Police investigating the Grenfell Tower fire say they have "reasonable grounds" to suspect that corporate manslaughter offences may have been committed.
It means senior executives from the council and the tenant management organisation that ran the block are likely to be interviewed under caution.
A letter from the Met Police to residents said officers had "seized a huge amount of material".
At least 80 people died in the fire in North Kensington on 14 June.
Organisations guilty of the offence of corporate manslaughter are liable to an "unlimited fine".
Individuals cannot be charged with corporate manslaughter, an offence which is intended to work "in conjunction" with other forms of accountability.
The relevant section of the letter says Met Police officers have "seized a huge amount of material and taken a large number of witness statements".
"After an initial assessment of that information, the officer leading the investigation has today notified the Royal Borough of Kensington and Chelsea and the Kensington and Chelsea Tenancy Management Organisation that there are reasonable grounds to suspect that each organisation may have committed the offence of corporate manslaughter under the Corporate Manslaughter and Corporate Homicide Act 2007," it said.
The Met Police also released a statement on Thursday, stating that its investigation into the cause and spread of the fire was a "complex and far reaching investigation that by its very nature will take a considerable time to complete".
Newly elected council leader Elizabeth Campbell, who was booed and heckled at a public meeting earlier this month, said residents "deserve answers" about the blaze and the "police investigation will provide these".
"We fully support the Metropolitan Police investigation and we will co-operate in every way we can," Ms Campbell added.
"It would not be appropriate to comment further on matters subject to the police investigation."
Call for 'justice'
BBC home affairs correspondent Tom Symonds says the Met Police has briefed a number of times that corporate manslaughter is a possible offence, along with breaches of health and safety laws.
The effect of what the police have said is to put both organisations on notice that their senior executives are likely to be questioned under caution in relation to the fire.
This means that evidence can be used against both bodies in a court, our correspondent added.
Labour MP for Tottenham, David Lammy, whose friend Khadija Saye died in the fire, said the punishment for corporate manslaughter, a fine, would not "represent justice for the Grenfell victims and their families".
"Gross negligence manslaughter carries a punishment of prison time, and I hope that the police and the CPS are considering charges of manslaughter caused by gross negligence," he added.
Yvette Williams, a co-ordinator at the Justice 4 Grenfell campaign group, said the development would help increase levels of trust between the police and the community.
"However, what we would like to see running alongside that is individuals being prosecuted. We want is individuals named and prosecuted - you can have both, but we don't want corporate manslaughter on its own," she added.
The local authority has been accused of being slow to react to the disaster on the ground and not doing enough to re-house residents of Grenfell Tower.
Council leader Nicholas Paget-Brown and his deputy Rock Feilding-Mellen resigned following continued criticism of its response to the tragedy.
Robert Black, chief executive of Kensington and Chelsea Tenant Management Organisation, also stepped down to "concentrate on assisting with the investigation and inquiry".
Fire safety concerns
The news comes after site manager at the tower block, Michael Lockwood, told a public meeting on Wednesday that the building would be covered in August.
He said that he expected the demolition of the tower block would begin "towards the end of 2018".
Some possessions could be retrieved from 33 of the block's flats, he added.
The residents of Grenfell Tower had reportedly raised fire safety concerns for several years before the blaze, according to a community action group.
A Newsnight investigation has shown that an official test of the types of materials used at Grenfell Tower suggest that designs such as that used in the tower's cladding are fundamentally flawed.
Prime Minister Theresa May has ordered a public inquiry into the tower fire, which will be led by retired Court of Appeal judge Sir Martin Moore-Bick.
He told survivors at a meeting on Tuesday he would "get to the bottom" of the tragedy but insisted he had "no power" to make arrests over the blaze.