How to Set Up a Right to Manage Company
A comprehensive step-by-step guide to forming your right to manage company, from qualifying criteria and company registration through to serving claim notices and managing your building. Take control of your block with confidence.
Call 0161 371 7190What Is a Right to Manage Company?
A right to manage company (RTM company) is a special type of company formed by leaseholders to take over the management of their building from the freeholder or their appointed managing agent. Introduced by the Commonhold and Leasehold Reform Act 2002, the right to manage gives qualifying leaseholders the legal power to assume responsibility for the management functions of their block without needing to prove fault or mismanagement by the landlord.
Unlike buying the freehold, the right to manage process does not require leaseholders to pay a premium. Instead, it transfers management responsibilities - including service charge collection, maintenance, and insurance arrangements - to the RTM company. The freeholder retains ownership of the freehold but loses day-to-day control over how the building is managed.
Understanding how to set up a right to manage company is the first step towards taking control of your building. The process is designed to be accessible to leaseholders, although careful planning and adherence to statutory requirements are essential to ensure a valid claim.
Need expert guidance on right to manage? Our team at Block specialises in supporting RTM companies through the formation process and beyond. Learn more about your options on our right to manage page or call us on 0161 371 7190.
Qualifying Criteria for Right to Manage
Before you can set up a right to manage company, both the building and its leaseholders must meet specific qualifying criteria set out in the Commonhold and Leasehold Reform Act 2002. Failing to satisfy these requirements will invalidate the claim, so it is essential to verify eligibility before proceeding.
Building Requirements
- The building must be a self-contained structure or part of a building with at least two flats held by qualifying tenants
- At least two-thirds of the flats in the building must be let to qualifying tenants on long leases (originally granted for more than 21 years)
- The building must not be on land that is part of a track of adjacent properties exceeding four units where a single freeholder holds fewer than the threshold
- The premises must not have a resident landlord in a building with four or fewer flats (known as the resident landlord exemption)
- No more than 25% of the internal floor area may be used for non-residential purposes (excluding common parts)
Leaseholder Participation Thresholds
A minimum of 50% of the qualifying leaseholders must participate as members of the right to manage company for the claim to proceed. This means that in a block of 12 flats with qualifying tenants, at least 6 leaseholders must join the RTM company. Leaseholders who own multiple flats count once for each flat they own.
It is worth noting that the participation threshold relates to membership of the RTM company at the point the claim notice is served. Recruiting sufficient support early in the process is therefore critical to a successful claim. Effective communication with fellow leaseholders about the benefits and responsibilities of right to manage can help achieve the required numbers.
For more information on how leasehold structures work and your rights as a leaseholder, visit our leasehold management page.
Step-by-Step RTM Company Formation
Once you have confirmed that your building and leaseholders qualify, the next stage is the formal right to manage company formation. This process involves several key steps that must be completed in the correct order to ensure the claim is legally valid.
Step 1: Register the Company at Companies House
The right to manage company must be registered at Companies House as a company limited by guarantee. This can be done online for £12 or by post for £40. The company name must include the words "RTM Company Limited" or "Right to Manage Company Limited" to comply with statutory requirements.
You will need to provide a registered office address, appoint at least one director, and register a person with significant control (PSC). The registered office does not need to be at the building being managed.
Step 2: Adopt Appropriate Articles of Association
The company must adopt articles of association that comply with the requirements of the Commonhold and Leasehold Reform Act 2002 and the RTM Companies (Model Articles) (England) Regulations 2009. These model articles set out the rules for membership, director appointments, voting procedures, and general governance.
While model articles are available, many RTM companies choose to adopt bespoke articles tailored to their specific circumstances. A solicitor experienced in right to manage company formation can advise on the most appropriate approach.
Step 3: Invite Leaseholder Participation
Before serving the formal claim notice, the RTM company must issue a notice of invitation to participate to all qualifying leaseholders who have not already joined the company. This notice must include prescribed information about the company, the right to manage process, and how leaseholders can join.
The notice of invitation to participate must be given at least 14 days before the claim notice is served. This gives leaseholders time to consider whether they wish to become members and ensures the participation threshold is met.
Step 4: Verify Membership Numbers
After the invitation period has elapsed, confirm that at least 50% of the qualifying leaseholders are members of the right to manage company. Maintain accurate records of membership applications, as these may be scrutinised if the landlord challenges the claim.
For guidance on how residents' management companies are structured and operated, see our residents management company page.
Serving the Claim Notice
The claim notice is the formal legal document that initiates the right to manage process. It must be served on the landlord, any party to the lease who is not the landlord, and any manager appointed under the Landlord and Tenant Act 1987. Getting the claim notice right is critical - errors can invalidate the entire claim.
Notice Requirements
- The claim notice must specify the premises to which the claim relates and contain the name and registered number of the RTM company
- It must state that the RTM company intends to acquire the right to manage the premises on a specified date (the acquisition date)
- The acquisition date must be at least three months after the date the claim notice is served on the landlord
- The notice must list the names of each person who is both a qualifying tenant and a member of the right to manage company
- It must be accompanied by a copy of the articles of association of the RTM company
Counter-Notice and Timelines
The landlord has one calendar month from receiving the claim notice to serve a counter-notice. In the counter-notice, the landlord must either admit that the RTM company is entitled to acquire the right to manage, or deny it and specify the reasons. Common grounds for denial include failure to meet the qualifying criteria, errors in the claim notice, or disputes about membership numbers.
If the landlord does not serve a counter-notice within the one-month period, the right to manage company acquires the right to manage on the acquisition date specified in the claim notice. If a counter-notice is served disputing the claim, the RTM company may apply to the First-tier Tribunal (Property Chamber) to determine the matter.
For a detailed overview of the claims process and what to expect, visit our right to manage guide.
Costs of Setting Up a Right to Manage Company
One of the most common questions leaseholders ask is how much does it cost to set up a right to manage company . The costs vary depending on the size of the building, the complexity of the lease structure, and whether professional assistance is used. Below is a breakdown of the typical expenses involved.
| Cost Item | Typical Range |
|---|---|
| Companies House registration | £12 – £40 |
| Solicitor fees for claim notice preparation | £1,000 – £3,000 |
| Articles of association (bespoke) | £300 – £800 |
| Land Registry searches | £6 – £25 per title |
| First-tier Tribunal application (if disputed) | £100 – £500 |
| Professional managing agent appointment | Varies by building size |
Ongoing Obligations and Costs
Beyond the initial formation costs, a right to manage company must budget for ongoing expenses including annual Companies House filing fees, accountancy costs, insurance premiums, and potentially the fees of a professional managing agent. These ongoing costs are typically recovered through the service charge collected from leaseholders.
It is important to note that under the Commonhold and Leasehold Reform Act 2002, the landlord's reasonable costs incurred in consequence of the RTM claim must be borne by the right to manage company. This includes the landlord's legal costs of reviewing and responding to the claim notice, which can add to the overall expense.
To understand typical management fees and what to expect, see our guide to block management fees.
Director Responsibilities After RTM
Once the right to manage company acquires management functions, the directors take on significant responsibilities. Understanding these duties before you set up a right to manage company is essential to ensure effective governance and legal compliance from day one.
Managing the Building
Directors of the right to manage company are responsible for all aspects of building management previously handled by the freeholder or their agent. This includes arranging building insurance, collecting service charges, commissioning maintenance and repairs, managing communal areas, and ensuring compliance with health and safety regulations such as fire risk assessments.
Appointing a Managing Agent
Many RTM companies choose to appoint a professional block managing agent to handle the day-to-day management of the building. This is often the most practical approach, particularly for larger buildings or where directors have limited time or experience. The key advantage of RTM is that the leaseholders, through their directors, choose and control the managing agent rather than having one imposed by the freeholder.
AGM Requirements and Company Compliance
The right to manage company must hold annual general meetings (AGMs), file annual confirmation statements with Companies House, maintain proper accounting records, and comply with company law. Directors must act in the best interests of the company and its members, exercise reasonable care and skill, and avoid conflicts of interest.
Failure to meet these obligations can result in penalties from Companies House, potential personal liability for directors, and dissatisfaction among leaseholder members. Proper governance structures and clear communication with all leaseholders are vital to the long-term success of any RTM company.
Frequently Asked Questions About Setting Up a Right to Manage Company
How much does it cost to set up a right to manage company?▼
The cost to set up a right to manage company typically ranges from £1,500 to £5,000 depending on whether you use a solicitor. Companies House registration costs £12 online, but legal fees for preparing the claim notice, articles of association, and managing the process usually make up the bulk of the expense. Some RTM companies also budget for initial management handover costs.
How many leaseholders need to participate?▼
To set up a right to manage company, at least 50% of the qualifying leaseholders in the building must participate as members. For example, in a block of 20 flats, at least 10 leaseholders must join the RTM company. Only qualifying tenants with long leases (originally granted for more than 21 years) count towards this threshold.
How long does the RTM process take?▼
The right to manage process typically takes between 4 and 6 months from the initial decision to the acquisition date. After serving the claim notice, the landlord has one month to serve a counter-notice. If the claim is not disputed, the RTM company acquires management functions on the date specified in the claim notice, which must be at least three months after the notice is given.
Can a right to manage company buy the freehold?▼
A right to manage company itself cannot buy the freehold, as RTM and collective enfranchisement are separate legal processes. However, the same group of leaseholders who form an RTM company can separately exercise their right to collectively purchase the freehold under the Leasehold Reform, Housing and Urban Development Act 1993. Some leaseholder groups choose to pursue both options.
What are the disadvantages of RTM?▼
The main disadvantages of setting up a right to manage company include taking on full responsibility for building management, potential conflicts between leaseholder-directors, the administrative burden of compliance and accounting, and the risk of inexperienced management leading to higher costs. Directors also take on personal legal responsibilities and must ensure the building meets all regulatory requirements.
Who can be a director of an RTM company?▼
Any qualifying leaseholder who is a member of the right to manage company can serve as a director. Directors must be at least 16 years old and not disqualified under the Company Directors Disqualification Act 1986. While there is no maximum number of directors, most RTM companies appoint between three and five directors to ensure effective governance and decision-making.
Ready to Set Up Your Right to Manage Company?
At Block, we provide expert support throughout the entire right to manage process. From initial advice on qualifying criteria to ongoing block management after your RTM company acquires control, our experienced team is here to help.
Whether you are just starting to explore how to set up a right to manage company or your RTM company is already formed and you need a professional managing agent, we can provide tailored solutions for your building.