Right to manage: a guide for leaseholders

Since its introduction under the Commonhold & Leasehold Reform Act 2002, many leaseholders have taken control of their block and the management functions by acquiring the right to manage their building.

Although the acquisition of the right to manage is non fault based, leaseholders need to ensure they meet the qualifying criteria, and follow the correct processes. If the qualifying criteria are not met, or if the correct processes are not followed, then the right to manage will not be acquired.

However, if leaseholders are able to meet the qualifying criteria they have a legal right to exercise the right to manage.

By acquiring the right to manage, the RTM Company take over the management functions in relation to their building. These management functions will have been exercised previously by either the landlord or management company.

 

What are management functions?

Once the right to manage has been acquired, the RTM Company will become responsible for the performance of management functions in relation to the building. Management functions are functions with respect to services, repairs, maintenance, improvements, insurance and management. Essentially, the RTM Company will become responsible for the provision of services under the lease. In addition, they will also deal with the enforcement of covenants, and the grant of approvals/consents.

 

Do we qualify?

The building itself must meet certain conditions. It must either:

(a)        be structurally detached; or

(b)       be a self-contained part of a building.

If you are in any doubt as to whether your building is structurally detached or self-contained for the purposes of acquiring the right to manage, then you should seek professional advice.

In addition:

(i)         at least two thirds of the flat must be let to qualifying tenants (a qualifying tenant is a leaseholder whose lease is for more than 21 years);

(ii)        any commercial parts must not exceed 25% of the total floor area;

(iii)       if a local housing authority is the immediate landlord, then the right to manage does not apply;

(iv)       neither does the right to manage apply where the building falls within the resident landlord exemption;

(v)       not only must the building qualify, but the RTM Company must have sufficient support. The qualifying tenants who become members of the RTM Company must equal at least half the total number of flats in the building.

 

How many RTM Companies are needed?

The Court of Appeal has ruled that an RTM Company can only acquire the right to manage a single building. For example, if an estate is comprised of ten structurally detached blocks, then a separate RTM Company is required for each of those blocks, with each block needing to qualify and follow the procedure individually.

 

What is the process?

The first step is the formation of an RTM Company. Any number of qualifying leaseholders may incorporate the RTM Company.

Once incorporated, the RTM Company will invite all other qualifying tenants to become members. A notice inviting participation is sent to all qualifying tenants who are not already members of the RTM Company.

The notice must be in writing, and in the prescribed form. If the notice is incorrect, then there is a very real risk that the right to manage will be not acquired as the notice may be deemed to be defective.

Once sufficient numbers of qualifying tenants have agreed to become members of the RTM Company, and 14 days have passed following service of the notice inviting participation, the notice of claim can be served.

As with the notice inviting participation, the notice of claim is also in a prescribed form. It is important that the notice is given in writing, in the prescribed form, and to the correct parties. Any failure is likely to affect the success of the claim.

The notice will allow a period of one month for any recipient to respond by serving a counter notice. The counter notice will either admit or dispute the acquisition of the right to manage by the RTM Company.

 

What happens if the right to manage is disputed?

If the RTM Company receives a counter notice disputing the right to manage, then it can make an application to the Tribunal that it is entitled to acquire and exercise the right to manage.

As the right to manage is a statutory right held by qualifying tenants, the grounds on which a claim can be disputed are limited. Generally, disputes arise in relation to technical issues such as the qualification of the building, whether notices have been served correctly etc.

If an application is made to the Tribunal, the Tribunal will determine whether or not the RTM Company is entitled to acquire the right to manage.

 

What if no counter notice is served?

If no counter notice is served, or if the right to manage is admitted, management will pass to the RTM Company on the date set out in their notice of claim.

 

What costs will the RTM Company be liable for?

In addition to its own costs, the RTM Company will also be liable for the reasonable costs of the landlord.

It is important to note that such costs are recoverable even if the right to manage does not proceed. For example, if the notice of claim is withdrawn by the RTM Company, they will be responsible for dealing with the landlord’s costs in dealing with that notice of claim. If the landlord disputes the acquisition of the right to manage, and an application is made to the Tribunal who determine in favour of the landlord, then the RTM Company will be liable for the landlord’s reasonable costs.

 

How can PM Legal Services Help?

Right to manage is a complex and developing area of law. There are hurdles and technicalities that need to be negotiated. If the qualifying criteria are not met, or the documentation is defective, then the right to manage claim will fail. There are financial consequences that can flow from this.

Having the right legal team on your side to guide you through the process is essential.

At PM Legal Services we offer the practical and strategic advice needed, combined with our keen eye for technical detail which is essential in the right to manage process.

Our services are provided on a fixed fee basis, ensuring you have certainty of our costs from the very outset.