Right to manage

The Right to Manage: what, how and why?

Dudley Joiner, chief executive of The Right to Manage Federation, explains the steps, procedures and pitfalls of the Right to Manage legislation.

ince William the Conqueror

Sthe common people of this country have suffered under the feudal system he introduced. Originally the crown bestowed land on favoured barons who leased it to peasants whose daily toil generated exorbitant rents for the lords of their land. Almost a thousand years later not much has changed. Wealthy landlords still control much of our property and continue to demand ground rent. The system is known as leasehold and the peasants paying the rent are lease-holding tenants.

COVER THE COST

On paper the leasehold system sounds reasonable. Tenants pay the landlord a modest ground rent for the land on which the building stands and a service charge to cover the cost of maintenance of the structure and the common parts. Unfortunately too many exploitative landlords see fit to take advantage of their monopoly position and introduce commissions and handling fees on top of the services provided to the extent that they can commonly double or triple their income. Then there are landlords who totally neglect their responsibility for maintaining the building, which rapidly falls into disrepair devaluing the properties of all leasehold owners.

In 1997 the Labour Party published a policy document entitled ’An End to Feudalism’ and Parliament subsequently introduced The Commonhold and Leasehold Reform Act (2002). Due to pressure from landowners, transferring to commonhold requires 100 per cent leaseholder approval and unsurprisingly this aspect of the legislation has been a dismal failure. However all was not lost because the same legislation introduced another option for leaseholders known as the ‘Right to Manage’ or RTM.

In a nutshell, RTM legislation entitles leaseholders in blocks of flats to take control of their building and either manage it themselves or more commonly employ a professional managing agent to manage it on their behalf. It is a no-fault process, it does not require landlord approval neither is it necessary to prove landlord deficiency or negligence or pay the landlord any compensation. As long as the RTM claim is supported by at least half the leaseholders in any individual block the landlord cannot legally obstruct the process.

STATUTORY QUALIFICATION

In order to be eligible for the Right to Manage both the building and the applicant leaseholders must meet a statutory qualification. A qualifying tenant is a leaseholder whose lease was originally granted

for a period exceeding 21 years. The building will qualify if at least two thirds of the flats are let to qualifying tenants and the premises consists of a structurally detached building or part of a building that can be served independently. A building will not qualify if more than 25 per cent of the floor area is nonresidential, if there are multiple landlords or it is a block of four or less flats with one flat used by the landlord for principle residence. Properties owned by the local authority are excluded.

The Right to Manage must be exercised by an RTM company incorporated with prescribed articles. All leaseholders are entitled to become members with individual liability limited to £1. Since November 2009 RTM companies only require a single director but typically comprise a board of three or more members. Although legislation requires 50 per cent of leaseholders to become company members before an RTM claim notice can be issued it is generally advisable to aim for at least two thirds to join the company, which avoids any criticism that the procedure is undemocratic.

PRESCRIBED ROUTE

The formal procedure for exercising RTM is started by an RTM company serving a claim notice on the landlord. Thereafter it follows a prescribed route comprising further notices and counter notices. RTM is usually determined within two months with the right to take over management following three months later.

The benefits to leaseholders are obvious and flat owners all over the country are now turning to RTM as the best solution to achieving higher standards of property management and increased value for the service charges they pay. Through RTM they have a voice in all key decisions and know exactly how they’re money is spent. A managing agent that is a member of the Association of Residential Managing Agents (ARMA) will provide the additional comfort of a government approved code of practice. More importantly leaseholders can terminate the management contract if the chosen company fails to meet expectations, which is a huge incentive to continually strive harder to provide the competitive services leaseholders demand.

Forming a management company and taking on responsibility for a block of flats is not a matter to be undertaken lightly especially considering the increasing amount of regulation and statutory requirements for health and safety, although appointing a managing agent reduces the potential risks. The RTM process is not complicated but it is complex and there are pitfalls awaiting those proceeding without professional advice. Innocent mistakes can result in a landlord challenging the claim, forcing leaseholders to apply to the Leasehold Valuation Tribunal, which can prove costly if mishandled.

Professional RTM costs vary from about £100 to £300 per flat according to the size of the block. In addition the landlord is entitled to costs incurred in transferring management, such as legal and audit costs, but these must be reasonable. All these risks are controllable and generally are far outweighed by the advantages of controlling management and service charges.

THE ROLE OF SOLICITORS IN RTM

The law relating to RTM is complex and there are many pitfalls, writes Graham Jaffe of Jaffe Porter Crossick LLP. Instructing a solicitor ensures that the interests of the qualifying tenants are protected and that they are on an equal footing with the landlord who will invariably instruct a solicitor to act upon receipt of an initial notice.

An experienced solicitor will: Company”) that will exercise the claim including the on the acquisition date.

The Company will inherit the existing management arrangements which may be inadequate or defective. A solicitor can analyse the legal consequences and advise the Company on the best way to modify the situation, by for example, making provision for a reserve fund.

A solicitor experienced in dealing with RTM will always be more accountable than a non-professional RTM advisory company.

RTM provides a relatively inexpensive way for qualifying tenants to acquire the management of their building without incurring the cost of acquiring the freehold. There is limited scope for the landlord to object or delay the process particularly where an experienced solicitor is instructed.