Freehold Residents Management Company: How It Works & What Can Go Wrong

A freehold residents management company (RMC) is how most leaseholder-owned buildings actually hold their freehold. It's not the same as Right to Manage, and it comes with real legal duties — and real ways to go wrong — that most leaseholder-directors never get properly briefed on.

What Is a Freehold Residents Management Company?

A freehold residents management company (RMC) is how most leaseholder-owned buildings actually hold their freehold. It is not the same as a Right to Manage company, and it brings legal duties, and ways to go wrong, that most volunteer directors are never properly briefed on. This guide explains what an RMC is, what its directors must do, the problems that recur and how to fix a struggling one.

What Is a Freehold Residents Management Company?

An RMC (sometimes called a flat management company) is a private limited company, nearly always limited by guarantee, that owns the freehold of a residential building on behalf of the leaseholders who live in it. Each leaseholder usually becomes a member of the company on buying their flat, and often a director as well. The company holds the freehold and acts as the landlord under each lease: it collects service charges, arranges buildings insurance, commissions repairs and major works, and enforces the lease terms.

The structure is common. Developers often set it up from day one on new-build blocks, and it is what leaseholders end up with after a successful collective enfranchisement claim, when the participants hold the freehold through a company they control (see share of freehold).

RMC, Right to Manage Company and Managing Agent

• Freehold RMC: the company owns the freehold and is the landlord under the leases.
• Right to Manage (RTM) company: leaseholders take over management only and the freeholder still owns the building. See our Right to Manage guide. Both are companies run by leaseholders, which is why they get confused, but they have different legal bases.
• Managing agent: a professional appointed to handle day-to-day management. An RMC or an RTM company can, and often should, appoint one. Owning the freehold and self-managing are separate decisions.

How a Freehold Management Company Is Set Up

If you are acquiring the freehold through enfranchisement, your solicitor will normally handle the company as part of the process. In outline:

• The company is incorporated at Companies House, almost always limited by guarantee because it is not trading for profit.
• Articles of Association set out membership, how directors are appointed and removed, voting and how decisions are made.
• Each leaseholder is registered as a member, and the company is registered as the freehold owner at HM Land Registry.
• The leases should name the company as landlord, and the owners should agree how future lease extensions will be handled.
• Filings follow every year: a confirmation statement and annual accounts, even though the company does not trade.

Director Duties and Responsibilities

Being a director of the building’s RMC is not a formality. Under the Companies Act 2006 a director must act within the company’s powers, promote its success, exercise independent judgement, use reasonable care, skill and diligence, avoid conflicts of interest, not accept benefits from third parties and declare any interest in a proposed transaction. They must also see that the company keeps proper records and files on time. In a small RMC this usually comes down to:

• Service charges: setting them fairly, following the lease, and keeping the money properly (service charge funds are held on trust under section 42 of the Landlord and Tenant Act 1987, generally in a designated account).
• Demands: sending valid demands that carry the information the law requires, including the landlord’s name and address and a summary of leaseholders’ rights.
• Consultation: consulting leaseholders before qualifying works that would cost any one of them more than £250, or long-term agreements costing more than £100 per leaseholder per year (section 20 of the Landlord and Tenant Act 1985, as amended). Getting it wrong can cap what you can recover.
• Reasonableness: service charges must be reasonable and the work to a reasonable standard (section 19), and leaseholders can ask the First-tier Tribunal to decide whether charges are payable.
• Insurance and safety: arranging adequate buildings insurance, carrying out a fire risk assessment and, in buildings with 18 metres or seven storeys and at least two homes, the higher-risk building duties under the Building Safety Act, where the company is likely to be the accountable person. Take professional advice.
• Company compliance: private company accounts are normally due nine months after the financial year end, and a confirmation statement is due every year. Identity verification requirements for directors are being phased in under the Economic Crime and Corporate Transparency Act 2023, so check Companies House guidance.

Common Residents Management Company Problems

• Unpaid service charges. Non-payment starves the company of the funds for maintenance and insurance, and chasing a neighbour is the kind of confrontation volunteers dread. The law restricts forfeiture for service charge arrears: a landlord generally cannot forfeit a lease for unpaid service charges unless the amount exceeds £350 or has been outstanding for more than three years, and the Tribunal must first determine that the charge is payable. Set an arrears procedure and use debt recovery through the courts or a managing agent.
• Director burnout. In a small building the same one or two people do the unpaid work indefinitely while everyone else stays passive until something goes wrong.
• Major works disputes. Disagreements about contractors, cost and how to split unequal costs (a ground-floor flat paying for roof works) are the most common source of conflict.
• Inadequate reserve funds. Without a sinking fund, a major repair becomes a one-off levy of thousands of pounds per flat. Our Reserve Fund Health Checker gives an informal read on where your building stands.
• Disengaged investor-owners. Non-resident landlords are harder to reach for votes and decisions, leaving the company run by whoever is resident and willing.
• Strike-off risk. Missing Companies House filings can lead to the company being struck off. If it is dissolved while it owns the freehold, the property can pass to the Crown as bona vacantia, which creates a legal mess for every leaseholder. A struck-off company can usually be restored, but the process takes time and money.
• Building safety costs. Where leaseholders own the building through a company they control, the Building Safety Act leaseholder protections generally do not apply, so the owners can be responsible for remediation costs themselves. Check this carefully; see our Building Safety Act guide.

Good Governance Habits

1. Hold an annual general meeting and keep minutes.
2. Keep a register of members and directors, and update it on every sale.
3. Diarise Companies House deadlines and give a second person access to the filings.
4. Agree a written policy on arrears, reserve fund contributions and how major works are procured.
5. Rotate directors, and keep a list of willing successors.
6. Keep a complete document pack (articles, insurance, accounts, fire risk assessment, surveys) ready, because buyers’ solicitors and lenders will ask for it.

How to Fix a Struggling RMC

The usual route is operational, not structural: appoint a professional managing agent to take the burden off volunteer directors, formalise a service charge and arrears process, set a realistic reserve fund schedule tied to a building survey, and, where relationships have genuinely broken down, try mediation before the First-tier Tribunal. If leaseholders believe the building is being badly managed, they can apply to the Tribunal to appoint a manager, but that is a last resort. For the typical disputes between co-owners see share of freehold problems and disputes.