The distinction between an RMC and a Right to Manage (RTM) company is frequently misunderstood. An RTM is a statutory right: under the Commonhold and Leasehold Reform Act 2002, qualifying leaseholders can set up an RTM company, serve a formal claim notice on the freeholder, and take over management of the block without having to buy the freehold. An RMC, by contrast, is a contractual or private-law arrangement — it may have been set up by the original developer when the flats were first sold, by the leaseholders who collectively purchased the freehold, or by leaseholders who took over management by agreement. The freeholder (if different from the RMC) retains the freehold in an RTM arrangement; in an RMC that holds the freehold, the leaseholders collectively own the land as well as managing it.
Both RMC directors and RTM company directors are company directors subject to the Companies Act 2006. Many leaseholder-directors running a small RMC for a 6-flat block are simply not aware that they face potential personal liability for breaches of their director duties — for example, for failing to act in the interests of all shareholders (leaseholders), for failing to file the annual confirmation statement with Companies House, or for operating the service charge account as a personal bank account rather than a statutory trust account.
RMC director duties under Companies Act 2006 and Companies Act compliance obligations
The full director duty framework that applies to all RMC directors and the ongoing company filing requirements:
- Companies Act 2006 director duties — all seven apply to RMC directors: Every RMC director — whether a professional director, a leaseholder-director, or a co-opted resident — owes the following duties under CA 2006: (1) s.171 — Duty to act within powers: must act in accordance with the company's constitution (articles of association; memorandum if relevant) and exercise powers only for the purposes for which they were conferred; (2) s.172 — Duty to promote the success of the company: must act in good faith in the way they consider most likely to promote the success of the company for the benefit of its members as a whole (i.e., all leaseholder-shareholders — not just themselves or the block of flats they occupy); (3) s.173 — Duty to exercise independent judgment: cannot follow instructions that conflict with their duty to the company; (4) s.174 — Duty to exercise reasonable care, skill and diligence: the objective standard is a reasonably diligent person with the general knowledge, skill and experience reasonably expected of a director in their position — higher standards apply where the director has specialist expertise; (5) s.175 — Duty to avoid conflicts of interest: cannot put themselves in a position where their personal interest (e.g., as a leaseholder in the same block) conflicts with the company's interests without board approval; (6) s.176 — Duty not to accept benefits from third parties: cannot accept benefits from contractors or suppliers appointed by the RMC without disclosure; (7) s.177/s.182 — Duty to declare interests in proposed/existing transactions: must declare any personal interest in any transaction or arrangement the RMC is proposing to enter into — including relationships with contractors the director introduces. Consequences of breach: directors who breach their duties can be personally liable to the company for losses caused; other leaseholders can bring a derivative claim on behalf of the company; disqualification as a director under CDDA 1986 in serious cases. Practical risk areas for RMC directors: appointing contractors with whom a director has a personal or commercial relationship without declaring it; paying excessive service charge rates without getting competitive quotes; failing to bank service charge funds in a designated trust account; ignoring Companies House filing requirements.
- Companies Act filing requirements and service charge governance: Companies House compliance: an RMC is a company registered at Companies House (usually as a company limited by guarantee or a company limited by shares). Directors must ensure: (a) Annual Confirmation Statement (CS01): filed every year at Companies House confirming the company's registered office; directors; shareholders; PSC (persons with significant control); due within 14 days of the confirmation date — £34 fee (online); (b) Annual Accounts: even dormant RMCs must file annual accounts unless they qualify for the dormant company exemption and file Form AA02 (annual return for dormant companies); small RMCs (turnover below £10.2m; balance sheet below £5.1m; fewer than 50 employees) may use abridged accounts; (c) Changes to directors: any appointment, resignation or change of details must be filed at Companies House within 14 days using Form AP01 (individual director appointment), TM01 (resignation) or CH01 (change of details); (d) PSC Register: maintain the internal PSC register and keep Companies House informed of any PSC changes; (e) Registered office: must have a registered office in England and Wales (or Scotland for Scottish companies); change via Form AD01. Companies struck off: an RMC that fails to file and is struck off by Companies House ceases to exist as a legal entity — the freeholder interest or management rights become bona vacantia (ownerless property belonging to the Crown); restoring a struck-off company via Companies House restoration or court application is expensive and time-consuming. Service charge governance (LTA 1985): (a) Service charges must be reasonable: the amount of any service charge payable by the leaseholder is limited to a reasonable amount under LTA 1985 s.19; (b) Section 20 consultation: for qualifying works (repairs or maintenance contracts) where the cost to any one leaseholder exceeds £250, the RMC must carry out the statutory Section 20 consultation process (notice of intention; notice of estimates; notice of reasons if not cheapest quote chosen) before awarding the contract — failure means the RMC can recover only £250 per leaseholder for those works; (c) Separate trust account: all service charges received must be held in a designated trust account (not mixed with the RMC's own funds) under LTA 1985 s.42; leaseholders can inspect the accounts; (d) Demand in prescribed form: service charge demands must be in the prescribed form including the Landlord and Tenant Act 1985 s.21 summary of rights and obligations leaflet — failure to include the summary means the demand is not payable until the correct demand is served
RTM vs RMC, Right of First Refusal, managing agents and leasehold reform
The key distinctions between RTM and RMC, the LTA 1987 right of first refusal, and appointing professional agents:
- RTM vs RMC — key distinctions, and Right of First Refusal (LTA 1987): RTM (Right to Manage — CLRA 2002): a statutory right available to qualifying leaseholders in a block of at least 2 flats where at least two-thirds of the flats are held on long leases and at least half the qualifying leaseholders participate. RTM does not require the freeholder's consent; the RTM company acquires management functions from the freeholder by statute (including the right to grant approvals; collect service charges; appoint contractors). The freeholder retains the freehold but loses management control. RTM can be lost: if the RTM company is wound up; or fails to properly manage the building and the freeholder applies to the First-tier Tribunal (Property Chamber) for RTM to end. RMC holding the freehold: where leaseholders have purchased the freehold collectively (through enfranchisement under the Leasehold Reform Housing and Urban Development Act 1993) and vest it in an RMC, the RMC is both the freeholder and the management company. The leaseholders are shareholders in the RMC as their mechanism for owning the freehold collectively. Right of First Refusal (LTA 1987): if the RMC holds the freehold and the majority shareholders decide to sell it (which would be unusual for a self-managed block but can arise in certain circumstances), the Landlord and Tenant Act 1987 Part I requires the freeholder to first offer the freehold to the qualifying tenants (leaseholders) at the same price and terms at which it is willing to sell to a third party. Failure to comply with the LTA 1987 right of first refusal procedure is a criminal offence — punishable by an unlimited fine. The qualifying tenants also have a right to acquire the freehold retrospectively in this case. Directors and officers (D&O) liability insurance: RMC directors should ensure the company carries D&O insurance — it protects directors from personal liability for wrongful acts carried out in their capacity as directors; premiums for a small residential block are typically £150-£500 per year; without it, a director found liable for a service charge dispute or contractor appointment could face personal financial exposure.
- Professional managing agents, the Leasehold and Freehold Reform Act 2024 and Scotland: Professional managing agents: many RMCs appoint a professional managing agent (a specialist firm regulated by ARMA — Association of Residential Managing Agents — or a RICS member firm) to handle day-to-day management: rent collection; repairs; contractor appointment; accounting; legal compliance. The managing agent acts as the agent of the RMC — the RMC directors retain overall governance responsibility and oversight. The RMC should ensure the managing agent is regulated (ARMA or RICS membership); carries professional indemnity insurance; holds client money in a designated client account; complies with RICS code of practice for service charges. Leasehold and Freehold Reform Act 2024: significant reforms to leasehold law are underway under the LFRA 2024; among the provisions being brought into force: improved transparency of service charge accounts (right for leaseholders to receive annual service charge accounts prepared in a standard format); restrictions on insurance commissions; changes to the administration charges regime; improved rights to challenge service charges at the First-tier Tribunal. RMCs and their managing agents will need to review their service charge accounting practices as the LFRA 2024 provisions come into force — dates for implementation are being set by secondary legislation. Scotland: Scotland has a different legal framework for tenements (blocks of flats); the Tenements (Scotland) Act 2004 provides the statutory code for management and maintenance of tenement buildings; a tenement management scheme (TMS) operates as a default where the titles do not make other provision; there is no direct equivalent to the RMC concept in Scotland; property factors (managing agents for Scottish common areas) are regulated under the Property Factors (Scotland) Act 2011 and must be registered with the Scottish Government's Property Factor Register. NI: NI leasehold law follows broadly similar principles to England and Wales but under separate NI legislation — seek NI-specific legal advice for NI RMC/management company situations
Frequently asked questions
What is the difference between an RMC and an RTM company?+
A Residential Management Company (RMC) is a private, contractual arrangement — often set up by the original developer when flats were first sold, or by leaseholders who collectively purchased the freehold. An RMC may hold the freehold of the block or simply manage it under the terms of each lease. A Right to Manage (RTM) company is a statutory creation under the Commonhold and Leasehold Reform Act 2002 — qualifying leaseholders can set one up and claim the right to manage their block without the freeholder's consent and without buying the freehold. The freeholder retains the freehold but loses management functions. Both RMC and RTM company directors have the same Companies Act 2006 director duties.
What Companies Act filings must an RMC make?+
An RMC registered at Companies House must file: (1) Annual Confirmation Statement (CS01) within 14 days of the confirmation date each year — £34 fee online; (2) Annual Accounts — even dormant RMCs must file (either dormant company accounts on AA02, or abridged/full accounts depending on size); (3) Changes to directors within 14 days (Forms AP01/TM01/CH01); (4) PSC (persons with significant control) register updates as changes occur. Failure to file can result in Companies House striking off the company — which causes the freehold or management rights to become bona vacantia and requires a costly restoration application.
What are the Section 20 consultation rules for an RMC?+
Under Landlord and Tenant Act 1985 s.20, an RMC must carry out statutory Section 20 consultation before awarding any qualifying works contract where the cost to any individual leaseholder exceeds £250. The consultation involves three stages: a Notice of Intention (describing the proposed works and inviting leaseholders to nominate contractors to quote); a Notice of Estimates (presenting at least two quotes with a right for leaseholders to comment); and (if the cheapest quote is not selected) a Notice of Reasons. Failure to follow the Section 20 procedure means the RMC can only recover a maximum of £250 per leaseholder for those works — regardless of the actual cost.
Can a leaseholder-director of an RMC be held personally liable?+
Yes. All RMC directors — including leaseholder-owners who volunteer as directors — owe the full suite of director duties under Companies Act 2006 and can be personally liable for breaches. Common risk areas include: appointing a contractor with whom the director has a personal relationship without declaring the conflict (breach of s.175/177); failing to bank service charge funds in a separate trust account (breach of LTA 1985 s.42); acting in their own interests rather than those of all leaseholder-shareholders. Directors and Officers (D&O) liability insurance is strongly recommended — premiums for a small block are modest (typically £150-£500 per year) and the protection is significant.
- Right to manage — RTM statutory procedure and qualification →
- Section 20 consultation — qualifying works and long-term agreements →
- Service charge disputes — First-tier Tribunal applications →
- Leasehold enfranchisement — collective freehold purchase →
- Leasehold and Freehold Reform Act 2024 — changes to leaseholder rights →
- Right of first refusal — LTA 1987 obligations on freehold sale →