for company (itself) to Companies House
          - replying to solicitors pre-sale enquiries.
          - insuring the building.

          MC ( administers the service charge account ) and responsible for :
          - periodic inspection of estate and buildings.
          - producing annual service charge budget
          - issuing the service charge demand notes and checking bank account.
          - getting quotes and placing of orders on service providers ( cleaning, gardening, electric supply , repairs etc ) and paying bills.
          - Arranging for service charge accounts annual audit
          - replying to solicitors pre-sale enquiries etc.

          If a RTM company is introduced for smaller block , the service charge accounting costs for buildings maintenance would have to be separated into estate maintenance cost plus separate building maintenance costs so that :

          RTM has smaller building costs ( incl. insurance ) + 40% of estate costs.
          MC has larger building cost (incl. insurance ) + 60% of estate costs.

          For RTM run by small groups, the problem may arise if the supporters sell and move on and leaving the company in the care of reluctant leaseholders.

          Comment


            #6
            I assume that annual ground rent is not collected.

            Ground rent is set at £1 PA, and is not collected.

            Is this the same company as MC (Management Company) for administering the Service Charge Account ?

            Yes, there is only one legal entity performing both tasks at the moment.

            In an ideal world I would like to get our block to buy the freehold too, but this would obviously open up a can of worms in terms of dividing the car park up and maintaining/cleaning it.

            The car parking is divided into 10 bays, which are numbered for each flat, and this is enshrined in the lease. Conveniently the 4 spaces directly adjoin 'our' block, and the other 6 spaces directly adjoin 'their' block. But clearly there is the driveway and the central section of the car park which doesn't 'belong' to any particular flat.

            There is also a 20m or so section of boundary wall/flower bed that wouldn't very obviously 'belong' to one or other building.

            The other issue is that I already own a 1/10th share of the existing management company/freeholding company. I don't know what this would throw up in terms of conflict of interest, would that preclude me having any voting rights in terms of making decisions re splitting up the shared land?

            Comment


              #7
              Ground rent.
              Usualy, the 10 flats own the land, in the name of the Management company, and you effectively pay yourselves the ground rent.

              We include the ground rent in the maintenace monthy fees, so as not to have to write and ask, and we just show on the accounts, Ground rent received £ x

              central section of the car park , boundary wall/flower bed
              And all other parts that are common have to have shared costs between the 2 bocks, and as Jeffery says, "Your block needs detailed legal advice when setting up the Managing company, and be on good terms with the other Managing company you will be leaving.

              Voting rights.
              No conflict of interests.
              You put a proposal, and can vote on your own proposal.
              You can have between 10 owners being Directors of the current Managing company, to just one ( Depends on what your lease etc says )

              Normaly, ( your 4 flats ) you would have a Managing company, each of the 4 owners would be a Director of the new Managing Company, and each flat has one vote at any and all meetings. YOU have a valid vote. You could set up a New Company whereby only 2 flats are directors, and the other two cant vote, but only you know what the freehold / leases state.

              it would help others if we knew if all 10 Flats are directors of the current managing company ( 1 flat, one vote ) just for info.

              I assume when you have meetings as called by the current Managing company, all 10 Flat owners are entitled to attend, by being a Director of current Managing Company, and have one vote each. yes ?

              However, if all 10 can vote, don't be surprised, if when you put your suggestion to all 10 flats, you may be outvoted, with a resounding "No", to break away from the current management company.
              The other blocks costs for scaffolding ( 6 flats ) will increase, as it wont be shared with yours anymore, so fierse objections could arrise. ( Common parts costs will remain the same as all 10 flats will still contribute )

              There is already a Managing company, and it's not as though you want to form a R.T.M. ( Right to manage ) company, as your current one would seem to be that already.

              Just thoughts of the problems you may encounter in future, and to be aware of.
              Last edited by ram; 20-04-2010, 11:08 AM. Reason: more bits added 12:09 pm

              Comment


                #8
                Originally posted by ram View Post
                I assume when you have meetings as called by the current Managing company, all 10 Flat owners are entitled to attend, by being a Director of current Managing Company, and have one vote each. yes ?
                Yes...

                Originally posted by ram View Post
                There is already a Managing company, and it's not as though you want to form a R.T.M. ( Right to manage ) company, as your current one would seem to be that already.
                I want to form a separate RTM company, even though there is already an existing one.

                Beyond my slightly selfish wish not to be subsidising their more expensive to maintain building, I have other concerns. The people in the other block have a tendency to grotesquely overspend. At the moment there isn't likely to be enough money in the kitty to pay for planned works in 2012.

                For example the other block needed recarpeting, but everyone insisted in recarpeting our block too at the same time even though it didn't need it. There was also unnecessary rewiring of both blocks at a cost of nearly 7K two years ago, when all that needed doing was the consumer units changing.

                At the moment one TV aerial has fallen down in the other block, and they want to pay £1200 to have both blocks provided with new communal aerials/aerial amplifiers/rewire to every flat, again all that actually needs doing is to get someone to secure the aerial. Nothing at all needs doing to our block (the aerial are all fine and no one wants new ones), but they still want to spend the money.

                3 years ago I only just managed to stop them spending 12k on solar electricity panels, the cost of which they would never in a million years (almost!) have managed to recoup as it was only going to feed the communal lighting, which obviously enough isn't needed during the day, the only time when it would have generated anything.

                So it is really a case of playing the fiddle while Rome burns with them...

                An issue I don't fully understand is this:

                If we formed a new RTM company I would still be a shareholder in the company which owns the freehold of the entire estate. So presumably I would retain an interest in the common parts. Would this mean that they would be forced into a position where they would have to form a separate legal entity to manage their block?

                Comment


                  #9
                  Originally posted by paramelvina View Post
                  I want to form a separate RTM company, even though there is already an existing one. . Would this mean that they would be forced into a position where they would have to form a separate legal entity to manage their block?
                  Forget for a moment that these are blocks of flats.

                  There is a company, called "Two blocks of flats. Limited"
                  Unfortunately, for Limited companies, the regulations that apply, are the Companies act 2006, and applies to multi million pound *empires, as well as non profit making management companies.

                  The *Management ( Directors ) decide which way to go, how much they spend, and what they do.
                  If you put a proposal to split the company up in two, which will increase the 6 flat block costs, ( scafolding, solar panels, etc, because your block wont then be contributing to their selfish overspends ) Then if the vote comes back 6 against and 4 for, then the current Management company, in its own right and as an entity, will not allow you to go off and do it.

                  You CAN be removed as a director if you don't comply to a vote. ( There will have to be a vote on this, of course ). Just in the real world, Directors get sacked because they wont tow the line.

                  Blocks of flats.
                  First, you need to get a total 6 people who will vote with you, to split the company, or you will fail in your plans.

                  Another route is to work with the LVT .. Leasehold Valuation Tribunal

                  Quote :
                  The Residential Property Tribunal Service is now the body that deals with disputes over service charges and the purchase of leasehold property by tenants holding long leases.
                  It can also appoint managers of leasehold properties when the landlords' managers are not acceptable. Leasehold valuation tribunals started operating in 1997 whereas previously county courts handled these disputes.

                  This may be your better option initialy, as I can see the others Directors refusing to go your way.

                  ( Must rush - things to do before 11pm )

                  R.a.M

                  Comment


                    #10
                    First, you need to get a total 6 people who will vote with you, to split the company, or you will fail in your plans.

                    As I read it the right to go for RTM in these circumstances is enshrined in law, regardless of the/my current legal status with the current management company, so I'm not sure you're right.

                    Comment


                      #11
                      Originally posted by paramelvina View Post
                      First, you need to get a total 6 people who will vote with you, to split the company, or you will fail in your plans.

                      As I read it, the right to go for RTM in these circumstances is enshrined in law, regardless of the/my current legal status with the current management company, so I'm not sure you're right.
                      I too am not sure, as this is a complicated situation.

                      From my understanding, if there were no flat owners in charge of a building, and they are not happy, they can club together and form their own RTM company, with the agreement from the freeholder, manage it themselves thereby giving the owners full power and decision making.

                      Therefore in essence, you currently have a RTM company, in the definition of an RTM.

                      So you want to make another RTM, because the current RTM company is performing badly, so someone may look upon your situation as........

                      "But you already have control, via current RTM company, via all owners voting democratically, independently for the good of the freeholders / owners, and there are other cheaper ways to resolve your problems. ( directors not acting responsibly under the Companies act 2006 )

                      and someone may say ( MAY ) that you have a Right to manage company already, and to have second RTM because you cant stop the original RTM from being out of control, - someone "may" say, you cant have 2 RTM's.

                      As some of us have already said, get legal advice, and above is just food for thought to pass on / discuss when you get legal advice.

                      First, talk to the
                      The Residential Property Tribunal Service. The body that deals with disputes over service charges and the purchase of leasehold property by tenants holding long leases. or other services that can advise you how to stop the irresponsible spending.

                      R.a.M

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