Forming the Company and Notice of Participation to Other Leaseholders
At this stage of the process not all of the qualifying leasehold members are required – just enough to provide a minimum of 2 directors and a company secretary. The Directors are formally appointed by Board resolution and their details entered onto an application form for registering a new company (Form IN01 which replaced the Form 10 on 1st October 2009), signed and filed with the Registrar of Company at Companies House where the company is also then registered.
Limited By Guarantee
Right to Manage Companies are constructed as companies limited by guarantee because it was thought to be the most appropriate vehicle when the right was created. Companies who use it do not trade and it can’t be formed by share capital under s5 of the Companies Act 2006. This renders it unsuitable for commercial enterprise, making it less likely to become insolvent. The incentive for members to become involved is commitment to the company’s objectives rather than profit as with shareholder companies.
More on a company limited by guarantee can be read here.
NOTICE OF PARTICIPATION TO OTHER LEASEHOLDERS
After the company has been established, and its details filed at Companies House, (and before making a claim to acquire the right to manage), under s78 the prescribed Notice of Participation must be sent to all those qualifying leaseholders that did not, at the time the company was established, become members.. This we did and giving them 14 days to respond as required by law. Whilst they can’t be compelled to participate in the running of the company they are entitled to have a say at company meetings. They will be able to vote to appoint auditors and elect company Directors (one vote per flat).
The Participation Notice must state:
- The RTM company intends to acquire the right to manage;
- The names of the members of the RTM company;
- An invitation has been sent to the recipient to become a member of the RTM company;
- The RTM company’s registered number and the address of its registered office;
- The names of its directors and secretary;
- The name of the landlord and the name of any other person(s) party to the lease.
The Notice must also state that:
- The RTM company will take over the landlord’s management functions under the lease, including the enforcement of tenants’ covenants and the granting of approvals. In the case of buildings containing flats under the control of the landlord, or commercial units, the notice must make it clear that the management powers obtained through RTM will not extend to those flats or units
- Each member of the RTM company will be liable for the landlord’s reasonable costs arising from service of the notice to exercise the right to manage (this is to ensure that everyone is aware of the potential financial implications of involvement in an RTM application).
- Whether or not the RTM company intends to self manage or employ a managing agent to manage the building (and if a prospective agent has been identified already, his name and address) or alternatively whether the company intends to re-appoint the current managing agent. There is however no statutory requirement for employment of a manager or for any prior management experience by the company because there are no such requirements for landlords. The RTM Company is also not required by any legislation to submit plans on how the building is to be managed and neither is it required to submit a budget.
The regulations also require the inclusion of three further points:
- A statement informing the landlord that he may alert the RTM company to any inaccuracies in the notice;
- A reminder in the notice for a landlord who has no objection to the claim to serve the ‘contract’ and ‘contractor’ notice;
- A statement to remind the landlord of his statutory right to membership of the RTM company.
The Notice must either be accompanied by a copy of the Memorandum and Articles of Association of the RTM Company or a statement made as to where they can be inspected and copies taken along with times. These should be two hour windows on at least 3 days of the week (including Saturday and Sunday) within 7 days of the day that follows the notice given. It should also specify a fee for an ordered copy which must be deemed ‘reasonable’. If any recipient of the notice is not allowed to order a copy or undertake an inspection then the notice is considered not to have been served.
Leaseholders have 14 days in which to respond and those who want to be members of the company must be noted in the company records. The accurate serving of the Notice Inviting Participation is important because the legislation makes it clear that all qualifying leaseholders should have the opportunity to take part in exercising RTM. So, whether the notice is hand delivered or served by post, a record or proof such as recorded delivery should be retained in the event of any challenge that says the notices were not correctly served. If the freeholder is living permanently abroad, the secretary of the RTM company needs to make a reasonable effort to send the notice but is not obliged to serve it outside of England and Wales.