What does an RTM company actually take over from the landlord, and what stays with them?
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The landlord’s “management functions” under the leases pass to the RTM company: its functions with respect to services, repairs, maintenance, improvements, insurance and management. The freeholder stays the owner and keeps functions to do with forfeiture and re-entry, and flats not held by a qualifying tenant are outside it. The landlord can’t do the things that are now the RTM company’s job without agreeing it with the company, though it may still insure at its own expense.
What passes to the RTM company
Section 96 of the Commonhold and Leasehold Reform Act 2002 says that management functions which a landlord has under a lease of the whole or any part of the building “are instead functions of the RTM company”. It defines management functions as “functions with respect to services, repairs, maintenance, improvements, insurance and management”. In practice that is the landlord’s job under a typical lease: keeping the structure and common parts in repair, providing the services, arranging the insurance, and running the building.
The same applies to anyone else who is party to a lease other than as landlord or tenant, such as a management company named in it. Lease terms about how those parties deal with each other in relation to those functions stop having effect.
What stays with the landlord
- Ownership. The freeholder still owns the building. The Right to Manage transfers functions, not the freehold.
- Functions relating to re-entry or forfeiture. Section 96(6)(b) leaves these out, so they don’t pass to the RTM company.
- Matters concerning only a flat that isn’t held under a lease by a qualifying tenant (section 96(6)(a)).
The landlord can’t carry on regardless
Under section 97(2), the landlord, anyone else party to the lease, and a tribunal-appointed manager are “not entitled to do anything which the RTM company is required or empowered to do under the lease” except under an agreement with the RTM company. Section 97(3) makes one exception: nothing stops a person insuring the building, or part of it, at their own expense. Any obligation the RTM company owes the tenants under section 96 is also owed to the landlord (section 97(1)), so the freeholder can enforce it.
What changes for service charges
- Functions a tenant could exercise against the landlord in relation to those management functions are now exercised against the RTM company (section 97(4)).
- The service charge rules in sections 18 to 30 of the Landlord and Tenant Act 1985 (reasonableness, consultation on major works, the summary of rights sent with demands and so on) apply with the RTM company in the landlord’s place. Schedule 7 paragraph 4 of the 2002 Act says references to the landlord are to the RTM company.
- Where the freeholder pays a contribution towards the costs, the freeholder counts as a tenant for those rules.
- Costs incurred before the takeover don’t move across. Section 97(5) says tenants aren’t required or permitted to pay the RTM company the part of any service charge needed to meet costs incurred before the right to manage was acquired.
We haven’t read the sections on the handover of money and records at takeover (sections 94 and 95), so this answer doesn’t cover what the outgoing landlord must hand over or pay across. Ask your solicitor about that, or check those sections directly.
This is general information, not legal advice.
How Tiny Freeholder helps
Tiny Freeholder is built for the RTM company in the landlord’s place. Section 20 notices, service charge demands with the prescribed summary of rights, the 18-month limit and the year-end accounts all go out in the company’s name, and the fire safety, insurance and building checks are tracked with their dates. It doesn’t handle the takeover itself, such as the claim notice or the handover from the previous manager.