RTM Company wants to quit but freeholder refuses to accept management

by Readers Question

11:02 AM, 29th November 2016
About 2 years ago

RTM Company wants to quit but freeholder refuses to accept management

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RTM Company wants to quit but freeholder refuses to accept management

We have been RTM for 4 years and started off with 8 Directors. We have been at legal loggerheads with our freeholder – whom insists that we are not managing the building properly and has threatened taking legal action against the RTM Company and several leasees whom are in breach of covenant. As a result of the stress that this has put everyone under, 6 Directors (including our Chair) have resigned in the last 3 months. The remaining 2 (of which I am one) want to resign also!responsibility

The problem is that our freeholder has stated on several occasions that he does [I]not[/I] want to take over management of the building and that he would rather see the building under the control of a court appointed manager. The reason he gave for this is that there is ‘too much ground work to be done to put matters straight in the building’ and he does not have the interest or resources to do this (even with his own choice of managing agent in place). I have the following questions:

1. Can the remaining 2 RTM Co. Directors resign anyway, thereby forcing our freeholder to take on management against his wishes?
2. Knowing that our freeholder does [I]not[/I] want to accept management, do the lessees have to seek the appointment of a manager first before the remaining 2 RTM Co. Directors can quit?
3. The reason given by the other 6 RTM Co. Directors whom have already resigned is that they do not want to be in the cross-fire of our freeholder’s legal action against the RTM Co. Do their resignations actually absolve them from liability for any errors and mistakes they made whilst they were Directors?

Oh, and before you ask …

A. No, we are not insolvent
B. Yes, we have had an ARMA registered managing agent working for us for the last 4 years
C. Yes, we have overlooked certain aspects of the management of the building – there are a handful of lessees in breach of covenant; some repairs have gone undone and the building was found to have been under-insured by 1.5 million pounds, for 4 successive years

Many thanks

Vivienne



Comments

Puzzler

22:50 PM, 29th November 2016
About 2 years ago

I think the answers are yes no and no. You should have directors and officers insurance to cover any liability. Sounds like the freeholder has a good case in spite of your efforts and it will revert to being his responsibility if you all quit.

However before you do, contact the Leasehold Advisory Service helpline as I am not an expert

Gary Nock

9:36 AM, 30th November 2016
About 2 years ago

Puzzler is right. Directors and Officers liability insurance if in force should cover you for any personal liability.

If you all resign then the RTM cannot function and effectively has to be dissolved. Management would then revert to the Freeholder.

I can't help wondering where your current managing agent has been in this. They should be working with you and cushioning you from the tactics of this freeholder. What I would do is draw up a list of what breaches of covenant there are, and with the managing agent draw up an action plan to remedy them. This will shut the freeholder up and make it difficult for him to appoint a manager. This is far more preferable than reverting back to the freeholders choice of manager, or indeed one appointed by Tribunal. An extract from the lease.org leaflet on RTM is reproduced below:

"The right to manage, once acquired, is not subject to any time limit and will continue until it is terminated; it is not subject to review by time.

There are three circumstances where the right may be terminated:
by agreement with the landlord – the RTM company may simply agree to return the management to the landlord. However, this is a joint matter, and the landlord must agree to take it back; it cannot just be imposed on a landlord reluctant to take on the responsibility for the building.
through collapse of the RTM company – if the company is wound up, is taken into receivership, goes into voluntary insolvency or is struck off, then the right to manage ceases to be exercisable and the management responsibility is restored to the landlord. (In this context, it is imperative that the secretary of the RTM company fully complies with the requirements of Companies House in the provision of annual returns and accounts).
through the appointment of a manager – Part 2 of the Landlord and Tenant Act 1987 provides that a First-tier Tribunal (Property Chamber) may appoint a manager to take over and run the building. Such an order may be in response to an application by any of the leaseholders, or by the landlord. Alternatively, the Tribunal may simply make an order that the right ceases to be exercisable by the RTM company.
The grounds for an application under Part 2 are quite specific and are that the landlord, or the RTM company:
is in breach of an obligation under the lease;
has demanded, or is likely to demand, unreasonable service charges;
has failed to comply with any relevant provision of an approved code of management practice.
other circumstances exist which make it just and convenient for the order to be made.
The procedures for an application under Part 2 of the 1987 Act are included in our booklet ‘Application to the First-tier Tribunal(Property Chamber)’. There is no prescribed form for such actions, but suitable forms, with explanatory notes for completion, are available from the Tribunal.

Application Form – Appointment/Variation/Discharge of a Manager

Where the right to manage is terminated, for any reason, no further application for the right may be made for another four years, other than with the consent of a First-tier Tribunal (Property Chamber)

Vivienne Somerville

9:44 AM, 30th November 2016
About 2 years ago

Reply to the comment left by "Gary Nock" at "30/11/2016 - 09:36":

Hmm. It sounds like I am damned if I do and damned if I don't resign. Yes, we have Directors and Officers insurance.

And no, we did not all sign up as RTM Co. Directors with full knowledge of the leases; the articles of association or company law. We were just desperate to get rid of the freeholder at the time (whom is different from our present freeholder). Our present freeholder has been in place for just over 1 year and has been reading us the riot act since day one for what he terms our 'chronic and persistent failure to observe and perform our obligations as an RTM Co'. He has on several occasions listed all the breaches and on each occasion he has sent us a copy of the Commonhold & Leasehold Reform Act 2002, highlighting the portions where he feels that we have been remiss.

Where was our ARMA registered managing agent in all of this? Good question. His response is that the Directors would not give him permission to tackle the breaches and therefore he could not act.

I should point out that even though 8 of us signed up as RTM Co. Directors, only 1 or 2 whom acted as Chair were actually active as Directors and responsible for all the decision making. The rest of us left them to it, confident that with an ARMA registered managing agent working for us that we could not go wrong. For some reason or other this has not been the case and I now realise that our ARMA registered managing agent has had a large dose of 'Stockholm Syndrome' over the 4 years - allowing these Directors to dictate to him what should be done and generally corner cutting and penny pinching to curry favour with the lessees. Said 'Stockholm Syndrome' suffering ARMA registered managing agent has even stated that it was our RTM Co. Chair whom personally placed our buildings insurance policy for the last 4 years - handing the certificates over to him as a fait accompli!

My over-arching question though is if we are all to resign as Directors, would our present freeholder be forced to step in to manage the building or can he still refuse? I have read elsewhere on this forum that should a court appointed manager be put in place, our management fees could rise exponentially ...

Gary Nock

9:53 AM, 30th November 2016
About 2 years ago

Vivienne please read the extract from the Lease leaflet or go onto their site. The freeholder does not have to accept back RTM. And yes if you have a manager appointed then the service charges WILL rise. Handing management back is not the best action and you will have all the lessees moaning that the service charges have gone up. I am a director of about 5 RTMs and carry out a lot of unpaid work keeping lessees happy ( and in line) but I don't suffer fools gladly and have somewhat of a thick skin and seige mentality when dealing with freeholders. You need someone on the board who will do that, provide leadership and not be afraid to upset people. The alternative, is that you will be financially abused for years by service charge excesses.

Simon Bentley

10:50 AM, 30th November 2016
About 2 years ago

Reply to the comment left by "Vivienne Somerville" at "30/11/2016 - 09:44":

Vivienne I am afraid a couple of your comments worry me greatly
Specifically
"And no, we did not all sign up as RTM Co. Directors with full knowledge of the leases; the articles of association or company law. "

"I should point out that even though 8 of us signed up as RTM Co. Directors, only 1 or 2 whom acted as Chair were actually active as Directors and responsible for all the decision making. The rest of us left them to it,"

Those situations strike me as negligence and any insurance may refuse to pay out on those grounds.

Additionally your should check your articles and company law carefully,you may well find that some or even all of those six directors who resigned are not actually able to if a minimum number is stated in the articles, likewise you and your colleague may not be able to resign and force the dissolution of the RTM Co as suggested above, resigning when not allowed to and in essence abandoning the RTM Co is also likely to be viewed as gross negligence IMHO - though I am only a moderately informed lay person - you need good professional advice ASAP.

Gary Nock

10:57 AM, 30th November 2016
About 2 years ago

Simon- Unfortunately the situation mentioned by Vivienne is representative of many RTMs. The legislation is complex, as is company law. That is why you have managing agents to advise. Invariably there are only one or two "doers" and the rest sit back and let you get on with it. Unlikely that the insurers will default but depends on the policy. The managing agents should have a legal dept and should be assisting the directors in all this. The problems are not unsurmountable and this situation can be remedied.

And if a director wants to resign - they can regardless of the consequences

Puzzler

10:03 AM, 3rd December 2016
About 2 years ago

You are not being fair to blame the agent. He/they are correct they can only act on instructions from the board. That said, the agent should have raised this with all the leaseholders and many agents won't work for blocks like yours for this reason. You freely admit you have left it to others. If you want the management to be done properly, you and the other director can step up to the plate and have a meeting with the agent and get on with it. Assuming the two of you don't contravene the Articles (unlikely, most have two as minimum) you have the authority. If one or both of you resign the company ceases to exist (one because only one director cannot make any decisions). Are there sufficient funds in the bank? How many properties are there? Were the 8 original directors one from each property or only some?

Kate Mellor

21:29 PM, 5th December 2016
About 2 years ago

You say you are in funds and have a managing agent. Why not start taking their advice? It will mean yourself and the other Director stepping up to the plate and getting on with the job, but if the freeholder doesn't want to manage, I imagine they will be happy once the management is being done effectively. Schedule regular meetings, go through the list of items to be resolved & take the agents advice on how to resolve them & get on with it. If the Management moves to another company with no interest in keeping down costs you will find them escalating dramatically. Remember they are in place to make money, not to save you money.

Vivienne Somerville

8:38 AM, 6th December 2016
About 2 years ago

Reply to the comment left by "Kate Mellor" at "05/12/2016 - 21:29":

After a year of being read the riot act by our freeholder, our original Chair of the RTM Co. resigned as Director and another of our Directors stepped up as Chair. This second Chair only lasted 4 four months before he himself resigned as a Director. The reason for this? Because he was attempting to do things by the book as the freeholder wanted and the other ex Directors and members gave him a hard time for it - saying that this new Chair was blindly following our freeholder's unreasonable demands and these were driving up our service charge costs. Furthermore, the major works that our freeholder had demanded and our new Chair was about to sign off on would have eroded away our reserves.

Our insurance premium for example escalated from 2.5K per annum to 4.8K per annum and our managing agent's fees escalated from £150 plus VAT per unit to £300 plus VAT per unit because the managing agent felt (and this new Chair accepted) that the management contract did not include all the things that the freeholder was demanding - such as monitoring visits; internal inspections; issuing licenses for subletting; monitoring and reporting on breaches; giving 30 days prior notice of assignment or charge etc.

Instead of viewing this second Chair as 'one of us' (a volunteer Director simply doing his best by the lessees and the building) people in the development started treating him as 'one of them'. He was literally bullied out of the role of Chair and he ended up resigning altogether as Director. The prevailing culture in the block is to pare costs down to the bare bone. I secretly despair of this prevailing culture but I cannot bear the stress of challenging it. It does not help that my only remaining Co Director is an elderly and frail person with signs of dementia .....

Vivienne Somerville

8:48 AM, 6th December 2016
About 2 years ago

Reply to the comment left by "Puzzler " at "03/12/2016 - 10:03":

It was rather hard to hear but someone on another forum suggested that any self-respecting managing agent would not have stuck around with us for 4 years and yet ours has. It makes me wonder (for the first time) whether our managing agent is actually any good? If you look at it this way, a good managing agent has plenty of business and is free to accept or refuse blocks. Perhaps ours (despite being ARMA registered) is NOT in a position to refuse blocks and that is why he has stuck around for so long .....

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