25-06-2019

5. Flat management companies, right to manage (RTM) companies and commonhold associations

5.1 Flat management companies

A flat management company is a company that has been formed to manage a property divided into a number of separate flats. Each flat owner usually has a lease of their own flat, but they may also be a member of a management company that owns the freehold (or lease) of the entire building. As members of the company, the flat owners have their say in running the building.

If the members own shares in the company, it is common practice in the company’s articles of association that shareholders who sell their flats must also transfer their shares to the new owners. This ensures that, at any given time, the limited company represents the interests of all the current flat owners, and it remains a separate legal entity regardless of who holds its shares.

Leaseholders can also exercise their right to manage the building they live in. To obtain the right to manage the leaseholders must set up a ‘right to manage’ (RTM) limited company.

A limited company could also be formed to own and manage the common parts of a development made up of separate units under ‘commonhold’. This type of company is called a ‘commonhold association’.

5.2 Documents needed to incorporate a flat management company

To incorporate a Flat Management company you need to file the documents set out in ‘Incorporating a new company’. When you complete the application to register a company (form IN01) you will need to tick option 3 (bespoke articles) of section A7 and include the articles with the other documents.

The Leasehold Advisory Service (LEASE) provides free advice on the law affecting residential leasehold property in England and Wales. Their website includes advice and contact information.

5.3 Right to manage (RTM) companies

RTM companies were introduced under the Commonhold and Leasehold Reform Act 2002. These are private companies limited by guarantee enabling long leaseholders in blocks of flats to take over the management of their building.

Leaseholders must form a limited by guarantee company to exercise the management functions. The constitutional rules of an English RTM company are prescribed in articles of association included in The RTM Companies (Model Articles) (England) Regulations 2009’ (SI 2009/2767). These regulations apply to all existing and proposed RTM companies.

5.4 Documents needed to incorporate an RTM company

To incorporate an RTM you need to file the documents set out in ‘incorporating a new company’. When you complete the ‘application to register a company (form IN01)’ you’ll need to tick option 3 (bespoke articles) of section A7 and include the articles with the other documents. The name of your company must end with RTM Company Limited or the Welsh equivalent.

The Department of Communities and Local Government (DCLG) is responsible for RTM companies in England. Further information and guidance can be found on the DCLG website.

The Welsh Government is seeking to introduce amended regulations for Welsh RTM companies in Wales as soon as possible. Further information can be obtained by emailing alyn.williams@wales.gsi.gov.uk or you can telephone 01685 729191.

RTM companies don’t exist in Scotland or Northern Ireland.

5.5 Commonhold associations

Commonhold Associations were introduced under the Commonhold and Leasehold Reform Act 2002. Commonhold is a form of freehold land ownership which is an alternative to long leasehold ownership of flats and other interdependent properties.

It combines freehold ownership of a single property (a unit) in a larger development with membership of a limited company that owns and manages the common parts of the development, for example a block of flats where each flat is a unit and all the other parts, such as the hallway are commonhold.

The constitutional rules of commonhold associations registered in England and Wales are prescribed in the articles of association included in The Commonhold Regulations 2009 (SI 2009/2363).

5.6 Documents needed to incorporate a commonhold association company

To incorporate your commonhold association you need to file the documents set out in ‘incorporating a new company. When you complete the application to register a company (form IN01) you will need to tick option 3 (bespoke articles) of section A7 and include the articles with the other documents. The name of your company must end with ‘commonhold association limited’ or the Welsh equivalents.

The Ministry of Justice is the responsible for commonhold associations. The Leasehold Advisory Service (LEASE) provides free advice on the law affecting residential leasehold property in England and Wales.

Commonhold Associations don’t exist in Scotland or Northern Ireland.