Right to Manage companies
Right to Manage (RTM) companies are private companies limited by guarantee, which enables a group of leaseholders, typically in blocks of flats, to take over the management of their building irrespective of any fault on the part of their landlord. Under the current legislation, the leaseholders must form a private limited company to undertake the management functions; it cannot be undertaken by an individual, partnership or charitable company.
If successful in obtaining the right to manage, the leaseholders will be responsible for:
• managing and collecting service charges,
• the upkeep of the building, including communal areas, hallways and stairs,
• roofs, driveways and communal parking areas.
The landlord will still own the building, but they will not manage it.
Commonhold and Leasehold Reform Act 2002
The Commonhold and Leasehold Reform Act 2002 provides legislation for tenants of flats to take over the management of the property. Sections 73 and 74 form the central legislation for RTM companies, describing what constitutes an RTM company and provisions for the adoption of articles of association.
Overview - Section 73
The right to manage a property must be set up using a RTM company; it cannot be initiated by an individual or partnership. The RTM must be incorporated at Companies House and take the form of a private company limited by guarantee. Its objects must include the acquisition and right to manage the proposed property.
Overview - Section 74
The legislation allowed for an appropriate national authority to make regulations concerning the form and content of the articles of a RTM company. The default provisions are applied by statutory instrument and came into force on 9 November 2009. The RTM articles cover the provisions for taking up membership, voting rights and governance.
Background to the legislation
The RTM Companies (Model Articles) (England) Regulations 2009, No. 2767 (referred to in this text as 2767), revoked and replaced the transitional provisions under the Companies Act 1985 and 1989.
When introduced, the Companies Act 2006 made changes to the constitutional documents of companies. The RTM Companies (Model Articles) (England) Regulations 2009 reflected the appropriate changes. The Companies Act 2006 abolished requirements for a company to restrict its objects and retain a separate memorandum of association. It should be noted the RTM Articles restrict the objects of the company to RTM functions only.
The drafting of the prescribed articles of association for a RTM company is based on the Companies (Model Articles) Regulations 2008 (SI 2008/3229), which are designed to be more focused on the needs of smaller companies. The additional provisions concentrated on membership, insurance and inspection of documents.
For companies incorporated under previous company acts, the memorandum and articles are prescribed by the RTM Companies (Memorandum and Articles of Association) (England) Regulations 2003 (SI 2003/2120).
The new regulations (No. 2767) revoked the previous instrument, subject to transitional provisions. RTM companies incorporated before 9 November 2009 were able to use the old articles until their abolition on 30 September 2010. Existing RTM Companies were required to update their articles by the end of the transitional period.
The prescribed articles of association (2767) were drafted with simplicity in mind and focused on the needs of smaller companies. Following the introduction of the Companies Act 2006, RTM companies incorporated after implementation benefited from being able to adopt the simpler constitutional documents, rather than those existing before that date.
RTM Articles – Adaptation and modification
As the RTM company is incorporated limited by guarantee, it would follow the model articles schedule (2). Regulation 3 could be used and adapted to form the company, as per the Companies Act 2006.
However, the RTM articles are prescribed by statutory instrument (2767) or (SI 2003/2120) and cannot be altered or have bespoke provisions included. The only exceptions are Article 2, which describes the name of the company, and Article 3, which indicates the registered office.
- For RTM companies incorporating after 9 November 2009, the articles applicable are the (2009 No. 2767) The RTM Companies (Model Articles) (England) Regulations 2009.
- When first enacted, the Commonhold and Leasehold Reform Act 2002 provided by statutory instrument: RTM Companies (Memorandum and Articles of Association) (England) Regulations 2003 (SI 2003/2120.) prescribed memorandum of association and articles of association.
- All companies in England who incorporated prior to 1 October 2009 used the model article under (SI 2003/2120).
- The old style articles were abolished on 30 September 2010 and were updated to comply with the changes under the Companies Act 2006.
- Companies incorporated prior to 1 October 2009 were required to update to the new articles of association.
- The members should be familiar with the RTM articles, their contents, powers and restrictions.
If you would like more information on drafting and amending the articles of association for charitable companies, Richard is running a webinar on the 26 of November 2021 in association with MBL seminars. It is aimed at trustees, solicitors, accountants, and practitioners who advise companies in the charity sector. Richard is the author of Articles of Association for Charities and Not for Profit Organisations: Guidance and Precedents, and Law and Regulation of Community Interest Companies, Articles of Association: Guidance and Precedents