Can Right to Manage Costs Be Paid from Service Charges?

Taking control of your building through the Right to Manage (RTM) can be an effective way for leaseholders to improve management, transparency and accountability.

However, an important question is often overlooked: can the costs of obtaining the Right to Manage be paid from the building's service charges?

Right to Manage acquisition costs should generally be funded separately from ordinary building service charges. However, whether a particular expense is recoverable depends on the terms of the leases, the nature of the expenditure and applicable legislation. Leaseholders should not assume that RTM acquisition fees can automatically be reimbursed from service charge funds.

It is important to distinguish the cost of acquiring management rights from the legitimate costs of managing the property afterwards.

What are RTM acquisition costs?

RTM acquisition costs may include:

• Forming the RTM company.
• Preparing and serving statutory notices.
• Legal and professional advice.
• Administration of the RTM claim.
• Tribunal representation if the claim is disputed.

These expenses relate to acquiring the Right to Manage rather than the ongoing operation of the building.

Why can't RTM acquisition costs simply be added to service charges?

Under the Landlord and Tenant Act 1985, service charges are subject to the terms of the lease and statutory controls.

Service charges generally cover permitted expenditure relating to the management, maintenance, repair and insurance of the building.

Acquiring the Right to Manage is a separate legal process.

An RTM company should not assume that the costs of acquiring management rights can simply be included in its annual service charge budget or reimbursed from the building's reserve fund.

The fact that expenditure benefits leaseholders does not automatically make it recoverable through service charges.

Whether a particular cost is recoverable depends on the applicable statutory framework, the leases and the nature of the expenditure.

What changed in March 2025?

Important RTM reforms came into force on 3 March 2025 under the Leasehold and Freehold Reform Act 2024. Two provisions are particularly relevant, and they deal with the landlord's costs, not the RTM company's own acquisition costs.

Section 50: liability for the landlord's costs of an RTM claim

Previously, RTM companies could face liability for certain reasonable costs incurred by the landlord in dealing with an RTM claim.

Section 50 of the 2024 Act introduced new sections 87A and 87B into the Commonhold and Leasehold Reform Act 2002. Section 87A provides that an RTM company and its members are generally not liable for costs incurred by any other person in consequence of a claim notice, except as set out in that section. Section 87B allows the Tribunal, in limited circumstances, to order an RTM company to pay costs where the statutory conditions are met.

Section 64: landlord's RTM costs and variable service charges

Section 64 of the 2024 Act inserted new sections 20J and 20K into the Landlord and Tenant Act 1985. These stop a landlord treating its non-litigation costs of an RTM claim as service charge costs for leaseholders who are not participating in that claim, and allow the Tribunal to order repayment of any such amount paid.

Section 20CA: landlord's litigation costs (not yet in force)

Section 62 of the 2024 Act will insert a new section 20CA into the Landlord and Tenant Act 1985, replacing section 20C. Under section 20CA, a landlord's litigation costs of court or tribunal proceedings would generally not be recoverable through variable service charges, although the court or tribunal could allow recovery on the landlord's application. That power would not extend to litigation costs connected with proceedings under the Right to Manage provisions of the 2002 Act. Section 87A refers to section 20CA alongside section 20J.

At the research-checked date, section 62 had not been brought into force, so section 20CA does not yet apply. Until it does, a leaseholder can apply under the existing section 20C for an order limiting the recovery of a landlord's costs of proceedings through service charges.

What these reforms do not cover

These reforms concern specific statutory liabilities for the landlord's costs. They do not expressly prohibit every RTM acquisition expense from being recovered through service charges, and they should not be described as a universal prohibition covering every conceivable expense incurred by an RTM company.

Whether the RTM company's own acquisition costs can be recovered depends on the leases, the nature of the expenditure and the applicable legislation, including the service charge controls in sections 18 and 19 of the Landlord and Tenant Act 1985.

Can participating leaseholders pay RTM costs themselves?

Yes.

Participating leaseholders can agree to fund the RTM acquisition process separately.

For example, if 12 leaseholders agree to share £1,200 of acquisition expenses equally, each could contribute £100.

These payments should be clearly identified as contributions towards RTM acquisition costs rather than ordinary building service charges.

The funding arrangements should be documented and agreed in advance.

What costs can be recovered after RTM takes over?

Once the RTM company has acquired management, it can generally collect service charges for legitimate management expenditure where permitted by the leases and applicable legislation.

Examples include:

• Building insurance.
• Repairs and maintenance.
• Cleaning and communal services.
• Fire safety compliance.
• Managing agent fees.
• Other permitted building management expenditure.

Some RTM company administration costs may also be recoverable, depending on the leases and applicable law.

What if a managing agent offers to recover RTM fees from future service charges?

Leaseholders should request a clear written explanation of the proposed arrangement.

In particular, they should ask:

1. What services are included in the RTM acquisition fee?
2. Who is contractually responsible for paying it?
3. Is the agent proposing to recover the original acquisition fee from future service charges?
4. What provision in the leases and legislation is said to permit that recovery?
5. Are there any additional charges if the RTM claim is disputed or unsuccessful?

A contractual agreement does not automatically make an expense recoverable through service charges.

Where an agent proposes to fund the RTM process initially and reimburse itself from future service charge collections, leaseholders should obtain independent advice before agreeing.

How does East Valley fund RTM?

At East Valley, we believe that RTM acquisition costs should be transparent from the outset.

For qualifying buildings with 10 or more flats, we offer a Funded Right to Manage service.

East Valley covers the agreed RTM acquisition service fee for qualifying buildings with 10 or more flats in exchange for an initial 12-month management appointment, subject to eligibility and our terms.

We do not seek to recover that agreed acquisition fee through the building's service charges.

Any exceptional legal or tribunal costs outside the funded service must be discussed and agreed separately.

Once the RTM company acquires management, our ongoing management fees are charged transparently under the management agreement and applicable leases. See our block management fees.

Learn more about our Funded Right to Manage service.

The bottom line

The cost of acquiring Right to Manage and the cost of managing a building afterwards are not the same.

Leaseholders should be cautious about arrangements that propose to recover RTM acquisition costs from future service charges without a clear legal basis.

Before proceeding, request a written breakdown explaining the costs, who pays them and whether any reimbursement is proposed.

At East Valley, our approach is to make these arrangements clear before the RTM process begins.

Legal references

This article provides general information about the law in England and Wales. It is not individual legal advice. Research checked 10 October 2026.