In block management, there is often confusion about the role of the freeholder, residents management company and the managing agent in leasehold property. In this article we describe these roles and how they may work together, which varies depending upon the circumstances.
In block management, there are two main types of Freeholder who have a claim to the land, buildings and air of the development:
This can be an organisation or individual that owns the freehold. During the term of the lease the freehold may have been bought and sold many times. Usually when an organisation owns the freehold of a residential development, it is for financial gain through ground rent charges, leasehold extensions and insurance commissions.
The single Freeholder Entity may look after the building themselves or appoint a managing agent.
A Resident’s Management Company (RMC) is a not-for-profit limited company with members that are the leaseholders on the development, who all have equal share in the company. Directors are appointed by the members at an Annual General Meeting (AGM), and they are required to manage this company and the delivery of services for the Block. Typically, the RMC will appoint a managing agent to manage the delivery of block services.
There are two main ways an RMC is formed:
If the block’s Freeholder wishes to sell the freehold, the leaseholders have the right of first refusal to buy the freehold. If they are successful, they can form a RMC, which becomes the Freeholder of the block and all the leaseholders have a share through the RMC.
The Right to Manage Company is a third legal entity, where the leaseholders are not the Freeholder, and a third party owns the freehold. The Freeholder may manage the block itself or perhaps through their own managing agent, but the leaseholders are dissatisfied with their service, costs and performance, so the leaseholders establish a Right to Manage company which takes the management of the block away from the Freeholder.
At least 50% of leaseholders will have a stake in the RTM but instead of owning a financial share of the company they become members bound by a guarantee in the companies’ articles of association to pay the companies debts up to a fixed sum – usually £1.
The RTM does not, and cannot, own the freehold. The RTM assumes all of the rights and obligations of the Freeholder in the lease, except for the ability to collect ground rent, grant lease extensions and possibly arrange the buildings insurance. If the RTM buys the freehold then it must cease to be an RTM, and either form an RMC or act directly with the leaseholders.
The role of the managing agent is to carry-out all of the administrative work and provide legally compliant services backed up with comprehensive technical expertise. A managing agent can be employed by either the Freeholder, the RMC or RTM, regardless of whether the RMC or RTM owns the freehold or not. The management agreement will detail what the managing agent is required to do on behalf of the Freeholder which could be limited to collecting service charge payments only, up to a full service where the Freeholder has no involvement.
Some developments are complex by the nature of their mixed use, ownership or who has the management responsibility.
In all cases there will be a management agreement, lease or deed of covenant that explains the arrangements that are in place, and it is worth understanding these for your own block, especially if you are dissatisfied with the service provided by your current managing agent.
The following are the five principal permutations:
In block management, the most common arrangements are (2) and (3).