Governance in a Right To Manange company

Right To Manage companies ("RTMcos") are a specialised sort of company used in the UK to manage blocks of flats, often in the circumstance where the owner of the whole block of flats has sufficiently irritated the owners of the individual flats.

The RTMco has two groups of people involved: the members and the directors. Anyone who owns a flat in the building has a right to be a member of the RTMco. The members get to choose the directors, and the directors collectively exercise the powers of the company on behalf of the members.

Conventionally, the directors will appoint a managing agent to run the building. This agent might be a commercial company that specialises in property management, or an individual who does that, and such agents might well work for many unconnected blocks. In a few cases, the directors choose not to employ any agent, but this is unwise except in very small buildings.

Having a managing agent is therefore an *informal* requirement. On the other hand, having RTMco members and RTMco directors is very much a legal necessity.

How it works in practice, formally

• RTMco directors can make decisions by a majority vote among themselves at a meeting they've called for the purpose. However, if they are unanimous about a decision, they can dispense with holding the meeting, so long as they keep a written record of the decision.
• There is no obligation for RTMco members to participate in decision-making at all if they don't want to.
• The directors can co-opt new directors, or directors can be elected by the members at a formal meeting called a general meeting.
• RTMco members who are unhappy with the directors can call such a general meeting, to appoint new directors or dismiss existing ones. Calling a general meeting requires the agreement in writing of five percent of the members, and the process can take a few weeks; the procedure is set out in section 303 of the Companies Act.
• Members can appoint a proxy to attend a general meeting and vote on their behalf, so it should rarely be a problem that the directors have set the meeting for an inconvenient day.
• And, crucially, voting at a general meeting is about getting the requisite majority of those who voted, not of those who showed up. If thirty people attend the general meeting, and ten vote to appoint Mr Smith a director, six vote against, and the other fourteen abstain, then Mr Smith is elected. This means an apathetic majority cannot stop things getting done.

How it works in practice, informally

• Realistically, people who don't care about the state of the block of flats won't join the RTM company in the first place.
• Unless the block
• Flat owners who are irritated with the directors will approach them one-on-one, and only force a general meeting as a last resort.
• The directors' real job is making sure the managing agent is doing a good job.
• The directors will not get paid for their work as directors of the RTMco unless it's really necessary; changing directors' salaries is practically the only thing for which the directors officially require explicit approval of the members
• The members' "reserve power" to overrule the directors won't ever be used, because it requires 75% support, but simply sacking the directors requires only 50% support and would be threatend first.
• There might be dozens of flats in the block, and the size of the membership of an RTM company will increase with the size of the block. But the size of the board of directors won't go much beyond half a dozen.
• It won't be too hard for an individual flat owner to call a general meeting - until there are at least twenty flats represented in the RTMco, the owner of a single flat will individually have enough votes to force such a meeting, which will keep the directors healthily on their toes.