Right to Manage (RTM): A Guide for Small Leasehold Investor Groups

Right to Manage (RTM): A Practical Investor Guide

Right to Manage is a statutory right that lets qualifying leaseholders take over day-to-day management of their block from the freeholder without buying the freehold. You set up a single-purpose RTM company, meet the legal tests, and management transfers on a fixed date. The freeholder keeps the ground rent and reversion; you take the operating wheel and the responsibility that comes with it. If you are weighing freehold vs leasehold control dynamics, RTM sits squarely in the middle: you gain operating levers without paying for the freehold.

RTM is simple in concept and exacting in execution. It gives leaseholders control over budgets, contractors, repairs, insurance where the lease permits, and service charges. In return, you inherit the work: compliance, cash control, and governance. For small investor groups that own several flats in a block, RTM converts passive exposure into an operating position with direct levers on cost and service quality. The upside is discipline; the price is responsibility.

RTM scope – what transfers and what stays put

The right extends to management functions under the leases and relevant statutes. That usually means repairs, maintenance, services, insurance where the lease allocates it to the manager, approvals tied to management covenants, and service charge administration. Pure property rights stay with the landlord. RTM is not enfranchisement, not a tribunal appointment of a manager, and not a lease variation. Expect dual tracks on estates: the RTM controls block services; estate-wide services remain with the freeholder or estate manager. Where leases split block and estate services, budget for separate billing and divided control.

Eligibility and limits you must clear

Qualifying premises: A self-contained building or part with at least two flats. At least two-thirds of flats must be on long leases granted for more than 21 years. Non-residential internal floor area must not exceed 25% under current law as of 2024. Parliament has legislated a rise to 50% and broader multi-building RTM, but commencement needs secondary legislation. Plan on current thresholds until DLUHC confirms start dates.
Resident landlord exception: No RTM where a non-purpose-built building has four or fewer flats and the freeholder has lived in one as a principal home for at least 12 months.
Participation threshold: Members in the RTM company must be at least 50% of qualifying flats on the claim date. Corporate owners count. Line up signatures and KYC for bank mandates before service to avoid a failed claim.
Estates and shared services: RTM applies per building or distinct part. Services over areas not exclusively serving the block stay outside RTM, per the Supreme Court. Savings can be diluted where estate charges dominate.

Before you commit, confirm the basics: read the leases, measure non-residential areas, and check titles. A clean HM Land Registry title review is often the difference between a smooth claim and a reset.

Legal form and governance that stand up in daylight

RTM vehicle: Use a private company limited by guarantee with prescribed articles. It is single purpose. Members are qualifying tenants who opt in; the landlord can join after acquisition but cannot control ordinary decisions. Treat the RTM as a focused special purpose vehicle with a clear mandate.
Ring-fencing: Service charge monies sit on statutory trust for the payers and must be banked separately. Company creditors cannot touch trust funds. Keep separate ledgers for trust cash and company operating cash to avoid director exposure.
Board duties: Companies Act duties apply. The board can appoint a regulated managing agent under a written mandate. Good boards publish budgets, minutes, and KPIs; weak boards argue about light bulbs. A light-touch asset management plan helps align the board and the agent on priorities for year one.

How the process runs – timing and critical path

Pre-claim diagnostics: Confirm eligibility; collect lease schedules, title and floor-area data; understand headleases and estate rentcharges. Produce a memo that supports the decision to proceed or stand down. Typical timing is 2 to 4 weeks.
Build the vehicle: Incorporate the RTM company and enroll members. Serve the Notice Inviting Participation on all non-member leaseholders to cut off later challenges. Fair process earns cooperation.
Pull the files: Serve Information Notices on the landlord and managing agent for contracts, insurance, service charge accounts, employee details, fire risk assessments, and as-built documents. These notices are enforceable; factor 2 to 4 weeks for responses.
Serve the claim: Send the Notice of Claim to the landlord and any intermediates with management functions. The counter-notice deadline is one month. If undisputed, management passes on the acquisition date, typically at least three months after the counter-notice window. If disputed, the First-tier Tribunal rules on validity. Uncontested timelines run 4 to 7 months; litigation extends that.

Money flows after acquisition

Service charges: The RTM company or its agent bills and collects per the leases and the approved budget. Funds go to designated trust bank accounts. Provide year-end statements with reconciliations. Because transparency is credibility, publish a clear note on service charges and timing of demands.
Reserve funds: Transfer from the landlord’s agent to the RTM trust account on acquisition and keep earmarked per leases. Short reserves delay works or force levies.
Insurance: Follow the lease. If the landlord holds the right to insure, RTM cannot replace that function. If the lease grants the manager the role or is silent, the RTM can place cover. Since September 2023, FCA fair value rules limit opaque commissions on multi-occupancy insurance. Insurance retenders often deliver quick savings and better disclosure.
Estate charges: Where leases split block and estate services, expect separate bills and separate managers. Some savings will be outside your control.

Consents, transfers, and information flow

Consents: The RTM can grant approvals tied to management such as alterations, assignments, and underlettings where the lease vests that power in the landlord in a management capacity. Pure property approvals stay with the landlord. A coordination protocol avoids delays and duplicate fees.
Transfers: RTM membership follows the flat; a seller’s guarantee under the articles is nominal and ends at transfer.
Information rights: Leaseholders retain rights to service charge summaries and inspection. The landlord, as a member, receives budgets, accounts, and key building notices. Clear communication cuts disputes.

Documentation that wins challenges

Incorporation pack: Keep the memorandum, prescribed RTM articles, member applications, register, and guarantees tidy and complete.
Statutory notices: Use statute-compliant templates for the Notice Inviting Participation, Information Notices, and Notice of Claim. Serve every relevant party by valid methods and keep evidence of service. Execution order matters; serve the participation notice before the claim.
Counter-notice and Tribunal: If challenged, assemble title packs, lease schedules, floor plans, and company registers. Provide witness statements on qualification and building configuration. Budget for legal and surveyor time.
Handover on acquisition date: List and transfer contractor appointments, novations or terminations, insurance certificates, warranties, fire and structural records, keys and access control, service charge bank balances, arrears ledgers, and data files. Where TUPE applies, the landlord’s agent must deliver employee liability information at least 28 days pre-transfer.
Post-acquisition setup: Put in place the managing agent mandate, bank mandates for trust accounts, reserve fund policy, procurement frameworks, health and safety policy, a building safety case for higher-risk buildings, and the annual budget with demands.

Economics and the fee stack – where value shows up

One-off costs: Legal diligence and notices, Companies House fees, surveyor work on floor areas, Tribunal fees if contested, and handover transition costs. The RTM company pays the landlord’s reasonable costs of dealing with the claim and handover, win or lose, excluding the landlord’s Tribunal opposition costs unless the Tribunal orders otherwise.
Recurring costs: Managing agent fees, accounting and independent reports on service charges, statutory testing, insurance, compliance with fire and building safety regimes, utilities, cleaning, repairs, reserve contributions, and professional fees for Section 20 consultations. Retendering and honest specifications often reset inflated contractor pricing within one budget cycle.
Recovery risk: Recovery of setup costs through the service charge depends on lease wording. Many leases allow management and legal and professional costs; others do not. If unclear, raise a member contribution or record a deficit to be recovered on sale via deed of covenant.
Breakeven math: 20 flats, £100k annual service charge. A 10% reduction from retenders and insurance saves £10k a year. If setup and handover cost £18k, you breakeven in year two.

Accounting and reporting – keep the trust clean

Company accounts: An RTM limited by guarantee usually files small-company accounts under UK GAAP. The company often has minimal income and expense outside service charges, which are trust monies and excluded from the P&L.
Service charge accounts: Issue an income and expenditure statement, a balance of unspent funds and reserves, and notes reconciling to bank accounts. An independent accountant’s report is common and may be required. Sloppy reconciliations undermine lender and buyer confidence.
Consolidation: Investor groups holding multiple flats generally do not consolidate the RTM company; it is not controlled in substance. Treat service charges as period costs.
Audit: Statutory audits are rare unless size thresholds are breached, but lenders for high-rise remediation or reserve-funded works may ask for enhanced assurance and bank controls.

Tax notes that avoid surprises

Corporation tax: RTM companies are not-for-profit, with little or no taxable trading profits. Bank interest on trust monies follows trust and lease rules, not company income. Confirm current HMRC practice with your accountant.
VAT: Managing agent fees are subject to VAT if the agent is registered. Residential service charges are generally exempt or outside scope depending on who is the principal supplier. If the RTM is principal, perform a partial exemption or registration analysis. Insurance premium tax applies regardless.
Cross-border: Typically not a factor for domestic services. Non-UK investors should check VAT treatment on any atypical recharges.

Regulatory and compliance – non-negotiables

Insurance conduct: FCA rules from September 2023 require fair value assessments, remuneration disclosure, and better information for leaseholders. Boards should demand fair value files from brokers and send disclosure packs to leaseholders.
Building safety: Higher-risk buildings at 18m plus or seven storeys and two or more units carry Accountable Person duties under the Building Safety Act 2022. Where the RTM assumes repairing obligations, it may be the Accountable Person or the Principal. Register, maintain a safety case, run mandatory occurrence reporting, and fund compliance through the service charge.
Property agents: If you appoint an agent to hold client money, verify redress scheme membership and client money protection annually. Use designated client or trust accounts with reconciliations.
Company law: Identity verification and filing reforms under the 2023 Act are phasing in. Verify directors, maintain a proper registered office, keep member registers current, and file PSC information where applicable.
Data protection: The RTM company is a data controller. Maintain a privacy notice, lawful bases, and processor contracts with the agent.

Risks and edge cases – keep your guard up

Structural scope: Retained insurance rights and non-exclusive estate facilities limit what RTM can influence. Expect separate estate invoices that trim headline savings.
Disputes: Landlords can challenge qualification counts, building configuration, or process defects. Common errors include wrong premises descriptions, failure to invite non-members, or bad service methods.
Cash controls: Poor segregation, weak approvals, and lax arrears collection drain trust funds and expose directors. Use two signatories, monthly reconciliations, and a clear arrears ladder that respects reasonableness rules.
Procurement and continuity: Novation of contracts is rare. Be ready to re-procure on day one. TUPE may transfer site staff; budget for harmonization or redundancy.
High-rise compliance: Safety workstreams consume bandwidth. Appoint competent people and fund properly.

Alternatives that sometimes beat RTM

Tribunal-appointed manager: Good when mismanagement is provable and you lack a majority. Control sits with a professional manager. Faster in distress; fewer levers for leaseholders.
Enfranchisement: Buys full control with capital and valuation risk. It is often right when non-residential proportions or estate layouts would hobble RTM, or when lease extensions and ground rent restructuring drive value.
Enhanced engagement: In small cooperative blocks, a residents’ committee and negotiated KPIs with the landlord’s agent can deliver gains without statute. It only works where incentives align.

Implementation cadence with clear owners

Week 0-4: Feasibility and mandate. Appoint specialist counsel and a proposed managing agent. Assemble leases and title. Produce an eligibility memo and risk register.
Week 4-8: Incorporate the RTM, enroll members, serve the Notice Inviting Participation, and prepare Information Notices.
Week 8-12: Serve Information Notices and digest disclosures. Draft and serve the Notice of Claim. Landlord counter-notice is due in one month. If disputed, file to Tribunal within two months.
Week 12-24: Plan handover, procure day-one contracts, open trust accounts, draft the budget and demands, build an asset register, and set compliance tasks.
Acquisition date: Transfer funds, keys, documents, and data; issue service charge demands; notify residents and contractors.
Month 6-12: Stabilize operations, run Section 20 for planned works, set reserve policy, complete the first service charge statement with independent report, and test insurance renewal against FCA fair value rules.

Kill tests and frequent missteps

Kill test 1: Non-residential floor area over the statutory limit at claim date. Remedy is to stand down or wait for the 2024 reforms to commence and reassess.
Kill test 2: Less than a clear 50% membership with KYC-ready signatories. Do not serve the claim until locked.
Kill test 3: Multi-block estate with shared plant and access that cannot be separated or recharged cleanly. Consider enfranchisement or a Section 24 estate manager.
Kill test 4: Leases that reserve insurance to the landlord and bundle major estate services. If you cannot influence the big cost drivers, the thesis is weak.
Process pitfalls: Defective notices and service methods. Use compliant descriptions, serve every relevant party, and evidence service.

Practical operating model for small investor groups

Board mix: Combine investor and occupier directors, and add an independent chair if tensions run high. Define reserved matters and conflicts protocols. Require quarterly KPI reporting from the agent on arrears, response times, and budget variance.
Cash controls: Two signatures, separate trust bank accounts per block, monthly reconciliations, and no use of trust funds for company expenses.
Procurement: Two suppliers per category, framework agreements with rate cards, annual benchmarking, and portfolio buying power across blocks where leases and trust law allow.
Compliance calendar: Map Section 20 thresholds, statutory summaries of rights, health and safety inspections, lift and fire testing, and building safety filings. Assign named owners and due dates.
Communications: Publish budgets, year-end accounts with the accountant’s report, and a two-year works plan. A resident portal for tickets and documents reduces disputes, especially in blocks prone to service charge disputes.

What the 2024 reforms change – and what they do not

Parliament has approved reforms to raise the non-residential cap to 50% and to enable multi-building RTM in more scenarios. These changes need commencement regulations. Until then, run your transaction on current law. The reforms do not remove the 50% membership threshold, the need for compliant notices, or the split between block services and estate services. They do not alter the trust status of service charge funds or override insurance rights fixed in leases.

Decision framework for investors

Use RTM when eligibility is clear, the leases let you influence major cost drivers, and you have either an experienced director or an institutional-grade managing agent. Target quick wins in insurance and contractor retenders, and tighten arrears collection. Avoid RTM where estate complexity dominates, where building safety work would overwhelm the board, or where setup relies on uncertain service charge recovery. In those cases, pursue a tribunal manager or save resources for enfranchisement. Above all, treat RTM as an operating business: design governance, controls, and reporting with lender-grade discipline. Make service charge funds and decisions ring-fenced, traceable, and auditable.

Closing Thoughts

RTM hands the steering wheel to leaseholders, but it demands professional standards from day one. If you get eligibility, notices, and handover right, you can reset costs, improve service quality, and protect value. If you skimp on controls, the trust account leaks and relationships fray. Aim for clean process, clear reporting, and early savings that prove the model.

Related reading to deepen context includes practical overviews of service charges, how to interpret an HM Land Registry title, lease-centric levers such as lease extensions, and patterns behind freehold vs leasehold outcomes.