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Right to manage

accepted that this initial assessment will weed out all but the most significant of claims. Another consequence of any breach of duty of

care arises if the director has a service agreement with the company. Such an agreement could contain grounds for termination in the event of a breach of directors’ duties.


The duty to avoid conflicts of interest or the duty to declare an interest in a proposed transaction can easily be complied with by an appropriate disclosure to the board of directors in any relevant meetings (in compliance with procedures set out in the 2006 Act and the company’s Articles of Association). There is also limited protection for a director via a shareholders’ ratification.


long as the breach was not illegal or did not amount to fraud on the minority, there is potential to relieve a director from personal liability by ratifying the act or omission using an ordinary resolution of the shareholders (a majority of more than 50%). Under the 2006 Act such a resolution must be passed without reliance on the votes in favour

by the director himself or any connected person (which would include certain family members or fellow board members). Finally, a director could apply to the

courts for relief. The courts can grant relief if it is considered that a director has acted honestly and reasonably and, considering all circumstances of the case, he ought fairly to be excused.


Under the 2006 Act, a company cannot exempt a director from any liability for negligence, default, breach of duty or breach of trust. The company may however indemnify the director against the costs of defence or costs incurred by a director in an application to the court for relief – provided that the director repays the company if he is unsuccessful. Another alternative is to consider taking

out Directors and Officers Insurance (also known as D&O Insurance). This allows a company to insure its directors in relation to

any claim of negligence, default, breach of duty or breach of trust.


Ultimately prevention is better than cure and the key protective measures for current or prospective directors are a thorough knowledge and understanding of directors’ duties and ongoing detailed record keeping.

Brethertons Solicitors specialise in Resident Management Company work. Tel: 01295 661436 E:

The Federation of Private Residents’ Associations (FPRA) is a national not- for-profit organisation representing Leaseholders. For more information or for a copy of the FPRA guide on how to form a Residents’ Association, go to Tel: 0871 200 3324 or E:

Getting RTM right first time If you’re going down the RTM route, be sure to follow the proceedure

carefully. Andrew Howard explains The Commonhold and Leasehold Reform Act 2002 gives leasehold flat owners the right to force the transfer of the management functions of their block to a special company set up by them, known as a Right to Manage Company. This is a ‘no fault’ based right which means it is not necessary to prove that the existing management of the building is poor in order to go down the RTM route. Flat owners can exercise their right to manage at any time, generally with a view to achieving lower service charges and securing better management of the flats. Only 50% or more of the leasehold flat owners need to join together to exercise the right to manage. When introduced, the Government intended

the procedure to be straightforward but many of the procedural steps are strict. However, in practice it has proved that failure to comply with certain aspects of the RTM process can result in the claim to manage the building failing. Because the leaseholders do not need to prove fault in relation to the existing management, the only basis on which a claim for the right to manage can be resisted is if certain procedural requirements have not been properly complied with. For this reason it is always important to instruct a specialist solicitor with experience of RTM claims who can take you through the procedure step by step and ensure you get it right first time.


The procedure starts by incorporating a Right to Manage Company which has to have Articles of Association prescribed by law. The participating leaseholders become members of that company and other leaseholders have to be given an invitation to join in. The next stage is to serve a formal claim notice on whoever is managing the building and this notice will specify a date when the RTM Company is to take over management. That date must be at least four months after the date when the formal Claim Notice is served. It is helpful if that date is set shortly before a service charge payment date so that the RTM Company is able to send out maintenance demands promptly after acquiring RTM to ensure it has service charge funds to carry out the management function. On the date when the RTM Company takes over management the existing manager is required to transfer to the RTM Company the balance of any service charges it is holding and which are not needed to pay any pending invoices. In practice, there can often be an issue as to the amount of such uncommitted service charges to be handed over to the RTM Company. If any dispute is not resolved, the issue can be referred to the

Leasehold Valuation Tribunal to decide the correct amount but this will delay handover of the service charge monies to the RTM Company which is why it is important for the RTM Company to select the right date to take over management. If the RTM Company wishes, it can retain

a firm of managing agents to look after management of the building. Those agents will be accountable to the RTM Company as opposed to the situation before RTM, when they would have been accountable to whoever the lease made responsible for management. Where the RTM Company does propose instructing Managing Agents, rather than going down the self-managed route, it should do so well in advance of the date when it will take over management of the block. This will enable the new managing agents to liaise with whoever they are taking over management from to ensure a smooth transition.

Andrew Howard is the Partner in charge of Coles Miller’s Leasehold/Residential Department and is a specialist in leasehold property. Tel: 01202 293226

Go to for further information on RTM

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