Is A New Landlord Bound By An Old Landlords Lease Right to Manage Directors: The Buck Stops With You!

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Right to Manage Directors: The Buck Stops With You!

RTM directors are required to work within a legal framework that consists of the following key elements:

LEASE

The rent is specific to the individual residential property under management. It is the contract made between the landowners (what they are bound to do) and the tenants (what they have contracted to do). RTM directors must have an understanding of the terms of the lease (including any restrictions) because any action they take against the terms may lead to action being taken against them.

Management Agreement

This is the contract between the managing parties and their client. Directors will therefore need to ensure that such an agreement covers specific development needs.
Codes of Practice

Directors of RTM will be expected to comply with recognized Codes of Practice and they will be expected to ensure that the managing agent also complies.

lEGISLATION

RTM Directors will need to familiarize themselves with the legislation relating to the management of the block of flats under the 6 main Acts of Parliament (commonly referred to as Landlord and Tenant legislation). They will also need to be familiar with wider legislation, not necessarily sector specific, such as Data protection, disability discrimination, employment and company law, mainly the Companies Act 2006. They will also be required to know Health and Safety legislation. This is because the common areas of blocks of flats are judged by the Health and Safety Executive to be a workplace because they are run by the company and are supposed to be a profitable business!

A matter of law

These are decisions made by the courts on a range of issues affecting the lettings sector, which can determine how a particular piece of legislation or words used in a lease should be interpreted.

DAY OF PURCHASE

Once the right to manage has been granted, on the Purchase Day (s90 of the Tenancy and Common Reform Act 2002) the RTM Company takes formal control of the management functions from the freeholder under the lease agreements. Freeholder agreements 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 building insurance, accounting and providing legal information and more.

Management functions under s96 are described as ‘functions relating to services, repairs, maintenance, improvements, insurance and management’ with s97 stating that the RTM Company will be responsible to the tenants and the landlord and solely responsible for management functions that are not be undertaken by others without the approval of the company.

Granting approvals

Under s98 and s99 of the 2002 Act, the Directors of the Company will be responsible for giving approvals under the terms of the lease. Because leases usually require the tenant to seek approval from the freeholder for subletting (sale), sublease (sublease), alterations, improvements and changes of use, this function devolves to the directors of RTM on the date of purchase. They will still need to be aware that they cannot give approval without giving the freeholder(s) 30 days notice. In any other case it will be 14 days.

The company must be notified if the freeholder objects or wishes to impose conditions. The matter may then be referred to the LVT on application made by the freeholder, the RTM company, the tenant seeking consent, or, if the matter concerns the approval of a deed of a sub-tenant, by that sub-tenant.

Enforcement of Tenant Agreements

Under s100 of the 2002 Act, RTM Directors are responsible for ensuring that all other tenants adhere to the covenants and obligations contained in their tenancy and under s101 they are under a statutory duty to monitor and review whether the covenants are being implemented. . They must take steps to correct any violations and report any discrepancies to the freeholder. This report must be made before the end of the 3-month period starting with the day on which the non-compliance comes to the attention of the RTM company. However, violations do not have to be reported if the violation has been corrected, compensation has been paid, or the landlord has notified the company that the violations are not to be reported.

While the company can sue for debts or seek injunctions for breach of agreement, such as repairs or disturbances, the landlord remains responsible for honoring its covenants, such as securing quiet enjoyment and housing support rights.

When the lease provides the right of entry into the premises by the lessor for the observance or enforcement of agreements, this right is also available to the RTM company.

Registration at Companies House

Directors will be held personally responsible for ensuring that the company’s accounts and annual returns are filed with Companies House on time, even if the responsibility is assigned to a company secretary. Failure to do so may mean prosecution. In addition, the address of the registered office of the company must be current and present in order to receive the notices that have been sent.

Personal liabilities and risk assessments

Because the common areas of a block of flats are considered a workplace, RTM directors have the same personal liabilities as trading company directors and can be sued in exactly the same way. Claims can result from a number of areas, such as someone who feels there has been a decline in the value of their home as a result of failing to identify external dilapidation. They may arise from someone who feels that the contractors used in the building have done poor work. Claims can also be brought if someone has been injured as a result of failing to carry out regular risk assessments. According to the article “Questions Raised About Tenant’s Right to Manage” published on 24dash.com in 2009, Geoffrey Wolfarth, senior attorney in the property team at Adams & Remers said that “the right to manage, where tenants receive taking over the running of a building itself has been seen as a remedy for financial disputes with landlords, but what has happened in practice is that tenants are using the right to avoid carrying out safety checks and repairs required by law.”

It is therefore essential that Directors and Officers Liability Insurance is obtained.

MY PERSONAL VIEW

We had no freeholder, no managing agent and no interest from anyone else to return the block assets. We were actually forced to take RTM because it was the only option eventually made available to us by a BTL investor who owned enough flats to enable us to meet the criteria.

Besides being forced to take it, I also have some serious concerns. Managing agents are sourced from an unlicensed and unregulated sector and there is anecdotal evidence to suggest that some are actively encouraging directors to ‘hands off and get on with it’ which should be opposed. Managing agents are employed in exactly the same way that any other company employs its workforce, so they must be managed accordingly. The success or failure of RTM will not only depend on providing a better agent than the previous one, but also on how effective the principals will be in guiding them, which raises another question. How can RTM directors lead effectively if they don’t understand how to do it? It is also interesting that there are no criteria for directors of RTM companies to meet. Although our principals had an idea of ​​what they were letting themselves in for, there was no way they could have instructed effectively because not only did they have no knowledge of block management, but they both had demanding jobs with full. That’s why I do it!

It is also not always understood that because the RTM is a no-fault process, the freeholder has the right to join the new Board if they wish to take it. If he is part of the problem, then the consequences speak for themselves.

summary

You need to be sure that RTM is the right move for your particular development and circumstances. If collective right (acquisition of freehold) is not an option, alternative dispute resolution, the creation of a residents’ association, compulsory acquisition of freehold and appointment of management via LVT should all be considered.

You should also bear in mind that investor freeholders usually choose to offload the most irritating aspects of being a freeholder to managing agents in the first place. So if the unprofitable and time-consuming needs of collecting service charges, chasing arrears and enforcing agreements 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 . . .”

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