RTM managing the building themselves

Foxylady7170

Hello, 
As a Director of a RTM of 23 flats and frustrated by the MA we are considering managing the building ourselves. What are the major things we need to take into consideration?
We've already negotiated our own companies to provide services cheaper than MA eg our own accountant, our own broker for building's insurance and a new contract for fire safety including survey. We are EICR compliant for 5 years. We have a secured a gang of competent builders, electricians and decorators to provide repairs.
Any and all advice welcome especially from RTM who have taken this step. 

DullGreyGuy

Foxylady7170 said:

Hello, 
As a Director of a RTM of 23 flats and frustrated by the MA we are considering managing the building ourselves. What are the major things we need to take into consideration?
We've already negotiated our own companies to provide services cheaper than MA eg our own accountant, our own broker for building's insurance and a new contract for fire safety including survey. We are EICR compliant for 5 years. We have a secured a gang of competent builders, electricians and decorators to provide repairs.
Any and all advice welcome especially from RTM who have taken this step. 

Depends on how you and neighbours get on, who's going to field the call at 2am when the roof comes off and rain starts pouring in. Who deals with all the letters of complain the one obnoxious tenant keeps writing about everyone else? 

Its doable, but our last place was a share of freehold (not all leaseholders participated) who initially tried to self manage but then appointed an agency because it was too much time/effort for the voluntary staff to do with c175 leaseholders not all of which were freeholders. 

NordicNoir

Foxylady7170 said:

Hello, 
As a Director of a RTM of 23 flats and frustrated by the MA we are considering managing the building ourselves. What are the major things we need to take into consideration?
We've already negotiated our own companies to provide services cheaper than MA eg our own accountant, our own broker for building's insurance and a new contract for fire safety including survey. We are EICR compliant for 5 years. We have a secured a gang of competent builders, electricians and decorators to provide repairs.
Any and all advice welcome especially from RTM who have taken this step. 

Do not under estimate how hard it might be to get people to pay their service charges. Having a managing agent ‘in between’ the directors and your neighbours adds a certain gravitas to the whole collection process. Once it effectively becomes neighbours asking other neighbours to pay up, it definitely gets harder….how comfortable will it be having to threaten further action or being faced with requests for extra time to pay, sob stories etc?

Also, check that your accountant is experienced in service charges. I am an accountant and when I took on the accounting for our RMC, I was quite shocked at how specialist it was. Make sure that they actually read the leases to check that they are doing it correctly, rather than how they think it should be done.

When I took over the accounting from the developers, their old accountant had treated service charges like a ‘big bucket’ and had made no effort to keep separate service charge accounts for each property, changed year ends several times, missed costs that had not been charged over from the developer’s etc.

A_JS

@Foxylady7170

Sorry to jump on your thread, but would you be able to give any advice re setting up the RTM please? This is something I would like to do for our block, we are much smaller in comparison (a house converted into 3 flats)

Thank you in advance!!! 🙂

gm0

An important thing you can do - up front.  is make sure that the "setup" you create and communicate and bring into operation - insists via its processes - that there are sufficient volunteer directors all the time (whether or not you then buy the freehold into it later).

The habit is established of forcing the election of several and reappointing at AGM and electing new to refill exit and retirement gaps.  This as a precursor to doing *anything* else. No excuses.  It is always difficult to find and sustain enough volunteers.  So it needs contextual pressure on leaseholders to put their hand up. When free riding - most of the time is by far the easier option.

3-4+ on the board is good.   2 is wobbly  One is a problem.  That in a setup with sub 50 leases.  
Perhaps more for a bigger site (with more blocks and more issue quantity and variety).  

Or all of you all the time - as leaseholders in the RTM of a split house perhaps - if <5.

I find from various less than great experiences - that RTMs and SOFs are both very vulnerable to the death, departure or other incapacity of "volunteers".  The executors and families of said folk - have precisely zero obligation to the rest of you to deal with sudden departure - other than their own incentive handling the leasehold property.  That it not be chaos.  To be helpful to whoever steps up - to the extent they can.  But it is not for them  to solve the problem.  A company director is gone.  The company needs to elect another one.  Records are in whatever state they are.  Perhaps lost with passwords or to a house clearance before anyone realises.  

If you had dropped down to one now incapacitated director and not sorted it quickly.  Now someone new needs to attempt a reboot working with the agent for some helpful context - If there is an agent.

Initially a sunny day freedom from the oppressor - but carry an umbrella.  

It is inevitable the the quality and attention of RTM/SOF volunteers will wax and wane every 3-5 years or so.  Problems threatening lease value may get attention to get involved.  People coming and going or aging out cause entropy.  

Occasionally somebody has their own "plans" for their unit or their timing of disposal of it.  And takes the role for a couple of years to "enable" said plans. Finesse of freeholder permission etc.  Or a particular timeline for painting a particular block.  A quid quo pro for their efforts, or mild corruption - you decide.

It is impossible to please everyone.  There will always be those wanting "more" - more quickly, more often and better.  Higher service levels.  And others just as adamant that slowwalking all maintenance and anything that smells like an upgrade and the lowest legal compliance service levels - for minimum charges - is absolutely the way forward.  Everything is poison, too expensive and such small portions.

Just as one contemporary example.  EV chargers in a site built long enough ago not to have it at construction (of which there are plenty of examples).  Since this would be an upgrade - not "maintenance" of communal areas related to demised leases. This is not a freeholder obligation to maintain and recharge to leases - as it doesn't exist (yet).  So the leaseholders can't demand it of the freeholder.  Nor can they easily be asked to pay for fitting it under the leases.  This creates difficulties where there is a lack of consensus on what to do and when to do it and how to fund it. More of an issue for SOF sites. Than people at the initial RTM stage.   Leases may have been drafted to allow for "upgrades" in some fashion.  Or not.

Occasional financial reboots after period of entropy with a poor agent, or weaker director team can be expected.  

Proper annual accrual accounting for service charge spend being done "right".  Is different from just managing cash in and out on a spreadsheet on a laptop.  As many leaseholder DIYs and some agents - do.  Accounting software nowhere to be seen. "Black Books" level record keeping.  Cardboard box file.

As things stand - in many contexts you don't get hunted down for not doing it "properly".  For years.   HMRC have little interest in most of these companies.

Current or former acountants and lawyers moving in will start to twitch once they understand what is, and is not, happening.  And yet the value add to leaseholders of prettier or more expensive compliance - day to day - is pretty negligible.  And depending on site size - there is an awkward middle - big enough to need to do it - not big enough that the fixed costs are divided over very many.  

But when something real world goes badly wrong.  And a problem, with significant money implications arises - a bill now needs to find its way "home" or worse - be split between freeholder and a recharged to leases element -  then the recharging of it can fall into a nest of tribunal claims and legal disputes and delays in getting something addressed.  At that point not having competent and largely correct financial history will bite you firmly on the backside

poseidon1

A_JS said:

@Foxylady7170

Sorry to jump on your thread, but would you be able to give any advice re setting up the RTM please? This is something I would like to do for our block, we are much smaller in comparison (a house converted into 3 flats)

Thank you in advance!!! 🙂

Decided to respond to your specific post with my comparable experience.

We have a victorian townhouse converted into 4 flats ( 1 flat per floor).  A  combination of a crappy Freeholder together with declining leases meant we decided to leapfrog RTM and purchased the freehold outright to give us complete control of our small block.

We incorporated a company to acquire the freehold interest, and as part of that acquisition gave ourselves individual 999 year leases, thereby increasing the flats desirability to future purchasers.

I wanted to avoid onerous Companies House and potential corporation tax compliance so there is no freehold company bank account, and maintaineance and admin of the property is conducted informally at leaseholder level.

In practice that has meant I handle the arrangement of annual building insurance ( in name of company), pay premium from my personal account and reimbursed by my fellow leaseholders.

A major refurbishment in 2017 ( new roof, repointing etc total cost £100k plus) similarly dealt with as leaseholders with each of us taking on responsibility for different parts of the renovation process and reimbursing each other as needed. Smaller repairs and maintenance similarly handled on the same basis.

Finally,  I also handle annual Companies House compliance which takes no more that an hour of my time annually. Involves lodging dormant company accounts, and confirmation statement re ownership of the company.

The arrangement works admirably since we all have a vested interest as Freehold/ leasehold  owners, just 3 owners in total ( 1 owner owns 2 of the flats),  and I keep on top of our Companies House compliance without the need  or costs of third party professionals.

For these small flat conversions where all flat owners interests are aligned, I see this as the ideal structure for administration and ownership.

RTM Companies for such small flat conversions seem pointless in my opinion. However our arrangement  does require someone capable of competently handling company compliance matters and ensuring annual deadlines are not overlooked ( myself). I have heard a few stories where similar small freehold companies dropped the ball on their companies house compliances, resulting in the freehold company being struck off with  issues and costs for the non compliant director/ freeholders.

Having said all the above, our arrangement is in its 15th year with 2 changes of flat owners in that period, and no adverse issues.

eddddy

poseidon1 said:

RTM Companies for such small flat conversions seem pointless in my opinion. 

Reading through your post, do you really mean RTM companies are pointless for small conversions - or do you mean Managing Agents are pointless for small conversions (i.e. a Management Company that is hired to manage the building)?

Typically, having an RTM company gives you the same building management rights as owing the freehold. (You can manage things in exactly the way you describe in your post.)

But an RTM company doesn't get the power to change leases, extend leases, etc.

Reasons for going for a RTM instead of buying the freehold might include...

• The leases are tripartite (i.e. between 3 parties)
• You don't have enough money to buy the freehold
• The properties don't meet the criteria for collective enfranchisement
• Owning the freehold would give you some additional responsibilities which you do not want

poseidon1

eddddy said:

poseidon1 said:

RTM Companies for such small flat conversions seem pointless in my opinion. 

Reading through your post, do you really mean RTM companies are pointless for small conversions - or do you mean Managing Agents are pointless for small conversions (i.e. a Management Company that is hired to manage the building)?

Typically, having an RTM company gives you the same building management rights as owing the freehold. (You can manage things in exactly the way you describe in your post.)

But an RTM company doesn't get the power to change leases, extend leases, etc.

Reasons for going for a RTM instead of buying the freehold might include...

• The leases are tripartite (i.e. between 3 parties)
• You don't have enough money to buy the freehold
• The properties don't meet the criteria for collective enfranchisement
• Owning the freehold would give you some additional responsibilities which you do not want

Yes that is exactly what I mean,  regardless of the claimed benefits of RTMs .

In my view if there is a desire amongst  leaseholders of a small flat conversion (  say 2 to 4 flats)
to have total unrestricted control of their homes, collective enfranchisement makes far more sense than the half measure provided by  RTMs. 

Of course that is conditional on all leaseholders being on the same page and prepared to pull their weight if called upon to do so, a situation more likely than not with small conversions and a small handful of home owners..

To be clear the interests of absent Freeholders are not aligned with resident leaseholders, RTMs only partly address that issue. 

The Scottish parliament recognised this when  they finally terminated their feudal system in 2012 when all remaining leaseholds converted to freehold. There, freehold flat owners can choose to have intermediate flat management companies manage their buildings if they don't wish to do so themselves, but as freeholders legal control of their buildings firmly rest with them. 

eddddy

poseidon1 said:

In my view if there is a desire amongst  leaseholders of a small flat conversion (  say 2 to 4 flats)
to have total unrestricted control of their homes,

Why are you differentiating between small flat conversions (2 to 4 flats), and larger buildings?  Is there something that makes an RTM bad for small conversions, but OK for large buildings?

Is it because the freeholder typically gets 1 vote in an RTM company?

poseidon1 said: 

collective enfranchisement makes far more sense than the half measure provided by  RTMs. 

....
To be clear the interests of absent Freeholders are not aligned with resident leaseholders, RTMs only partly address that issue. 

The OP doesn't appear to have an absent freeholder. (That would be a different discussion. And an absent freeholder wouldn't be using their 1 vote in an RTM company.)

What 'half measures' and what issues are you referring to?  As far as I can see, an RTM company can manage the building in exactly the same way that you mention in your post:    https://forums.moneysavingexpert.com/discussion/comment/81656506#Comment_81656506

(But as I mentioned, they cannot change leases, extend leases, etc)

It's great to have an RTM vs freehold ownership discussion. I'm sure it will help people, if the discussion lays out the specific pros/cons, issues and facts.