Often times leaseholders take the view that self-management of their building repairs and their service charge monies held on account is the best way forward. Historically there exists a tension between a freeholder/landlord who owns the ground or the land and the leaseholders/tenants who have invested heavily in the property that straddles the land. On one hand, one has a freeholder wishing to exploit and maximise his investment in the land vis-à-vis service charge regimes, major work repairs, charging for consent to alter or sub-let; charging for provision of information upon sale of a flat and the list goes on. However, on the other hand, one has leaseholders being levied said service charges, costs of major work repairs; needing to take permission before doing anything with their property, constantly being told ‘what to do’ and ‘what not to do’ and ultimately feeling as if they lack any autonomy over their investments in their properties. This tension is arguably the root cause of most if not all disputes between freeholders and leaseholders; and alas! Is the raison d’etre for the First Tier Property Tribunal (FTPT) many would argue.

In comes the knight in shining armour, or is it? The Right to Manage (RTM).

What is the Right to Manage (RTM)?

In simple terms – the Commonhold and Leasehold Reform Act 2002 (CALRA 2002) brought in – what many thought would be – the panacea to all leasehold problems. It is a ‘no-fault’ based procedure and legal right that empowers leaseholders to take over the day-to-day management of their property from the freeholder/landlord or the landlord’s agents. However, as it is a no-fault based procedure, the freeholder/landlord is also entitled to become a member of the end product of the right to manage.

The Vision… All parties collaborate and live happily ever after?

Overview of the RTM Process

First things first, we need a vehicle for the right to manage – Preparation is Key:

Please note that unless you have a lawyer or surveyor for a neighbour or a lovely mate, and who is willing to lead the battle cry, your best investment would be to seek specialist legal support and advice. Exercising the Right to Manage is a very technical process with strict deadlines and prescribed wording and legal notices that must be complied with; and all of which can be defeated by a freeholder on the grounds of certain procedural failures. So, the old cliché of “Prevention is Better Than Cure” rings true here.

The starting point, however, is getting the vehicle that will be used- up and running. This is done by setting up a special statutory company, known as an RTM company. This is a private company limited by guarantee and not for profit. Although this process does not require the consent of the landlord, it comes with very real responsibilities in relation to the running of the company as well as the day-to-day management and upkeep of the property: including but not limited to taking control  of the building’s insurance, budgeting in advance (often years in advance); liaising with brokers, effecting repairs in a timely manner, collecting service charges, chasing belligerents for non-payment of said service charges; as well as the general day-to-day dramas involved in flat management.  Typically, once a take-over has been accomplished, the wisest and more prudent leaseholders delegate the job of managing the building to an established property managing agent (ideally one who is professionally recognised) and/or a company that is regulated by the Industry based Professional Bodies that exist such as Royal Institution of Chartered Surveyors (RICS) or the Association Residential Managing Agents (ARMA).

Who can exercise the RTM?

Before leaseholders can take any steps towards autonomy in management – they must first ensure that they meet the qualifying criteria.

There are two main preliminary considerations which will need to be considered in order to assess whether the leaseholders, will be able to exercise the RTM- the Premises and the number of participating leaseholders

Qualifying premises:

1. The building must contain 2 or more flats, and
2. If the property is partly used for non-residential purposes (e.g. shops), then no more than 25% of this area should occupy the total floor space of the premises (excluding common parts).

Qualifying tenants

1. At least two-thirds of the flats must be let to ‘qualifying tenants’.
2. A ‘qualifying tenant’ is a leaseholder whose lease was originally granted for an original term of more than 21 years. There is no requirement for any past or present residence in the flats, nor any limit on the number of flats which can be owned by one person.

The Notice Inviting Participation

Once the RTM company has been set up with its director(s) and member(s), then a Notice of Invitation to Participate (NOIP) must be served on all qualifying tenants who are not already members, inviting them to become a member of the RTM company. It is here that a reality check must be done because ALL the tenants have to be invited to join the RTM AND the freeholder/landlord is also entitled to become a member of the RTM Company too (but only after the Claim Notice has been served and the acquisition date has passed. This is mandatory and failure to invite ALL the qualifying leaseholders will render the process invalid.

What about the Notice of Claim?

A Notice of Claim must be served on the freeholder/landlord no earlier than 14 days after the service of the NOIPs. The freeholder/landlord can either agree to the RTM or challenge it via service of a counter-notice alleging the reasons why the RTM company is not entitled to proceed. If the freeholder/landlord admits the right, the management will pass to the RTM company on the date specified in the Notice of Claim- known as the Acquisition date.

However, if the freeholder/landlord challenges the Claim Notice, the RTM company must make an application to the Tribunal within two months of the date of the freeholder/landlord’s counter-notice. The Tribunal will then determine whether the RTM company is entitled to take over the management of the property. If the application is not made within this time, then the claim will be deemed to be withdrawn. It is important to note that if the freeholder/landlord successfully challenges this, then the RTM company will have to reimburse the freeholder/landlord’s reasonable  costs.

What Happens on the Acquisition date?

Once the company takes over on the acquisition date, there are several things to consider. Firstly, that the freeholder/landlord is entitled to become a member of the company. The company will also need to be aware of the contracts in place relating to the property as it will need to give the relevant contractors notice of the transfer of management to ensure that there is continuity of management services. It is the landlord’s duty to ensure that parties are aware of the contracts through the service of notices including contractor notices and contract notices. Further, the freeholder/landlord has a statutory duty to provide information that is reasonably required in connection with the exercise of the right to manage.

Why should leaseholders exercise their RTM? – Advantages v Disadvantages

Advantages:

1. The main benefit of gaining the RTM from your landlord is that the leaseholders get the full control over the maintenance and any development for their building. This right can be important in situations where it is believed that the current management company or landlord is not doing a good enough job in the upkeep of the building or the common areas.
2. Having a well-managed block of flats adds greatly to the value of each of the properties and having the right to manage means the value of the flats is now under the leaseholder’s control. If you are trying to sell a flat in a block which is managed by a company formed of the leaseholders, then this usually has a higher selling price, as buyers prefer to know they will have control.
3. Leaseholders may be overpaying on management charges.
4. In certain cases, where development of the building is needed and the freeholder/landlord is not prepared to take on the work, then the value of your flat might depend on getting the RTM.
5. Leaseholders do not need the permission of the freeholder/landlord to kickstart the RTM process and further, they do not need to prove any fault on the existing landlord’s/managing agent’s part to succeed.
6. Leaseholders may gain control of the RTM and elect to appoint a managing agent of their choice after the process is complete.

Disadvantages:

1. Cost – Leaseholders who apply and are granted an RTM have to pay their own legal costs, and the necessary reasonable costs of the freeholder/landlord too.
2. At least one leaseholder will have to be appointed as a director of the RTM company. This means taking on additional responsibilities to the other members of the company.
3. Leaseholders will have to go through the formal process of establishing the RTM company which is a rather technical procedure.
4. There are many responsibilities that come with setting up the RTM company. Once the RTM company is formed, the participating tenants will immediately become responsible for the management of the building as well as the management of the RTM company itself which includes organising the company’s accounts and filing certain documents at Companies House.
5. Co-operation between the leaseholders will be required for the smooth running of the RTM company – this may be difficult if not all leaseholders are participating.
6. The freeholder/landlord may elect to be a member of the RTM company.