Forming an RTM(alone) and getting advise.

AbuBella

I have for the last year, been in a slow-paced effort to bring together the leasholders of a block of flats, to take collective action and bring the maintenance of the building up to standard and get costs down.

in a block of 9 flats, 8 have accepted and are on board to form an RTM company and take over the responsabilities of running the block.

This might seem stupid to some, so I'm trying to getting the right type of input, to get this done successfully.

I have at the moment copied the drafts for Memorandums of Association, and the Articles of Association from gov.uk legislation website, and ammended them to have them identify our building and so on.

I have gotten in touch, and booked a consultationary appointment with 2 charitable organisation that deal with leashold advice, additionally I am reaching out to some local law firms to help support us and our effort in forming the company, and providing the correct notice to the absentee freeholder.

Through my research around the subject, it seems there are only 6-5000 RTM compaines in the UK, which is so sad, and makes the scene look quite lonely.

I would highly appreciate some adivice or gudiance of anyone who has gone through the process, mistakes made, and words of encouragment.

Many thanks

gm0

I would say that the key things to get right are these

Avoid if you can having some people inside the RTM tent and others not involved  So work to include all 9 as members.

Think hard about a possible future freehold purchase and how governance would be affected by a more significant asset in the future.  The RTM company if you set one up may well be the vehicle into which that purchase happens.  So membership/shares of the Ltd become more important later.  Not just management packs, service charge apportionment and self management of the block.

You need to consider how "membership" if using Ltd by guarantee and a list rather than share capital works.  Basically you need lease assignment on a unit to trigger auto delete of prior members and automatic joining of new leaseholders at completion - who must then nominate a *single* name (regardless of split ownership - one lease - one vote to exercise their rights.  They nominate one.  And can appoint a proxy if heath/location/corporate entity - dictates).  You do not want membership of the RTM entangled in people's lives and relationships and divorces.  No half votes.  One lease one vote.  Always 9.  Never less, never more.  Never fractional.  Never shared.

The interest in the RTM company must not be seperable from lease assignment (purchase of a unit).  Ownership of company cannot be pulled away from being a leaseholder. Nor do you want to have to chase ex resident conveyancers for something to be released.  Hence the above. 

Updating CH for share capital changes seems an unwanted pain in the backside to me.  But there are different reasons some people dislike the other member register sort as well.  It is a duty of directors to maintain it.  Often delegated to MA where used.

Resilience and record keeping - self managed RTM with a single resident - taking initiative without an MA can cause excitement if somebody drops dead/illness/has a family crisis etc.  The savings on the MA fee while significant for a small estate, remove a level of contingency. So if the plan is not to use an MA then forcing there to be 2 or even more directors - all the time.  Adds redundancy.  And also some grief at finding and replacing them at AGMs.  Volunteer hands may stay down if this is not forced in some manner.  Some people are too busy or too old/incapacitated to take this on.  Demographics.

Governance (voting arrangements) also need to suit number of units.  Have a think about the basis for major decisions if you want to raise the bar on those to 2/3 or consensus.  Many articles templates are simple majority.

There are of course constraints from leases and property law.  But for major decisions you need to decide upon setup if you want 5:4 simple majority to be "enough".  Or a tougher bar for certain categories of decision making.  Freehold purchase often takes a couple of years once well along with successful RTM to get people on board with principle and detail.  Credit line to RTM companies to soften the cashflow blow of freehold purchase over several years - is also challenging at times.

I would also urge you to seriously look at the "sinking fund" decision around RTM and once established - to get it in the open and give it a shake and a discussion.  Situational - age and nature of building(s). Your leaseholders may prefer pay as you go - no sinking fund.  Or they may prefer saving up.  For lifts, roof repair and other unexpected lumpy costs as arise etc.  Over many years.  People genuinely have different views on trusting the RTM company and a sum of money being held in it over and above annual cashflow.  in some cases taking the view that they will be gone before the 30k lift bill arrives and that's a problem for leaseholders later with a Section20 for the full amount.   Very building specific.  A listed building with lifts and a flat roof - as it ages - is a different prospect to something more modern and recently built.  I would not buy a lease in a "risky" expensive to update place with no reserves.  You don't get to push those costs onto me.  Without a sharp reduction in the price to acquire the lease.  Such flats can become unsaleable.  And the negative equity/low growth can exacerbate the problem as people will be even more motivated to want the service charge low and yet reserves being absent have become a deterrent.  Doom loop.

silvercar

I'll ask the forum team to move this to the housing board.

gwynlas

i was a shareholder in a RTM some years ago but we appointed a very good managment agent with some leaseholders taking on director resposibilities. It worked pretty well though it was in the early days of RTM we had all moved in at the same time and had already formed bonds fighting against the developers, In a block where some leaseholders have been there a long time I know that it can be difficult to ge people to engage and participate in decision making

AbuBella

gm0 said:

I would say that the key things to get right are these

Avoid if you can having some people inside the RTM tent and others not involved  So work to include all 9 as members.

Think hard about a possible future freehold purchase and how governance would be affected by a more significant asset in the future.  The RTM company if you set one up may well be the vehicle into which that purchase happens.  So membership/shares of the Ltd become more important later.  Not just management packs, service charge apportionment and self management of the block.

You need to consider how "membership" if using Ltd by guarantee and a list rather than share capital works.  Basically you need lease assignment on a unit to trigger auto delete of prior members and automatic joining of new leaseholders at completion - who must then nominate a *single* name (regardless of split ownership - one lease - one vote to exercise their rights.  They nominate one.  And can appoint a proxy if heath/location/corporate entity - dictates).  You do not want membership of the RTM entangled in people's lives and relationships and divorces.  No half votes.  One lease one vote.  Always 9.  Never less, never more.  Never fractional.  Never shared.

The interest in the RTM company must not be seperable from lease assignment (purchase of a unit).  Ownership of company cannot be pulled away from being a leaseholder. Nor do you want to have to chase ex resident conveyancers for something to be released.  Hence the above. 

Updating CH for share capital changes seems an unwanted pain in the backside to me.  But there are different reasons some people dislike the other member register sort as well.  It is a duty of directors to maintain it.  Often delegated to MA where used.

Resilience and record keeping - self managed RTM with a single resident - taking initiative without an MA can cause excitement if somebody drops dead/illness/has a family crisis etc.  The savings on the MA fee while significant for a small estate, remove a level of contingency. So if the plan is not to use an MA then forcing there to be 2 or even more directors - all the time.  Adds redundancy.  And also some grief at finding and replacing them at AGMs.  Volunteer hands may stay down if this is not forced in some manner.  Some people are too busy or too old/incapacitated to take this on.  Demographics.

Governance (voting arrangements) also need to suit number of units.  Have a think about the basis for major decisions if you want to raise the bar on those to 2/3 or consensus.  Many articles templates are simple majority.

There are of course constraints from leases and property law.  But for major decisions you need to decide upon setup if you want 5:4 simple majority to be "enough".  Or a tougher bar for certain categories of decision making.  Freehold purchase often takes a couple of years once well along with successful RTM to get people on board with principle and detail.  Credit line to RTM companies to soften the cashflow blow of freehold purchase over several years - is also challenging at times.

I would also urge you to seriously look at the "sinking fund" decision around RTM and once established - to get it in the open and give it a shake and a discussion.  Situational - age and nature of building(s). Your leaseholders may prefer pay as you go - no sinking fund.  Or they may prefer saving up.  For lifts, roof repair and other unexpected lumpy costs as arise etc.  Over many years.  People genuinely have different views on trusting the RTM company and a sum of money being held in it over and above annual cashflow.  in some cases taking the view that they will be gone before the 30k lift bill arrives and that's a problem for leaseholders later with a Section20 for the full amount.   Very building specific.  A listed building with lifts and a flat roof - as it ages - is a different prospect to something more modern and recently built.  I would not buy a lease in a "risky" expensive to update place with no reserves.  You don't get to push those costs onto me.  Without a sharp reduction in the price to acquire the lease.  Such flats can become unsaleable.  And the negative equity/low growth can exacerbate the problem as people will be even more motivated to want the service charge low and yet reserves being absent have become a deterrent.  Doom loop.

Hi GM, sorry for the belated reply, I would just like to thank you for a very comprehensive comment to my question.

Your reply has brought with it a wealth of points to consider, and I truly appreciate all the effort you've put into writing this (I'm taking notes). I am feeling overwhelmed yet excited at the prospects of having better control over the maintennce of the building, and fellow neighbours seem happy to go along, albeit a bit uninvested. I am trying to set up a financial plan for the running costs/sinking fund and discuss things over with the others.

On the legal and financial side, I am trying to book a consultation with rtmf, which is an RTM specialist company that has been referred to me by one of the leasholders' property agents. Did you ammend the Articles of Association, and register the company yourself? You seem quite experienced in this. I'm trying to be quite careful and not mess things up as my greatest concern would be to have my notice invalidated by the freeholder and having to got to a tribunal to sort things out. So I'm reading as many helpful resources around RTM as I can, but still feel like I should consult a specialist.

Also in case you have used any consultation services, please feel free to share with me.

Kind Regards.