by Matthew Lewis, Partner and Head of Residential Leasehold Property, Coles Miller LLP*
There seem to be so many ways of managing a building these days and so many abbreviations to describe who is who and what they do! Of course, what matters is that the people who manage the block have control over the standards and costs of work and services that residents’ must pay for, but for anyone who struggles with the definitions we hope these notes may be of interest.
Residents’ Association: This is commonly a group of owners (normally leaseholders or freeholders in the case of houses) who own houses or flats within a collective development. Usually the Association would be required to maintain common parts within the development.
Recognised Residents’ Association: This is an association that has been recognised (Section 29 of the Landlord and Tenant Act 1985). An association gains recognition either by acquiring notice in writing from a willing landlord to the secretary of the association, or by applying to a First-tier Tribunal (Property Chamber). A recognised Residents’ Association can request certain types of information from a landlord such as summary of costs etc. The landlord is also required to consult the Association on matters such as service charges and the appointment of managing agents.
Residents’ Management Company (RMC): A Residents’ Management Company (RMC) is usually run by owners of leaseholders within a development. The RMC is usually required to manage the development. Usually the RMC does not own the freehold or any other estate in the land. This type of company is often set up by the original developer. Commonly each flat owner is an equal shareholder or member in the company which manages the communal areas of the building such as stairways, hallways and outside areas. This gives them a say in the running of the building and control over service charges, which is attractive to a purchaser. When someone sells their flat the share or membership certificate will pass from the old owners to the new owners.
Right to Manage Company (RTM): A Right to Manage (RTM) company is set up when leaseholders want to take over the management of their building from a (possibly reluctant) landlord. RTMs were introduced by the Commonhold and Leasehold Reform Act 2002 to make it easier for unsatisfied leaseholders to wrest management from landlords and their agents. An RTM has to adopt specific articles of association and must be a limited by guarantee company, requiring flat holders to become members of the company rather than shareholders. When a member sells their flat they resign from the company and the incoming flat owner takes their place. Significantly, leaseholders wanting to exercise RTM need not prove any fault on the part of the existing landlord. The right is available whether the management has been good, bad or indifferent.
Enfranchisement/Freehold Company: When leaseholders get together to buy the freehold, they can set up a company or buy the freehold in their individual names as trustees. There is comparatively little administration required with a trust, but land can only be held in up to four names, i.e. four individuals can be registered as trustees with the other leaseholders as beneficiaries. So, if there are more than four individuals participating or in any event, the leaseholders may prefer to incorporate a company so they are all shareholders or members in the company.
Whichever of these organisations you are a part of or provide services to, it is worth remembering that the people who run them are usually volunteers. Anyone acting as a director of a company takes on a lot of work and faces potential liabilities for errors. It is therefore increasingly common practice for them to have the protection of Directors and Officers Liability Cover.
* T: 01202 355697 Website: www.coles-miller.co.uk
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