March 2020

Leaseholders of flats who want to take control over their block typically have two options: collective leasehold enfranchisement and the right to manage. Both options allow tenants to take over control of the management of the block of flats or building in which they live from the landlord. Ultimately the choice as to the route to follow will depend on the leaseholders’ aims and finances. Right to Collective Enfranchisement This is a collective right for tenants of flats, who hold long leases, to buy the freehold of their building, together with certain additional property. This is the more costly and time-consuming option out of the two, however, it carries with it a number of benefits, particularly from a financial point of view. In particular, leaseholders can be charged ground rent, management fees and building insurance by landlords, sometimes at inflated rates. If you go down the enfranchisement route, you will be one of the owners of the freehold, along with other leaseholders, so you will have control over the cost of running and maintaining the block and can expect to add value to their property by owning the freehold. In addition, leaseholders are likely to be able to avoid disputes with landlords over things like service charges and maintenance. Right To Manage The right to manage, on the other hand, refers to the right of qualifying tenants to force the transfer of the management functions of their building to a special company set up by those tenants. Such a company is commonly referred to as an RTM. Although the qualifying conditions are similar to those that apply to the right of collective enfranchisement, there are a number of differences between the two options. So just because you can do one, doesn’t automatically mean you can do the other. What does the Right to Manage entail? When an RTM company successfully acquires an RTM, it assumes the ‘management functions’ for the premises over which it has acquired the RTM. These functions include services, repairs, maintenance, improvements, insurance and management. The RTM company doesn’t have to manage the building itself, rather it acquires the right to direct the management of the building and can appoint its own managing agents or people acting on behalf of the landlord. The landlord or management company is then divested of their management functions under the lease, with the exception of functions relating to re-entry or forfeiture, and matters concerning only a part of the premises that are made up of a flat or another unit that is not held under a lease by a qualifying tenant. For buildings that contain flats or commercial units, the management functions obtained through the RTM will not extend to those flats or units. Questions to Ask Before Setting up an RTM Are the premises those to which the RTM applies? Are the buildings excluded premises pursuant to Schedule 6 of the CLRA 2002? Are there sufficient qualifying tenants? At least two-thirds of the flats must be let to qualifying tenants. Do the tenants setting up the RTM have sufficient funds to pay a solicitor? Whilst some tenants may have the expertise to acquire an RTM without a solicitor, there have been numerous cases resulting from errors where the correct legal procedure has not been followed. Why Consider the Right to Manage? So why would you consider the right to manage in the first place? Just as there are advantages, there are clear disadvantages to setting up an RTM. Advantages Frequently, tenants find themselves in situations where their landlords have different objectives to them in managing buildings, so by setting up an RTM, tenants can feel that they are taking control over the building in which their flat is situated. Tenants’ lack of control together with landlords’ poor management and indifference can adversely affect the tenants’ enjoyment of the property. Running an RTM is cheaper than acquiring a freehold. Whilst there will be legal costs, the tenants will not need to come up with funds to buy the freehold – whether by collective enfranchisement or private treaty. Whilst there are specific time periods for different part of the process, if the RTM claim is not disputed, it is possible for tenants to be managing their own building within four to five months. In contrast, purchasing a freehold from a landlord can take much longer. It is easier to acquire an RTM than the freehold (collectively enfranchise) and then manage the building. The tenants don’t have to incur the liabilities or bear the responsibilities of owning the freehold of the building or any other interest in land. The RTM procedure doesn’t require a proprietary interest before it can be exercised. Developers now grant longer leases with terms of 999 years. If this is the case, there is no real incentive to acquire the freehold. Where there is a short residue left on a lease and the block is being badly managed, the tenants can grant themselves extensions of the leases and sort out the management of the building by acquiring the freehold. The procedure of setting up and running the RTM is relatively straightforward. There is no need for leases to be varied if they’ve been properly drafted. The tenants also do not have to reach an agreement with the landlord. The only thing that they must ensure is that the statutory criteria under the Commonhold and Leasehold Reform Act 2002 (CLRA 2002) are satisfied. If this is the case, they can acquire the management of their own block of flats/development whether or not the landlord is in agreement. It is not possible for a landlord to ‘contract out’ of the CLRA 2002 and stop the RTM from arising. Any agreements to such effect will be deemed to be void. Disadvantages Tenants often think that they will be able to do a better job than the landlord, however, directing the management of even a small block of flats is very time consuming and demanding. Even outsourcing of the day-to-day management to a professional managing agent will require someone to liaise with the managing agent on behalf of the RTM. Success of an RTM depends on the type and nature of people living in the block. People have a tendency to move or sell properties so people will inevitably change over the years, which means that just because you start off with people who have all the requisite skills and time, they may then move on and be replaced by neighbours who have different objectives or budgets. Given that these people will be living in close proximity to you, being on bad terms with them can make life difficult. An RTM, unlike collective enfranchisement, doesn’t deal with issues such as appurtenant (issues with connected buildings), which is why landlords commonly seek to dispute RTM claims on technical grounds. Whilst invoking an RTM is free, with the exception of legal and registration fees, leaseholders will still have to pay ground rent to the landlord after the process has been undertaken. Whether you choose to invoke your right to manage or choose to proceed with collective enfranchisement, it is important that leaseholders remain realistic as to their responsibilities and commitments and ensure they are armed with professional legal advice. Disclaimer – our articles are designed to give you guidance and information. There is no substitute for proper direct advice, particularly as everyone’s circumstances are different. If anything in this article may affect you, please contact us for advice that is specific to your circumstances.

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