
Leaseholders looking to acquire the freehold of their block of flats (a process called collective enfranchisement) may consider using an existing Right to Manage (RTM) Company for the process. The company is already set up, has directors and functions well in organising maintenance of the building.
While this might seem like a convenient option, it is generally not suitable or practical. Instead, a new limited company specifically set up to hold the freehold on behalf of the leaseholders should be used.
RTM Companies have very specific Articles
An RTM Company’s structure and purpose, as dictated by statute, are specifically tailored to exercising the right to manage a property, not to owning or acquiring freehold interests.
In this article, we’ll explore why an RTM Company cannot be directly used for a freehold purchase and outline the better alternatives for achieving collective enfranchisement.
What Is a Right to Manage Company?
An RTM Company is a special type of company established under the Commonhold and Leasehold Reform Act 2002. Its primary purpose is to allow qualifying leaseholders to exercise their right to manage a property containing flats. This gives leaseholders the ability to take over management responsibilities from the freeholder without needing to prove fault or negligence in how the property was previously managed.
To ensure compliance with statutory requirements, an RTM Company must adopt specific Articles of Association. These articles strictly define the company's purpose, which includes:
Bringing a claim to exercise the right to manage.
Taking on management functions as outlined in the property’s leases.
Providing services to maintain and manage the premises.
The Articles of Association do not include provisions for acquiring the freehold or owning property, making an RTM Company unsuitable for freehold purchase.

Why Can't an RTM Company Be Used for Collective Enfranchisement?
Collective enfranchisement, governed by the Leasehold Reform, Housing and Urban Development Act 1993, is the legal process through which leaseholders collectively acquire the freehold of their block of flats. While the goals of collective enfranchisement and the right to manage may overlap in giving leaseholders more control, the two processes are distinct and require different structures. One involves buying the freehold and the other involves simply managing it.
Statutory Restrictions on RTM Companies
The Articles of Association of an RTM Company are tailored specifically for managing a property, not owning it. Attempting to repurpose an RTM Company for a freehold purchase would require significant changes to its structure and governance, which can may mean it is no longer an RTM Company by law.
Membership and Voting Rights Issues
All qualifying leaseholders in a block are entitled to become members of the RTM Company, even if they do not wish to contribute to the purchase price of the freehold. This can create complications, as those who have not financially participated in the acquisition would still have voting rights and influence over decisions relating to the freehold. We have never advised a group of leaseholders that would be happy for non-participants to reap the benefits of enfranchisement without chipping in to the costs of the process!
Legal and Administrative Challenges
To use an RTM Company for freehold purchase, leaseholders would need to pass a members’ Special Resolution to replace the Articles of Association entirely. This process involves drafting new articles, securing the necessary votes, and filing the updated documents with Companies House. The administrative burden and potential for disputes make this an inefficient option as against the £50 it costs to create a new company that already has the correct Articles of Association for owning a freehold.
The Best Approach for Acquiring the Freehold
Instead of attempting to modify an existing RTM Company, leaseholders are advised to form a new company specifically for the purpose of acquiring the freehold. This approach is more straightforward and cost-effective, as it avoids the legal and logistical hurdles associated with altering an RTM Company’s structure.
Key Benefits of Incorporating a New Company for Freehold Purchase:
Tailored Structure for Collective Enfranchisement
A new company can be set up as a private company limited by shares, with its constitution designed to reflect the purpose of acquiring and managing the freehold and/or granting 999 year lease extensions to members. The shareholders would typically be the contributing leaseholders, ensuring decision-making power remains with those who have financially supported the acquisition.
Streamlined Administration
Forming a new company avoids the need to amend the Articles of Association of an RTM Company, simplifying the process and reducing the risk of errors or disputes.
Clear Ownership and Voting Rights
By creating a new company limited by shares, only the leaseholders who contribute to the freehold purchase become shareholders. This ensures that decision-making is proportional to financial involvement, reducing the likelihood of conflicts.
Transitioning from Right to Manage to Freehold Ownership
While an RTM Company cannot directly facilitate a freehold purchase, the two processes can complement each other. At Peppercorn Law, we have handled a number of RTM claims followed by a collective enfranchisement for blocks of flats in Brighton and London, once the leaseholders are ready to buy the freehold. Leaseholders may start by exercising their right to manage through an RTM Company, gaining immediate control over property management. Once this is in place, they can proceed with collective enfranchisement using a newly formed company for the freehold acquisition.
This dual approach allows leaseholders to address urgent management issues first, while preparing for the more complex and potentially costly process of acquiring the freehold.
Final thoughts
While it may seem logical to use an existing Right to Manage Company for a freehold purchase of a block of flats, the statutory and structural limitations make it an unsuitable choice. Instead, leaseholders should incorporate a new company specifically designed for collective enfranchisement. This approach not only streamlines the process but also ensures that ownership, governance, and financial contributions are managed fairly and efficiently.
If you are considering either the right to manage or collective enfranchisement, it’s important to seek professional advice to navigate these processes effectively. By selecting the appropriate structures and strategies, leaseholders can achieve greater control over their property while minimising legal and administrative challenges.