Statutory definition of Resident Management Company

Alongside the informal and industry uses of the term "RMC", the UK's building safety regulations have recently started to use the term as well, but use it in a more restricted sense.

The statutory definition of RMC is a corporate body (basically a company) that is party to a lease of a building, whether as the landlord or as a third party. That part of the definition is very much in line with common parlance. But the definition also restricts "RMC" to bodies either wholly comprising leaseholders, or, if the body has shares, where the majority of the shares are held by leaseholders. This cuts across the facts on the ground at a strange angle (see the section on Avoidance below).

Given that heavy obligations attend upon being an RMC, it might not be best for the status to be at the discretion of the body itself.

Avoidance & reality

RMCs are a type of manco.

In practice:

• The management companies ("mancos") that are parties to leases of a block of flats may also have management rights and obligations in relation to other blocks of flats, or to other houses
• Mancos vary according to how the interests of various parties are represented in terms of membership, control and voting. The following may have membership/shares with particular rights: leaseholders, owners of flats in other buildings, owners of houses elsewhere on the estate, the original developer, the managing agents, the white knight financiers who helped buy the freehold of a block of flats, etc
• Mancos may be designed such that control eventually passes between some of the groups listed above, e.g., from developer to managing agent to leaseholders
• From my own experience, an individual may be a manco member twice over, by virtue of owning a managed house and then buying a flat in a relevant building
• The shareholding/membership of a manco might be registered in violation of the published articles of association; this tends to be illegal and possibly criminal, but it happens and there are strong financial incentives for it to happen
• Mancos constitutions vary very widely; in some, the manco or its directors can opt to issue shares/membership to people who are not dwellingholders
• Mancos generally have a restriction on who can be a member/shareholder, but in some cases these may be overridden, e.g., a developer retains a right to add new dwellings with resultant new shareholders/members
• Some mancos will result from collective enfranchisement, and if done by shares, the proportion of leasholders with a share of freehold may change over time as people buy in
• When Shared Owners are required to be members of a manco, their status may change from leaseholder to freeholder as they staircase.

Everything above is from cases I've seen; many of the examples above relate to mancos on my own development.

The BSA definition of RMC is a subset of manco. The practical points above mean that a somewhat arbitrary subset of mancos will be RMCs.

For companies limited by guarantee, a manco will be an RMC if all the members are leaseholders of the building in question. However, if the manco is a company limited by shares, then a different proportion of non-leaseholder members will disqualify it from being an RMC. This leads to the preposterous situation that a manco converting between being limited by guarantee and limited by shares may flip whether it is an RMC or not. To convert in this manner, it would have briefly to become an unlimited company, and all unlimited companies are disqualified from being RMCs.

The example of converting a company above is fanciful, but the anomalies that arise from the loose definitions are anything but.

My former manco, which would be known as an RMC in common parlance, had 12 leaseholder members and 63 freeholder members. Thus it is not an RMC in the sense of the building safety regulations. But consider the case where there were instead 63 leaseholder and 12 freeholders. I helped a leaseholder regain control of a manco that was structured with voting weights like those. Hers was limited by shares, so it would have counted as an RMC for the building safety regs. But if it had been set up as limited by guarantee, it would have been excluded. And that was a site with cladding issues.

It cannot be right that a manco's status as an RMC can flip if a leaseholder buys or sells a neighbouring house, and/or if the directors fail to register a share transfer.

Ultimately, the RMC concept blurs together three things:

• a company that has repairing obligations on behalf of leaseholders
• a company controlled by leaseholders
• a company capable of charging leaseholders (via a lease or by the company's own articles)

The fact leaseholder control has no impact on whether a manco counts as an RMC is completely unfair, and will lead to expensive distortions.

Disentangling the building safety regs

BSA regulations

The Building Safety Act 2022 ("the BSA") defines that resident management company "has the meaning given by regulations made by the Secretary of State". Unfortunately, there is more than one such regulation:

The regulations are all in the form of Statutory Instruments, known as "SIs". The names are all quite long and unwieldy, so in this article they'll be referred to by their SI numbers:

• SI 2022/711
• SI 2022/859
• SI 2023/315
• SI 2023/895
• SI 2023/907

That's obviously in both chronological and numerical order. Note two things:

• some of the later SIs amend the earlier ones; the history of the changes can be viewed on legislation.gov.uk
• two of the SIs have confusingly similar numbers

Contexts

What are the contexts in which the term "resident management company" is being used in the BSA?

There is more than one such context, implying different definitions might be used depending on the circumstances.

The contexts:

• section 111 of the BSA, which relates to building safety directors; this is the original situation where the definition of RMC is delegated to regulations
• SI 2022/711 defines RMC so that RMCs can be included in the list of bodies to whom a copy of a "landlord's certificate" must be given
• SI 2022/859 defines RMC so that RMCs can be taken into consideration as bodies that might be liable for remediating defective buildings
• SI 2023/315 defines resident management company as a potential principal accountable person, as details about such persons may need to be included in the register which the SI is otherwise mainly concerned with
• SI 2023/895 amends the RMC definition in SI 2022/711, and also amends SI 2022/859; it uses these RMC definitions in various places
• SI 2023/907 is basically inconsequential

Amendments

SI 2022/711 as originally made defined RMC but did not use the definition elsewhere (it seems). It was later amended in such a way that it did use the definition.

SI 2022/711 was amended since it was made. It says that RMC means

a body corporate which is party to a lease of a building where

(a) the body corporate is limited by guarantee and the members of that body are tenants under leases of dwellings in the building (“leaseholders”), or

(b) the majority of the shares of the body corporate are held by leaseholders.

SI 2023/895 uses the same definition. It amends SI 2022/859.

But SI 2023/315 says

For the purpose of this regulation, “resident management company” means a body corporate which is party to a lease of a building where—

(a) the body corporate is limited by guarantee and the members of that body are leaseholders, or

(b) the majority of the shares of the body corporate are held by leaseholders.

Originally, SI 2023/315 used the "tenants under leases of the building" wording, but this was changed to just "leaseholders", implying that it might now mean to include leaseholders in other buildings.

The other change was in SI 2022/711, which looks like an oversight by a draftsman who didn't know much about UK company law or who was just careless: it talked about a corporate body limited by guarantee that nevertheless has shareholders; UK registered companies have not been allowed to have such a status since the early 1980s; the ban remains in section 5 of the Companies Act 2006.