Right to Manage Companies can be incredibly beneficial for leaseholders because it puts full control over how their building is managed and maintained in their own hands.
Such control ensures that leaseholders can schedule the correct maintenance, agree fair service fee charges, and make decisions that are best for residents as a community.
However, forming a Right to Manage Company (RTM) isn’t without costs. Right to manage costs can range from things like administrative fees for incorporation, right down to weekly, monthly and annual maintenance fees, as well as insurance costs and can become expensive.
If you’re thinking of forming a Right To Manage Company, you and your fellow leaseholders should be aware of the costs before beginning the process. To help, we’ve detailed them below.
Related: Find out everything you need to know about Right to Manage in our free complete guide to Right to Manage, found here.
When a Right to Manage Company is initiated, it is incorporated just like any other company which means there are Companies House registration costs to be aware of. Right now, the cost is £12.
As well as initial registration costs, there are other administrative costs RTMs should take into account. For example, the cost of posting letters to other leaseholders and landlords, as well as the costs of making clear that the building is run by an RTM across letterheads, legal documentation or general advertising collateral.
Land Registry Costs
When a Right to Manage Company is formed, land registry costs are incurred as part of the changeover of responsibilities. These are charged at a per flat basis of £3, which is something to bear in mind if the residential block contains many apartments.
Legal Fee Costs
Right to Manage Companies can be formed without the approval or permission of the building’s current landlord. If the landlord therefore disputes the RTMs attempt to take responsibility for the building, there will be potential tribunal proceedings which can incur costly solicitors fees.
Something else to consider is that if the RTM Company loses the tribunal, those associated with starting the formation process will then be held liable for all costs relating to the tribunal proceedings.
Building Maintenance Costs
Once a Right to Manage Company takes control of the residential block, the RTM becomes responsible for all servicing, maintenance and accounting of the building. Building maintenance costs could then include things like repairs, services and routine seasonal maintenance checks.
Whilst these responsibilities are likely to bear costs of their own, there is also another cost to consider if the RTM directors do not feel adequately equipped to take over the maintenance of the building.
Property management companies can step in to help directors and leaseholders with running their residential building. They can oversee repairs and maintenance, schedule site visits and handle administrative and accounting tasks. However, a property management company will need to be paid for the provision of their services.
Therefore directors must budget the total costs involved in maintaining the building, and then recoup the costs via leaseholders service charges.
Landlord Reimbursement Costs
As previously mentioned, Right to Manage Companies don’t need the approval or permission of the building’s current landlord, and nor do they need a reason. A RTM could simply start, “just because”.
Due to this, throughout the process a landlord may incur costs of their own from things like legal fees, maintenance or the loss of income. It is therefore a mandatory requirement that Right To Manage companies reimburse any costs that the current landlord incurs, whether the Right To Manage Company is eventually incorporated or not.
As well as general management and maintenance costs, Right to Manage Companies must also plan for another type of cost: Insurance costs. Insurances are necessary for Right to Manage Companies and the types of insurance needed can be expansive. The four general types can however be found below.
1. Correct Coverage Insurance
Because insurance policies for residential blocks vary wildly, some insurance providers offering cheap deals may be providing insufficient cover for the needs of a block. Therefore, RTMs must check their level of coverage is correct and sufficient by cross-referencing the policy against coverage like:
- All Risks Cover, which protects the block against losses or damages it could incur, including through subsidence.
- Employers Liability Insurance, which becomes necessary if employees of a business or contractors, like window cleaners, work on the premises.
- Public and Property Owners Liability cover
- Alternative Accommodation or Loss of Rent, which is imperative for providing suitable temporary accommodation should the property become uninhabitable due to damages or acts of God.
- Loss or unauthorised use of Metered Utilities
- Trace and Access Cover, which subsidises costs incurred should either oil or water damage the block in a substantial leak.
- Loss of/or Damage to contents in communal areas
- Damage to Underground Pipes and Cables
- Unoccupied Properties Insurance
- Mechanical and Engineering cover, which is imperative for covering the building’s essential communal equipment like lifts and lights.
- Accidental Buildings Damage Cover, which protects the building from damages caused by drainaways, septic tanks, fixed glass features and sanitary fittings.
- Storm damage to fences and gates
- Legal expenses
- Replacement of communal door locks following theft of keys
- Personal accident cover for voluntary workers
- Fidelity guarantee
2. Directors and Officers Insurance
When working on behalf of the block’s residents, Right to Manage directors can be held liable for their actions.
To protect against this, Directors and Officers Insurance (also shortened to D&O insurance) covers legal defence costs, as well as compensation and civil liability charges should a director be accused of any wrongful acts.
3. Engineering and Inspection Insurance
Engineering and Inspection Insurance Policies are offered by specialist insurers and help directors meet legal recommendations for regular lift inspections and other engineering maintenance checks.
4. Terrorism Insurance
Unfortunately in today’s day and age, terrorism insurance policies may seem far-fetched, but are actually highly recommended. If a terrorism incident occurs on a residental property and no insurance is found to be in place, RTM directors could expect to pay liabilities of up to £250,000.
Terrorism policies cover the building against significant damages should a terrorism event take place, and they also protect agaisnt acts of terorrism occuring on the property, like a resident being involved in the creation of harmful materials.
Can your RTM Company afford these costs?
At Scanlans Property Management, we have the team and experience to support Residential blocks that require a managing agent. From booking repairs to scheduling regular maintenance, as well as ensuring the building and company adheres to legislation and regulations, we have what it takes to ensure the smooth management of your building.