DSRA blogged in October 2020 that a Right to Manage (RTM) Company had been registered at Companies House by a group of leaseholders seeking to replace the Managing Agent and hand the management of Dance Square to Urang Property Management instead.
DSRA is not involved in this initiative, but we have provided a lot of information in our regular monthly Newsletters since the initiative was launched; this Q&A page brings that information together. We hope it will help new leaseholders and save existing leaseholders from having to read back through our previous Newsletters.
Q: What is the overall conclusion?
DSRA Committee considers the costs of the RTM initiative are significantly under-estimated, the forecast savings not realistic, and the initiative mis-timed given the Law Commission’s recommendations in July 2020 – which will significantly simplify the RTM process and remove most of the costs in the future.
We believe that, in the meantime, the best course of action in the interests of leaseholders, is for us to continue to engage constructively with the Managing Agent.
Q: How much support is needed to claim RTM?
At least half of qualifying leaseholders (owners of private or shared ownership flats) need to become members of the RTM Company before the claim notice can be served – more than 116 subscribers. We have no way of knowing how many leaseholders are currently subscribed – but it is reasonable to assume that if the RTM Company was confident they had this level of support they would not delay serving the claim notice.
Q: What are the costs?
There are considerable costs involved in acquiring the RTM – including the legal obligation to reimburse all reasonable costs incurred by the current Managing Agent.
Advice DSRA received back in 2014 indicated the Managing Agent’s costs could be up to £50,000. The RTM promoters think this is an over-estimate, but Dance Square is a very complex development and the case could be contested by the Freeholder/Managing Agent through the Tribunals.
We understand that the RTM Company has agreed a deal with Urang whereby Urang’s fees are capped at £2,000 (there may be additional disbursements) and Urang will cover their and the Managing Agent’s costs if the RTM claim fails, but all the costs will be recovered from leaseholders via the service charge if RTM proceeds.
Q: What are the savings?
The RTM promoters believe service charge (S/C) savings are possible in both the management fee and in the cost of the services, such as security, gardening, utilities, etc. – and that these savings would more than compensate for the costs (see above).
We do not believe these savings are realistic.
Management Fee: The Managing Agent’s fee is around £60,000 and is not subject to VAT (as they are in the same VAT group as the Freeholder). We do not know what fee the RTM Company has agreed with Urang, but Urang’s fee will be subject to 20% VAT (under HMRC Regulations) – so their fee would have to be very much less than the current Managing Agent’s fee before leaseholders saw any saving at all. We would seriously question whether a development as complex as Dance Square could be managed effectively for such a fee.
Cost of Services: The S/C has to cover maintenance of a complex development, with multiple residential blocks, commercial units, 24 hour security, gardens and water features, 13 lifts, 6 entrances, community heating system, etc. The Managing Agent regularly re-tenders contracts for services and utilities. It is notable that in the original sales particulars in 2012 the S/C was estimated at £3.50 per sq ft; nine years later in 2021 it was £3.42 per sq ft. It seems unlikely that any significant savings would be achievable by Urang – unless the specifications were reduced, impacting on the quality of the services and level of maintenance.
Q: Why now?
We believe that this initiative is mis-timed. In the interests of leaseholders, it would be more sensible to wait for the Government to enact the Law Commission’s recommendations – which will significantly simplify the RTM process and remove most of the costs in the future.
Q: Why Urang?
The RTM promoters did not undertake a competitive procurement process before selecting Urang – instead they restricted themselves to seeking expressions of interest from a small number of companies who were willing to offer a “no win, no fee” agreement (whereby the costs of RTM are recovered from leaseholders only if RTM proceeds). This approach has ruled out many high quality potential managing agents. Urang has now been appointed as RTM Company Secretary.
Q: Is RTM required for leaseholders to extend leases to 990 years?
Not at all – pursuing RTM has nothing to do with extending leases to 990 years at zero ground rent – this is something the Government is legislating to give leaseholders the right to do, as part of major reforms to simplify English property law announced in January 2021. The Government will publish an on-line calculator enabling leaseholders easily to calculate the cost of extending their lease.
The RTM Company has claimed as an advantage of RTM that they would investigate the cost of leaseholders acquiring the freehold (known as collective enfranchisement). Given the obligations on freeholders, extending leases to 990 years under the Government’s reforms is likely to be more advantageous to leaseholders than acquiring the freehold.
Q: What are the risks of RTM?
- The desire to make savings in the service charge to cover the costs of RTM may lead to a reduction in service and maintenance standards.
- A new managing agent may charge building surveying and other additional fees – on top of their management fee – especially as they seek to gain knowledge of Dance Square.
- The RTM process may drag through the Property Tribunals – the Freeholder/Managing Agent has the legal right to challenge – causing a lengthy period of uncertainty which could impact on leaseholders trying to sell their flats until the legal cases were settled (an active RMT process has to be declared in the seller’s information).
Q: I have not joined the RTM Company, if this RTM initiative does go ahead, can I join / rejoin the RTM Company in the future?
Leaseholders are legally entitled to become members of the RTM Company at any time; there is no loss of legal rights.
Q: I have joined the RTM Company, can I resign?
If you have expressed in interest in RTM by returning a slip to the promoters, you will have been subscribed as a member. If you now have doubts whether RMT is currently in your best interests as a leaseholder, you will need to resign before the claim notice is served on the Managing Agent and costs start to mount. The RTM Company Articles prevent you from resigning once the claim notice has been served. You can download a proforma here.