RTM directors must work within a legal framework that comprises the following key elements:
The rent
The lease is specific to the individual residential property under management. It is the contract made between landowners (what they are obligated to do) and tenants (what they have agreed to do). RTM Directors must understand the terms of the lease (including any restrictions) because any action they approve that is contrary to the terms could result in action being taken against you.
The Management Agreement
This is the contract between the managing parties and their client. Therefore, managers will need to ensure that such an agreement meets the specific needs of the development.
Practice Codes
RTM Directors are expected to comply with the recognized Codes of Practice and are expected to ensure that the managing agent also complies with them.
Legislation
RTM Directors will need to be familiar with the legislation relating to the management of residential blocks under the 6 main Acts of Parliament (generally referred to as landlord-tenant legislation). They will also need to be familiar with broader legislation that is not necessarily sector specific, such as data protection, disability discrimination, employment and company law, notably the Companies Act 2006. They will also need to be familiar with the health and safety legislation. This is because the common areas of the tower blocks are considered by the Health and Safety Executive to be a workplace because they are run by the company and are supposed to be a for-profit business.
law case
These are decisions made by courts on a variety of issues affecting the leasing industry, which may determine how certain laws or words used in leasing should be interpreted.
ACQUISITION DAY
Once the right to manage has been granted, on Acquisition Day (s90 of the Leasing and Common Property Reform Act of 2002), the RTM Company takes formal control of the owner’s management functions under the covenants of the lease. Freeholder covenants surround the repair and maintenance of ‘common areas’. They may also include building improvements if the lease allows (which is rare), cyclical or seasonal maintenance, levying and collecting service charges, arranging for building insurance, bookkeeping, and supply of legal and other information.
Management functions under s96 are described as ‘functions with respect to servicing, repairs, maintenance, improvements, insurance and management’ with s97 stating that the RTM Company shall be responsible to lessees and lessor and solely responsible for the functions of management that are not to be carried out by others without the approval of the company.
Granting of Approvals
Under sections 98 and 99 of the 2002 Act, company directors will be responsible for granting approvals under the terms of the lease. Because leases generally require the lessee to seek the approval of the freehold owner for lease assignment (sale), underletting, alterations, improvements, and alterations of use, this role passes to the RTM Directors on the date of Acquisition. They will still need to be aware that they cannot give approval without giving the owners 30 days notice. In any other case it will be 14 days.
The business must be notified if the owner objects or seeks to impose conditions. The matter can then be referred to the LVT with the request made by the owner, the RTM company, the lessee seeking consent, or, if the issue concerns approval of an act by a sublessee, that sublessee.
Compliance with tenant agreements
According to article 100 of the 2002 Law, RTM directors are responsible for ensuring that all other tenants adhere to the covenants and obligations contained in their lease and, according to article 101, they have a legal duty to control and Check if the agreements are fulfilled. . They must take steps that require the remedying of any breaches and inform the owner free of any breaches. This report must be made before the end of the 3-month period counted from the day that the non-compliance becomes known to the RTM company. However, violations do not need to be reported if the violation has been cured, compensation has been paid, or the landlord has notified the company that violations do not need to be reported.
While the company can sue for debt or seek injunctive relief for breaches of contract, such as repairs or nuisances, the landlord is still responsible for honoring their own covenants, such as providing quiet enjoyment and maintenance rights to the apartments.
When the lease provides for a right of access to the dwellings by the landlord for the fulfillment or execution of agreements, this right is also available to the RTM company.
Presentation at the House of Companies
Directors will be personally responsible for ensuring that company accounts and annual returns are filed on time with the Companies Registry, even if the responsibility is assigned to a company secretary. Failure to do so could mean prosecution. Likewise, the registered office of the company must remain current and attended to receive the Notifications that are made.
Personal Responsibilities and Risk Assessment
Because the common areas of a block of flats are considered a workplace, RTM Directors have the same personal responsibilities as Directors of commercial companies and can be sued in exactly the same way. Claims can stem from a number of areas, such as someone believing there has been a drop in value of her apartment as a result of not identifying external deterioration. They could come from someone who thinks the contractors used in the building have performed poor workmanship. Claims can also be filed if someone was injured as a result of failure to perform regular risk assessments. According to the article “Questions Raised About Tenant Management Law” published on 24dash.com in 2009, Geoffrey Wolfarth, lead attorney for the real estate team at Adams & Remers, said that “management law, in which tenants take over the management of a building themselves, has been seen as a panacea for financial disputes with landlords, but what has happened in practice is that tenants are using the right to avoid carrying out inspections and repairs of security required by law.
For this reason, it is essential to take out Civil Liability Insurance for Directors and Managers.
MY PERSONAL OPINION
We had no owner, no managing agent, and no interest from anyone else in changing the fortunes of the block. In fact, we were forced to take RTM because it was the only option we were ultimately offered by a BTL investor who owned enough flats to allow us to meet the criteria.
In addition to being forced to take it, I also have some serious concerns. Managing agents come from an unlicensed and unregulated sector and there is anecdotal evidence to suggest that some are actively encouraging directors to ‘sit back and let them do it’, which should be resisted. Managing agents are employed in exactly the same way that any other company hires its workforce, therefore they need to be managed accordingly. The success or failure of RTM will not only depend on securing a better agent than the last, but also on how effective the Directors will be at instructing them, which raises another question. How can RTM directors instruct effectively if they don’t know how? Interestingly, there are also no criteria that directors of RTM companies must meet. Even though our Directors had some idea of what they were getting themselves into, there was no way they could have instructed effectively because not only did they have absolutely no knowledge of block management, they both had demanding full-time jobs. . Which is why I must!
It is also not always taken into account that because RTM is a no-fault process, the owner has the right to be a member of the new Board if they wish. If he’s part of the problem, then the ramifications of that speak for themselves.
SUMMARY
You need to be sure that RTM is the right move for your development and particular circumstances. If collective voting rights (buying out freehold) is not an option, consideration should be given to alternative dispute resolution, creation of a residents’ association, mandatory acquisition of freehold ownership, and appointment of management through the LVT.
You should also keep in mind that owner investors often choose to dump the more irritating things of free ownership onto management agents up front. So if the unprofitable and time-consuming necessities of collecting service charges, chasing arrears, and enforcing covenants are not for them, why should they be considered a ‘benefit’ to tenants in the form of RTM?
As Myra Bar Hiller wrote in 2007, ‘We need volunteer directors but…’