An Introduction to Right to Manage for Leaseholders

It is fairly common for leaseholders to have concerns about how their building is being managed, including feeling their service charges are too high or the quality of service is not good enough. These issues can often be resolved to everyone’s satisfaction through good negotiation, but where this is not possible or leaseholders simply think they could do a better job themselves, there is another option – the Right to Manage.

In this article, we cover what the Right to Manage is, the advantages and risks, who is eligible and the process leaseholders need to follow when exercising their Right to Manage.

Need help with exercising your Right to Manage or any other leasehold property matters? Please contact our Property Litigation team who will be happy to advise.

Key points to know about the Right to Manage

• The Right to Manage allows leaseholders to take over the management of their buildings
• There are qualifying criteria that must be met
• Leaseholders must set up a Right to Manage company to exercise the Right on their behalf
• Leaseholders can either manage the building themselves or appoint a managing agent to do this for them
• Taking over the management of their building can potentially allow leaseholders to save money, improve the quality of their building’s management and give them a greater sense of control
• Leaseholders need to be aware of the risks of taking over their building’s management, including their obligations to the landlord and regulatory compliance requirements
• There is a strict legal process that must be followed and expert legal support is advised
• Landlords can potentially object to leaseholders exercising the Right to Manage, in which case a Tribunal may be needed to decide the issue
• Leaseholders can potentially also purchase the freehold on their building if they wish

What is the Right to Manage?

The Right to Manage (RTM) is a legal right that leaseholders have to take over the management of their buildings. This right was introduced by the Commonhold and Leasehold Reform Act 2002.

There are eligibility criteria that must be met in order for leaseholders to be able to exercise their Right to Manage and they must also set up a Right to Manage company to take over the management of the building.

After exercising the Right to Manage, leaseholders can either directly manage the building themselves or delegate this to a managing agent.

What are the advantages of taking over the management of your building?

There can be various motivations for leaseholders to take over the management of their building. It can allow them to reduce their service charges, as well as cutting costs such as sinking funds and one-off maintenance and repair costs. It may also be that the leaseholders are unhappy with the way their building is being managed e.g. communal areas not being maintained to an acceptable standard or repairs not being carried out promptly.

However, one of the most common reasons is simply that leaseholders want to feel more in control of the management of their building. Indeed, it is not unheard of for leaseholders to exercise their Right to Manage, then keep the existing managing agent for their building in place but now acting under the leaseholders’ direct instructions.

Are there any risks to exercising your Right to Manage?

Before exercising their Right to Manage, leaseholders must carefully consider the obligations and liabilities they will be taking on, including the potential risks.

While being in charge of their building’s management can allow leaseholders to cut service charges and other costs, they will need to be careful that this does not compromise the quality of services provided or result in the building being allowed to deteriorate. This could harm the leaseholders’ quality of life as well as reduce the value of their properties. There are also likely to be covenants in their leases requiring that their properties and any communal areas be properly maintained.

Leaseholders will need to have a firm handle on such lease covenants as the landlord will still remain the owner of the building. The new RTM company will have legal obligations to the landlord that must continue to be met. Leaseholders should, therefore, get expert legal advice on the terms of their leases before exercising their Right to Manage.

The RTM company will also need to be aware of and comply with the relevant code of management practice as approved by the Government. For most buildings, this will be the Royal Institution of Chartered Surveyors (RICS) code of management practice. There is also a separate code specifically for purpose-built retirement properties produced by the Association of Retirement Housing Managers (ARHM).

More generally, leaseholders will need to understand company law and procedures or employ someone to handle such matters for them. There are various requirements, including appointing company officers, preparing accounts and reporting obligations. Additionally, the company will need to comply with various regulatory requirements, including in relation to housing and health and safety laws.

For these reasons, it is absolutely essential that anyone considering exercising their Right to Manage seeks expert legal advice at an early stage.

Who is eligible to use the Right to Manage?

The Right to Manage can only be exercised where:

• A minimum of two-thirds of the flats in a building are let by qualifying tenants (these being tenants who were originally granted a lease of more than 21 years)
• Any non-residential space in the building does not exceed 25% of the total floor area (not including communal areas)
• A local housing authority is not the immediate landlord of any qualifying tenant
• The building is not covered by the Residential Landlord Exemption (which covers buildings that were not purpose built as blocks of flats and contain four or fewer flats with at least one of these being used as the main or only home of the freeholder or an adult member of their family).

The process of exercising the right to manage has many stages, but Longmores will be happy to advise.

Can leaseholders also buy the freehold on their building?

Yes, leaseholders can potentially buy the freehold on their building. Qualifying leaseholders can use a principle called ‘collective enfranchisement’ to buy the freehold on their building. Non-qualifying leaseholders can also potentially buy the freehold of their building by negotiating with their landlord.

If you wish to purchase the freehold on your building, you should seek specialist legal advice on your eligibility for collective enfranchisement and the process involved.

How Longmores can help with Right to Manage for leasehold property

Exercising your Right to Manage can be a sensible move, but there are legal hurdles to overcome with a strict process that must be correctly followed. Having the support of a legal team with extensive, specific expertise in these matters is highly recommended.

At Longmores, our Property Litigation team offer market-leading expertise in all leasehold property matters, including Right to Manage. We can assist with every aspect of exercising your Right to Manage, including advice on your eligibility, setting up a Right to Manage Company, the notice requirements for inviting participation and serving the Notice of Claim on the landlord.

To discuss how we can help with exercising your Right to Manage or any other leasehold property matters, please contact our Property Litigation team who will be happy to advise.

Please note the contents of this article are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.