RTM Directors’ Finance Responsibilities: Practical Steps for Approvals, Sign-Off, and Keeping Decisions Traceable
The Financial Burden That Comes With the Role
Taking on a directorship in a Right to Manage company is usually motivated by a desire to improve how your building is run. Most RTM directors are leaseholders who stepped forward because they wanted better management, more transparency, or simply more control over a building they live in and own a stake in.
What many don’t fully anticipate is the weight of financial responsibility that comes with the role. RTM company directors are subject to the same legal duties as directors of any other limited company — and within that, they carry specific obligations around how money is managed, how financial decisions are made, and how those decisions are recorded.
This article is a practical guide to the finance side of being an RTM director. It covers how to set up proper approval processes, how sign-off should work in practice, and how to keep a decision trail that protects both you and the company if questions arise later.
Why Traceability Matters More Than You Might Think
In a well-run RTM company, most financial decisions are straightforward and uncontroversial. But you’re managing money that belongs — directly or indirectly — to leaseholders, and that changes the stakes.
Service charge funds are held on trust. The directors of the RTM company are trustees of those funds in effect, and their management of them is subject to scrutiny from leaseholders, from the First-tier Tribunal (Property Chamber) if a dispute arises, and from the freeholder in some circumstances.
If a leaseholder challenges a service charge demand, asks to inspect the accounts, or makes an application to the Tribunal, the quality of your financial records and the traceability of your decisions will determine how well you can defend the position. Decisions made verbally and not documented, expenditure approved informally, or invoices paid without a clear authorisation trail can all become significant vulnerabilities.
Good traceability isn’t about bureaucracy. It’s about being able to demonstrate clearly, at any point, that every financial decision was made properly, by the right people, and in accordance with the company’s obligations.
Working with right to manage accountants who understand the specific environment RTM directors operate in is one of the most effective ways to make sure the financial foundations are solid from the outset.
Setting Up a Financial Approvals Framework
The first practical step is to establish — and document — how financial decisions will be made in your RTM company. This doesn’t need to be complicated, but it does need to exist.
A simple approvals framework typically covers:
Expenditure thresholds
Define who can approve expenditure at different levels. For example:
- Day-to-day maintenance up to a certain amount (say £500) might be approved by the managing agent without director sign-off
- Expenditure between £500 and £2,000 might require sign-off from one director
- Expenditure above £2,000 might require approval from two directors or a board decision
- Any unbudgeted expenditure above a defined threshold might require a formal board resolution
The exact figures will depend on the size of your building and the scale of your service charge budget, but the principle — that different levels of expenditure require different levels of authorisation — applies universally.
Emergency expenditure
You’ll also want to define how genuine emergencies are handled. A burst pipe at 2am can’t wait for a board meeting. Define who can authorise emergency spend, up to what amount, and what documentation is required immediately afterwards.
Procurement and quotes
For any significant piece of work, establish a minimum number of quotes. For works above the Section 20 consultation threshold — currently £250 per leaseholder — the Landlord and Tenant Act 1985 requires a formal consultation process with leaseholders before the contract is entered into. Make sure your approvals framework reflects this legal requirement.
How Board Meetings Should Work for Finance Decisions
The board meeting is where most significant financial decisions should be formally made and recorded. For RTM companies, this doesn’t need to be a formal corporate event — but it does need to result in clear, written minutes.
Every board meeting that touches on financial matters should cover:
- Review of the current management accounts or financial summary
- Approval of any expenditure above the threshold set in your approvals framework
- Review of the service charge collection position — what has been collected, what is outstanding
- Status of the reserve fund and any significant upcoming expenditure
- Any invoices or payments requiring director approval
- Any correspondence with contractors, the freeholder, or leaseholders that has financial implications
The minutes of that meeting should record what was discussed, what was decided, and who was present. They don’t need to be lengthy, but they do need to be accurate, and they need to be signed off.
If your managing agent attends board meetings, their presence and any reports they present should be recorded. If a decision is delegated to the managing agent following a board discussion, that delegation should be minuted clearly.
Our post on service charge accounting — setup, collection, and reconciliation covers the financial mechanics that sit alongside these governance processes.
Bank Account Controls
The service charge bank account is one of the most important controls in any RTM company. The money in it belongs to the leaseholders — it is not the RTM company’s money to use freely — and the controls around who can access it and how payments are authorised reflect that.
Best practice for RTM company bank accounts includes:
Dual authorisation for payments
Any payment from the service charge account should require sign-off from at least two authorised signatories. This prevents a single director or the managing agent from making payments unilaterally, and provides a built-in check on every transaction.
Separate accounts for service charge and reserve funds
The day-to-day service charge account and the reserve (or sinking) fund account should be separate. This makes the position of each fund clear at all times and prevents reserve fund money from being used for routine maintenance without a conscious, recorded decision.
Regular bank statements reviewed by directors
Don’t rely solely on the managing agent’s reports. Directors should review actual bank statements regularly — at least quarterly — and reconcile them against the financial reports they receive. Our post on audit-ready bookkeeping for rental and property income explains what good records look like from a practical standpoint.
Online banking access for directors
Where possible, directors should have read-only access to the service charge bank accounts so they can view the balance and transaction history independently of the managing agent. This provides real-time oversight without giving directors unilateral payment authority.
Managing Agents: Delegation Without Abdication
Most RTM companies appoint a managing agent to handle the day-to-day running of the building. This is entirely sensible — managing agents have the expertise, the contractor relationships, and the time that most volunteer directors don’t. But delegation to a managing agent is not the same as handing over responsibility.
As a director, you remain legally responsible for the company’s financial management. If the managing agent makes an error, fails to segregate funds correctly, or authorises expenditure that exceeds their mandate, the consequences land at the directors’ door.
The practical implication is that your approvals framework needs to define clearly what the managing agent can do without director approval, what they must refer to directors, and how their financial activity is reported and reviewed.
A managing agent should be producing — and directors should be reviewing — at minimum:
- Monthly management accounts showing income, expenditure, and fund balances
- A service charge collection report showing what is owed and what is outstanding
- An aged debtor report for overdue service charges
- Advance notice of any significant expenditure that approaches or exceeds the approval threshold
If your managing agent isn’t producing this level of reporting, that’s a conversation worth having. And if you’re not sure what good reporting looks like, property management accountants who work independently of managing agents can review what you’re receiving and give you an objective view.
Section 20 Consultations: A Financial Decision Point
One of the most significant financial decision points for any RTM company is major works. Once the cost of works is likely to exceed £250 per leaseholder, the Section 20 consultation process applies — and this process has both financial and procedural dimensions that directors need to manage carefully.
The key stages are:
- Notice of Intention — informing leaseholders of the proposed works and inviting their nominations for contractors to quote
- Notice of Estimate — sharing at least two contractor quotes with leaseholders and inviting observations
- Notice of Award — where the contract is awarded, with reasons if the cheapest quote wasn’t selected
Each stage involves written notices to leaseholders within defined timeframes. Failing to follow this process correctly can render the works costs irrecoverable above the consultation threshold — meaning leaseholders can challenge their contribution and the RTM company (and therefore ultimately the leaseholders collectively) bears the shortfall.
Directors need to formally approve the decision to proceed at each stage, and that approval should be minuted. The choice of contractor, the basis for that choice, and the approval of the expenditure should all be clearly recorded.
Understanding how reserve funds interact with major works decisions is another important area. Our post on service charge budgeting, forecasting, and reserve planning covers this in practical detail.
Keeping an Audit Trail: What to Keep and For How Long
A traceable decision is only as good as the records that support it. For RTM companies, the documents that need to be retained include:
- Board meeting minutes, including agenda papers and any management reports considered
- Contractor quotes, comparison schedules, and award decisions
- Signed contractor agreements and purchase orders
- Invoices with evidence of approval (dated signature, email trail, or similar)
- Bank statements for all company accounts
- Section 20 consultation notices and leaseholder responses
- Service charge demands sent to leaseholders
- Correspondence with the managing agent regarding financial matters
- Annual service charge accounts and statutory accounts
For statutory purposes, Companies House requires financial records to be kept for six years. But given the nature of RTM company disputes — which can arise years after works were carried out — it’s advisable to retain records for significantly longer than the legal minimum.
Keeping these records in a well-organised, accessible format matters. If a leaseholder requests to inspect documents, or a Tribunal application is made, being able to produce clear records quickly is a significant advantage.
For RTM companies using cloud-based accounting software, working with xero bookkeeping services means financial records are stored systematically, reconciled regularly, and accessible to whoever needs to review them — without being dependent on a single person’s filing system.
Our post on 5 quick Xero tips for efficient bookkeeping has practical suggestions for keeping records tidy if you’re using Xero for your RTM company’s accounts.
When Leaseholders Ask Questions
One of the tests of good financial governance is how well you can respond when leaseholders ask questions. This happens — sometimes as a genuine inquiry, sometimes as a precursor to a formal challenge.
Leaseholders have a statutory right under the Landlord and Tenant Act 1985 to request a written summary of the costs incurred in a service charge accounting period, and to inspect the accounts and supporting documents. Directors should be ready to respond to these requests promptly and completely.
A well-run RTM company with good financial records and a clear approvals trail will find leaseholder inquiries straightforward to handle. An RTM company with informal processes and incomplete records will find the same inquiries disproportionately difficult and stressful.
If a formal Tribunal application is made — for instance, a challenge to the reasonableness of service charges — the quality of your financial records, the completeness of your Section 20 process, and the traceability of your expenditure decisions will be central to the outcome.
Annual Accounts and Statutory Obligations
Beyond the day-to-day financial management, RTM company directors have annual statutory obligations that sit on top of the service charge accounting process.
The RTM company must file annual statutory accounts with Companies House and an annual confirmation statement. The service charge accounts — prepared separately from the statutory accounts and in accordance with the lease terms — also need to be prepared, and in many cases independently certified or reviewed.
Our post on what statutory accounts involve for company directors is a useful reference for directors who aren’t familiar with what these filings involve. And if you’re not sure when each deadline falls, or whether your service charge accounts need independent certification, these are exactly the kinds of questions that property management accounts specialists deal with routinely.
If your RTM company is relatively new — perhaps formed in the past year or two following a successful Right to Manage claim — then working with business start-up accountants who understand the property management context can help you get the right structure in place from the beginning rather than retrofitting systems later.
For directors who are also personally involved in property investment — owning the leasehold flat in the building, or holding other buy-to-let properties — there may be personal tax considerations that sit alongside the company’s obligations. A property tax advisor can help you keep those two things clearly separated and properly managed.
If your RTM company or managing agent is growing in scale, or you’re finding that the financial administration is consuming more director time than it should, an outsourced finance and accounting arrangement can take the day-to-day financial management off your plate entirely — while keeping you in full oversight of what’s happening.
For directors with landlord interests beyond the RTM company itself, accountants for landlords who understand the intersection of personal property income, corporate structures, and property management company obligations will give you a joined-up view of your overall position rather than treating each thing in isolation.
And if you’re running commercial property alongside the residential RTM, working with a commercial property accountant means the different accounting regimes — service charge accounting for the residential side, client account and deposit accounting for the commercial side — are both handled by people who understand how they work.
Frequently Asked Questions
Do RTM directors need formal qualifications to manage the company’s finances?
No — RTM directors are not required to have accounting qualifications. But they are required to ensure the company’s financial obligations are met, which in practice means either understanding them well enough to manage them personally, or engaging qualified support to handle them on the company’s behalf. The legal responsibility remains with the directors either way.
What happens if the directors don’t keep board meeting minutes?
Without board minutes, there is no traceable record of how financial decisions were made or who approved them. If a leaseholder challenges a service charge, or the Tribunal reviews the company’s expenditure, the absence of minutes makes it very difficult to demonstrate that decisions were made properly. It also removes a key protection for individual directors if their conduct is ever questioned.
Can the managing agent approve expenditure without director sign-off?
Only up to the limits set out in the managing agent’s contract and the company’s own approvals framework. Directors should define those limits clearly and ensure the managing agent understands and operates within them. Any expenditure outside those limits should require director approval — documented in writing.
What is the Section 20 threshold and what happens if we get it wrong?
The Section 20 consultation threshold is £250 per leaseholder. If the cost of qualifying works will exceed that amount per leaseholder and the correct consultation process is not followed, leaseholders can apply to the Tribunal to limit their individual contribution to £250 regardless of the actual cost. The consequences for the company — and ultimately for leaseholders collectively — can be significant.
How often should RTM directors review the financial accounts?
At a minimum, directors should review financial reports at each board meeting, which should take place at least quarterly. Monthly reporting from the managing agent, reviewed by at least one director, is a better standard. Bank statements should be reviewed independently — not just through the managing agent’s reports.
Who is responsible if the managing agent mishandles service charge funds?
Ultimately, the directors are responsible for ensuring the company’s obligations are met, including the proper handling of service charge trust funds. If a managing agent mishandles funds, the directors may still face scrutiny over whether they exercised adequate oversight. This makes independent review of managing agent accounts and regular reconciliation essential.
Get the Right Support for Your RTM Company
Being an RTM director is a genuinely important role — you’re managing a building that people live in and own a stake in, and doing so in a legal and regulatory environment that has real consequences for getting things wrong.
FHP Accounting works with RTM companies, resident management companies, and managing agents across Nottingham and nationally, providing accounting Nottingham based businesses and property companies rely on for service charge accounts, statutory accounts, bookkeeping, and practical financial support. We understand the pressures RTM directors face, and we can help you put the right processes in place — or take the financial administration off your hands entirely.
Get in touch today to find out how we can support your RTM company.
I lead FHP Accounting, an accountancy practice specialising in Commercial and Residential Property Accounting. Our goal is to make the administration of running property portfolios easier for landlords, managers, and investors — allowing you to focus on what you do best, while we take care of everything behind the scenes.
