Principal Issue with the Solution

RTM companies, when established, appoint a Board of Directors. The Board is typically made up of individuals who either live in the property or own a property that is sub-let. The Board members may not be directors of other companies and may not have had much experience in dealing with managing a company.

One of the most important appointments that the Board makes is their choice of Managing Agent. They will often select an agent that has experience in helping other RTM companies take over responsibility for managing a building from a Freeholder. This choice is important as it helps ensure the process runs smoothly, to the point where they take control.

However, the Managing Agent that the Board selects will, typically, get most of their business from Freeholders and their way of operating will tend to reflect that way of working. It is important that the Lessees realise that:

• The MA is not incentivised to provide them with the most cost-effective solutions


• The MA is not incentivised to encourage the Lessees to make changes that can improve their services/reduce their costs


• The MA may have processes that appear reasonable but that are not:
  
  
  
  • Example 1 – MA provides three quotes, often from a panel of providers they use. The board chooses, usually selecting the middle quote. However, the quotes may not have been competitive and the Board ends up picking an expensive provider.
  
  
  • Example 2 – there is a new requlatory requirement to check fire doors quarterly. The MA provides three quotes. The cheapest quote comes from the MA so the Board selects the MA to provide the service. But, there are more economic solutions to the problem, potentially, for example, using concierges (already paid for) or willing (and able) tenants. Clearly, any such solution is subject to appropriate employer or insurer approval.
  
  
  
  


• The MA may even have financial arrangements with a service provider that result in the MA getting paid by the Service Provider, where they are chosen by the RTM Board.

The bottom line is that many MAs still appear to be operating as if they are working for Freeholders, without getting the best possible solutions for their new principals, the RTM Board.