Right to Manage

The Commonhold and Leasehold Reform Act 2002 has given leasehold property owners in England the opportunity to exercise their right to manage ('RTM') their property.

The Right to Manage is a statutory right granted to leaseholders, who as a collective can form an RTM Company and acquire the management functions listed in their leases – essentially becoming their own manager. More than 50% of the qualifying tenants are required in order to exercise such a right, and if your building is not exempt, or contains more than 25% non-residential floor-space (common parts excluded) then, you would succeed in such a venture. Please contact us on 020 8290 7373 if you would like to know more or email dtang@judge-priestley.co.uk

Unlike in the previous Landlord and Tenant legislation, leaseholders can change the management without having to prove any fault on the part of the current landlord or manager. Through this RTM process leaseholders can effectively force the transfer of the landlord's management functions into a special company they set up called a Right To Manage company.

Why exercise the right to manage?

There could be many reasons as to why you as a leaseholder may wish to take over the responsibility to manage your building:

A greater degree of control over the level of service charge expenditure
You may choose your own preferred managing agent who will work to your instruction
You could select your own insurance policy for the block
Reduce any current problems with getting consent for things in the lease (e.g. a slow or vexatious landlord), or just to manage things more suitably going forward.

Whatever the reason, leaseholders could benefit directly from exercising the Right to Manage as long as they understand the responsibility that this brings.

Unlike in leasehold enfranchisement, in which you would be buying the freehold land, you do not have to pay a premium in order to take over the management of your building. You will only have to pay the freeholder’s (and/or management company’s) reasonable legal and administrative costs in the process, but these are usually not very high and you would be able to split all these costs with your fellow participants.

The Right to Manage Process

The following is a short overview of the Right to Manage process:

Rally supporters	In order to achieve the support of at least 50% of qualifying tenants. You can find out how many people are interested by raising the issue at a residents' meeting or knocking on neighbours’ doors. There are excluded premises, such as where the internal floor area of your building is more than 25% commercial property.
Form a Right To Manage (RTM) company	This must have a prescribed memorandum and articles of association (and include the acronym ‘RTM’ in the title).
Send notices Inviting Participation	Send notices Inviting Participation of the qualifying tenants (Section 78 notice).
Serve the Claim Notice	on the Landlord/Management Company (Section 79 notice), This will specify the 'acquisition date' – the date when the right to manage is obtained.
The Landlord/Management Company may respond	and is permitted 1 month to do so. If they do not dispute the claim, then the likely acquisition date for the Right to Manage is a further 4 months after the service of the Claim Notice. To dispute the claim, the Landlord/Management Company must prove that the claim from RTM Company does not comply with the 2002 Act. A contested dispute will be referred to the First-tier Tribunal ('FTT') to decide.
Send out 'contractor notices.'	If there is not a dispute the Landlord/Management Company must send out 'contractor notices' – this informs the contractors that the RTM company is taking over and gives them the opportunity to continue its services.
then the acquisition date occurs	If there is not a dispute (as there should not be if the property is not exempt and your Claim Notice is valid), then the acquisition date occurs at the time specified in the Claim Notice (which should be 4 months from the date of the Claim Notice). The Freeholder/Management Company is obligated to provide the RTM Company with the information it requires to manage.
The Landlord/Management Company will supply its invoice for its costs	These must be reasonable, but will include such things as the Landlord/Management Company’s legal fees and any extra costs reasonably incurred by the Landlord/Management Company from the process.