Last week Chris Macartney and I hosted a Webinar in our series, Leasehold Question Time entitled ‘Understanding the Right to Manage.’ We had with us as our guest, Mark Loveday of Tanfield Chambers.
With the Leasehold and Freehold Reform Bill in the Lords this week which looks to make changes to the ability to exercise these rights and the qualification criteria, we thought we would share these notes on the Right to Manage, explaining what it is and how the process works.
Webinar: Understanding the Right To Manage by Bishop and Sewell LLP (bigmarker.com)
To find out more about the Right to Manage read our notes below and if you have questions about this topic, please contact us by emailing leasehold@bishopandsewell.co.uk
Understanding the Right to Manage
The Right to Manage (‘RTM’) is a statutory no-fault right introduced by the Commonhold and Leasehold Reform Act 2002 and provides a useful alternative to buying the freehold as there is no capital outlay (other than costs).
Exercising the RTM enables leaseholders to take over the landlord’s management functions in respect of their building, without having to buy the freehold or gain the agreement of the landlord. Doing so puts the leaseholders, via their RTM company, in control of their own destiny as regards management and expenditure.
However, exercising the RTM can be a technical and complex process and the Government has recently looked at changing or reforming these rights with the Leasehold and Freehold Reform Bill, which is currently progressing through Parliament.
The biggest proposed change in relation to RTM is that buildings with up to 50% of the property in non-residential (e.g. commercial) use would now qualify for these rights, meaning many more buildings will fall within the ambit of the Right to Manage. The Bill also proposes that the freeholder will not be able to recover its costs of dealing with the claim from the flat owners.
Leaseholders can exercise the RTM without the need to prove a complaint against their landlord or managing agent, meaning the right can be exercised at any time, provided the qualifying criteria are met. The relevant legislation is the Commonhold and Leasehold Reform Act 2002 (“the 2002 Act”) which sets out what was intended to be a simple process, beginning with the leaseholders setting up a dedicated RTM company of which the leaseholders are members.
If the RTM is claimed successfully, the leaseholders, through the RTM company, take control of services, repairs, maintenance, improvements, and insurance in respect of their building. RTM does not entirely displace the freeholder from the process of making decisions and enforcing the covenants contained in the leases but does give the leaseholders substantial powers. It should be noted that the RTM company needs to maintain a sufficient membership to maintain the right, and failure to do so could lead to the removal of the right and reversion of management functions to the freeholder.
QUALIFYING FOR THE RIGHT
Any person who is a qualifying leaseholder of a flat in the premises is entitled to be a member of the RTM company. However, the building itself must meet certain qualifying criteria to be eligible for RTM, which are briefly that:
- The property must be a self-contained building, or part of a building, either with or without surrounding estate areas.
- At least 50% of the leaseholders within the property must sign up for the process and become members of the RTM company.
- At least two thirds of the leaseholders within the property must have long leases (a long lease being defined as having a term greater than 21 years at the time of issue).
In general, meeting the above requirements means there is a good probability that the Right to Manage process would succeed for the property, although it would be wise to seek the advice and input of a professional party first, such as an experienced managing agent, with respect to the specific circumstances surrounding your property and the obligations the RTM company would inherit.
THE PROCESS
Step 1 – Invitation to Participate
To exercise the Right to Manage, the RTM company must first serve a notice on all the qualifying leaseholders who are not already members of the company, inviting them to become members for the purposes of acquiring the right. This is known as an ‘Invitation to Participate’ and this invitation notice needs to be served before claiming the right to manage from the freeholder.
The Notice is in a prescribed format and must state both the name of the RTM company and that the RTM company intends to acquire the Right to Manage. It must invite the recipient to become a member of the RTM company.
Step 2 – Notice of Claim
The Notice of Claim must be given by the RTM company itself. It needs to be served on the freeholder and anyone else who is party to a lease other than as the Landlord or Tenant (e.g., an intermediate Landlord or management company that is a party to the lease). There is also a requirement to serve the Notice on each qualifying leaseholder, regardless of whether they participate or not.
Step 3 – Counter Notice
The freeholder, once they receive the Notice of Claim is entitled to serve a Counter Notice either accepting the claim, stating that they admit that the RTM company will be entitled to acquire the Right to Manage or disputing it – stating that the company is not entitled to do so. The only formal grounds on which the Freeholder may object are based upon eligibility criteria (see above), and the Counter Notice must stipulate the statutory grounds for objection.
The freeholder can also potentially raise a procedural challenge if the procedural requirements relating to the relevant notices have not been met. There has been a significant amount of case law on this topic.
If the freeholder does not accept that the RTM company is entitled to acquire the right to manage, then the leaseholders may apply to the First-tier Tribunal (Property Chamber) for a determination that they are entitled to acquire the Right to Manage. This application must be made not later than two months from the date on which the Counter Notice is served.
Step 4 – Acquisition and Management
If there is no dispute about the entitlement of the RTM company, the acquisition date will be the date stipulated in the Claim Notice. If there is a dispute, the acquisition date is three months after final determination of the matter. The right to manage is registrable as a unilateral notice against the freeholder’s title.
BENEFITS OF RTM
Whether the leaseholders simply wish to take matters into their own hands, there are historic issues relating to management as a ‘no fault’ right the RTM process allows leaseholders to acquire the management of their property without having to worry about proving why.
A viable alternative to pursuing enfranchisement, successful completion of the RTM process also empowers leaseholders with the ability to fully control the running of their block, including how and where funds are spent and service charge levels. Providing the covenants of the various leases are adhered to, the RTM company can decide how to manage the block. Often the management costs can be reduced, as the leaseholders will have a vested interest in running the property as cost efficiently as possible.
After completion the freeholder is entitled to become a member of the RTM company and this may well be useful in terms
SHOULD YOU CONSIDER PURSUING THE RIGHT TO MANAGE?
Many flat owners have now been waiting years, to see changes and the Right to Manage does allow action to be taken now that may well benefit them as being in charge of the service charge budget is likely to be of long-term economic benefit.
With the current uncertainty as to the nature and effect of the changes to the enfranchisement regime in so far as the timing of when these are likely to take effect, the right to manage represents a good option for those looking to take immediate action to take over the management of their property.
Mark Chick
Chris Macartney
24th April 2024
Contact our Landlord & Tenant team
If you have a query concerning leasehold property, then please contact our expert Landlord & Tenant team by emailing leasehold@bishopandsewell.co.uk or call on +44(0)20 7631 4141.
The above is accurate as at 24 April 2024. The information above may be subject to change.
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.
