A question we are asked regularly by RTM directors: now that our RTM company manages the block, can it chase service-charge arrears, including balances that built up before we took over?
Generally yes for service charges that are payable to the RTM company as part of the management functions it acquired. Recovery is not automatic, though. It depends on the lease, a valid demand complying with the statutory requirements, correct apportionment, reasonableness under section 19, the eighteen-month rule in section 20B, any consultation failures, limitation, and whether the RTM company was the correct payee when the charge fell due. Arrears that accrued before acquisition do not automatically transfer to the RTM company. The sensible sequence is to reconcile, verify the demands, communicate clearly, then escalate only where the debt is properly demanded and undisputed.
Where the right to manage has been validly acquired, the relevant management functions transfer to the RTM company, and service charges that fall due to it after acquisition are generally recoverable by it in the ordinary way. Chasing them is not optional: if a minority do not pay, the shortfall lands on everyone else, and the company still has to fund insurance, safety compliance and contractors.
What does not follow is that every figure carried across on a ledger is a debt the RTM company can enforce. Recovery depends on the lease and on a series of statutory requirements being met, and an inherited spreadsheet is not evidence that they were.
Arrears that accrued and became payable to the landlord before the acquisition date do not automatically become the RTM company's money simply because the company now manages the building. Whether the RTM company can pursue them depends on what was actually agreed or assigned on acquisition, and on who the lease made the charges payable to at the time they fell due.
In practice boards need to separate at least five categories: post-acquisition arrears payable to the RTM company; pre-acquisition arrears that remain the landlord's or previous payee's; sums expressly transferred or assigned; undisputed balances; and genuinely disputed service charges. Administration charges, legal costs and interest are a further category again, recoverable only if the lease and the statutory framework allow.
Sending a demand in the RTM company's name for a debt that was never payable to it is a common and damaging error. It invites a challenge on payability, undermines the credible part of the claim, and can sour relations with a leaseholder who was otherwise willing to pay.
Recovery decisions should be taken and minuted at board level, with a consistent policy applied to all leaseholders rather than case-by-case discretion. Costs of recovery should only be charged on where the lease and the statutory framework permit. And directors should be conscious that they are pursuing their own neighbours: a process that is firm, documented and even-handed is far more defensible, and usually more effective, than one that escalates quickly.
Arrears work is easier with consistent records and a documented process behind it, which we provide as part of managing an RTM company's finances.
Who should do what depends on whether you are running the company or receiving the demand.
Assuming every inherited arrear is now the RTM company's debt
Pre-acquisition arrears may remain payable to the previous payee. Demanding them in the wrong name invites a payability challenge.
Chasing before checking the demands
If the demand did not comply with the lease or the statutory requirements, the sum may not yet be payable at all.
Treating disputed and undisputed sums as one debt
Separating them usually recovers the undisputed money quickly and narrows the argument.
Reaching for forfeiture language early
Forfeiture is a serious remedy with statutory preconditions. Using the threat loosely damages credibility and relationships.
Most questions on this topic are management questions rather than legal ones, and the two are worth separating. A managing agent can tell you how something works day to day and what it will cost. A solicitor tells you what your rights are and how a Tribunal is likely to view them.
East Valley Properties provides management expertise, not legal advice. Where a matter turns on the wording of your lease or on formal proceedings, we will say so and work alongside your solicitor.
The official material behind this guide. We summarise it in plain English rather than reproducing it.
The right to manage framework and the transfer of management functions.
Sections 19, 20B, 21B and 27A on reasonableness, the eighteen-month rule, demand requirements and tribunal determinations.
Time limits that may affect older service charge debts.
How payability and reasonableness are determined by the tribunal.
Clear budgets, designated client accounts and year-end accounts leaseholders can actually follow. We can review your current arrangement at no cost.
Answered by Romain Maillard - Director, East Valley Properties
Romain manages residential blocks and estates for RTM companies, residents' management companies, share of freehold developments and freeholders across East London and Essex.
Published
This answer has been anonymised. Personal details, addresses and company names have been removed. Guidance is general and does not replace advice from a solicitor or surveyor on your specific block. East Valley Properties is a managing agent, not a firm of solicitors or legal advisers.
Whether you're an RTM Director, RMC Director, Freeholder or Leaseholder, our experienced block management team is here to help.
If your question could help other property owners, we may publish an anonymised version of the answer in our Knowledge Centre.
Book a free consultation with East Valley Properties to discuss your building, service charges, compliance or managing agent requirements.