Right to Manage costs

ricardoakaapna

Hi,

I am part of a residents association that is exploring right to manage (RTM).

We are a 30 flat block in the Ealing area.

We want to get advice on the process so how much should we be expecting to pay for our legals or consultant.

I'm also aware we have to pay for freeholders legals. I estimate at £3k based off google search. Is that realistic?

Our block is 1930's build which had an extension on it some time after but we also have a separate building (garages with some flats on the upper level).

I understand we will need two RTM's as each building needs to be done separately. Will that potentially double the freeholders legal costs?

Is it typical for the residents association that assumes management to pay a salary to its key members? e.g. treasurer, chair etc?

100% of flats may not participate and I understand that costs of RTM can't directly come out of the service charge. To get around this, and in order for fairness, I'm thinking of giving a small salary to the residents who paid for the RTM process equivalent to the extra money they have to put in because not everyone financially contributed.

Thanks in advance!

eddddy

ricardoakaapna said:

100% of flats may not participate and I understand that costs of RTM can't directly come out of the service charge. To get around this, and in order for fairness, I'm thinking of giving a small salary to the residents who paid for the RTM process equivalent to the extra money they have to put in because not everyone financially contributed.

Do you mean pay them a salary out of service charge funds?

If so, you probably need to take a step back. You can't use the service charge funds to pay some people a salary (for doing nothing), because you think they deserve to have some cash.

It's a little bit shocking that you're even contemplating doing that. The service charge funds aren't your money to distribute as you choose. It's leaseholder's money which you should be using to carry out the freeholder's responsibilities stated in the lease.

If you did pay 'fake salaries' and the leaseholders found out, I imagine they'd challenge them at a tribunal. 

gm0

Been through this a couple of times

RTM is a very natural early stage for a development to go through, often the step ahead of exploring acquiring freehold a few years later.

There are many advantages - sensible medium term maintenance plans and realistic sinking fund provision for infrequent lumpy items (lifts are a classic - save up). This involves getting the leaseholder residents group to understand paying a bit more is the right thing to do long term and in their interest when they come to sell - well maintained + adequate reserves = easy to sell.  Ability to flip day to day managing agents yourselves occasionally as the cycle from "attentive" to lazy and exploitative plays out. 

What people often miss in their quest for lowest here and now costs is that a deficit on maintenance and the sinking fund builds up and ultimately can make a place increasingly unsaleable if there is no money for the maintenance schedule year to year and longer cycle larger liabilities.  I looked at a lovely place for a relative a few years ago now but it was a listed historic building and the sinking fund was risible and had been ignored for a decade plus.  So flats in the "old house" were becoming deeply discounted/unsaleable except to people who fell in love with it and embraced the risk of paying 1/6 of the roof on a listed building or just weren't paying attention.  Bargepole job. The developer sensibly enough (for them to sell them easily) had not put the listed building liabilities in the 50+ leases of the new build houses and apartments on the estate grounds.  Extreme example but you get the point.

RTM and Freehold Mgt Company.

But be in no doubt you need to be clear eyed as potential "directors" of this putative future management committee (and subsequent freehold acquiring management ltd company (owned one share each by the leasholders).

The level of whinging which these unpaid volunteers will experience over all topics parking nuisance, noise, subletting, tenants running businesses at all hours, absentee landlords not giving a stuff about tenant behaviour, maintenance inadquate+service charge too high, legacy issues/sinking fund new buyers furious prior leaseholders have skimped etc. etc. etc.  Endless whinging and even aggression towards RA volunteers who can unsurprisingly become elusive as populations cycle and age. 
At an AGM everyone is a critic.  And yet nobody wants to do it.  Someone with a fairly thick skin and experience handling this sort of contentious meeting situation in their professional life with time to do it needs to take it on.  Initially at least and settle it down in good order.

The other lesson is to think hard about the blocks included and the overall site and how the freeholds and leases actually work in terms of structure.  Estate (roads, garages, gardens anything that isn't buildings or the council's adopted roads), 
Blocks (and their maintenance plans which may need to reflect usage - heavy wear letting - lots of removals, vs long term elderly residents.  But however creative you want to be - the actual liabilities are what they are in the (long) leases and you are unlikely to want to or be able to get these rewritten.   This will not stop arguments about unexpected expenses which prove uninsurable - life expired retaining walls etc. and who *feels* they should pay vs who is liable.  Obfuscation unhelpful. What matters is the leases and the wide body of case law on freehold/leashold, boundaries etc.

Keeping it very simple and very much lease aligned initially would be my suggestion.

The salary thing as compo is not a clever ruse.  Don't mix this long term "running it" issue with the transaction.  Leasholders will expect the fees paid to any outsourced managing agent to be all the salaries that are getting paid. As they are paid to do the day to day stuff.  RA direction is most often volunteer based. Out of pocket expenses.  Public Indemnity insurance for the directors of the Ltd (If buying the freehold).   You really want to take the whole blocks with you by winning the votes in the RA and proceeding legally step by step. This can be difficult.  I certainly wouldn't vote for an RA motion trying to setup a model with paid employees. 30 isn't really enough for a (full time) hired on site manager really either so I think that is likely a non-runner. 

Ending up with part blocks is also going to make the possible future freehold transaction and management arrangements messier to deal with (Service charge collection, delinquency etc. etc.). Avoid if you can a dual class of residents "in the system" and "outside it" but with rights and obligations in the same blocks.

But it may mean the RTM step takes a year or three for frustration with the original setup to build.  Ours did.  Took time to get enough residents focused on it and dissatisfied enough to make the jump.

eddddy

gm0 said:

Been through this a couple of times

RTM is a very natural early stage for a development to go through, often the step ahead of exploring acquiring freehold a few years later.

<snip>

I think that what you're essentially saying is that RTM and Joint Freehold ownership (or "Shared Freehold") are big complex concepts.

From both a legal and admin perspective - and in terms of dealing with people.

So reading some of the posts on this board, it's a bit scary how keen many people seem to be to rush into "Shared Freeholds" in particular, with so little thought, planning and understanding. I suspect it's going to be a very difficult road ahead for a lot of people.