Right to Manage (RTM) and Resident Management Companies (RMC)
The Freeholder: these own up to 5m properties in England. They typically charge a “ground rent” and full ownership reverts to them when the lease ends. As a result of this overarching right, they appoint a Managing Agent to deal with the running of the building. They are NOT incentivised to be efficient and leaseholders have to pay the costs set out in the Service Charge, that have been incurred by the freeholder.
The Lessee/Tenant: these “own” the rights to the property, subject to the leasehold conditions, until the lease expires or is extended. They pay ground rent to the Freeholder and also pay Service Charges.
The Managing Agent: the Managing Agent (MA) is appointed by the Freeholder to manage the property. The MA’s costs are recovered from the Lessees through the Service Charge even though they do not appoint the MA. The MA’s main relationship is with the Freeholder even though they deal with all of the issues impacting on the day-to-day existence of the Lessees.
The Service Providers: the MA appoints various providers to deal with issues like lift maintenance, cleaning, window cleaning and insurance. Of these, insurance is often one of the most expensive. Frequently, the MA may have a preferred or exclusive relationship with particular service providers such as insurance brokers. This relationship can even go as far as being an Appointed Representative of a regulated service provider. As such, the MA may be receiving commission from the service provider. This, clearly, results in a conflict on interest as the MA is incentivised to use a particular service provider, irrespective of the value the service provider provides to the Lessees.
The RTM: An RTM company is created through a statutory process under the Commonhold and Leasehold Reform Act 2002 (in England and Wales).
The Resident Management Company: may or may not own the freehold. Some RMCs are tied to buildings where leaseholders collectively own the freehold, but the RMC itself is separate from the freehold ownership. Typically set up at the beginning, with a building.
The RTM Board: The Board of a typical RTM will be made up of professional people with an interest in their property. However, as the role of RTM director is unpaid, there is a limit to the amount of effort the RTM board will spend on their Board activities. Further, they may have general experience but are unlikely to have experience of being responsible for the “running” of a multi-million pound property. Recognising this limitation is important as it should help the RTM board identify and secure the expertise they need.
