Right To Manage
The Commonhold and Leasehold Reform Act 2002 gives leaseholders the right to change the running of the management of their building from the freeholder to another provider. To exercise this right, the leaseholders need to set up a special company to take over from the freeholder those rights of appointment to manage their building.
Reasons for using Right to Manage (RTM)
- You might think that a major reason to use RTM is to ro reduce service charges. This wouldn’t be a good reason for invoking Right to Manage. The Landlord & Tenant Act of 1985 (Sections 27A and 19) states that service charges should always be kept to a “reasonable” level and always within the covenants of the Lease. If you as leaseholders feel that your service charges are unreasonable, a far better recourse would be to apply for a determination of what is reasonable or not from the Leasehold Valuation Tribunal.
- RTM is not always used in order for leaseholders to gain control of the management for themselves. A Right To Manage company that gains control of the management may decide to “outsource” this role to a competent professional, for example a ARMA or RICS member
In fact there are not many scenarios where RTM is a worthwhile course of action for a group of leaseholders who have available to them many other and better methods and opportunities to manilulate the Landlord’s actions, without going to the trouble of setting up a company and having to become personally liable for the consequences of managing a building. If you are looking to influence your landlord and are not getting anywhere dealing with them directly, a Property Management or Chartered Surveying firm that specialises in residential property management should be your first port of call.
The law allows leaseholders to partake in a Right to Manage Company as long as it is established in accordance with the provisions of the Commonhold and Leasehold Reform Act 2002. The RTM Company will then assume the role of the Landlord for management purposes on a day-to-day basis. In a RTM Company, the Landlord is entitled to become a member if they so wish. Any new management company should then conduct a review of the current instructions of the property manager to establish if it is best to keep them (therefore retaining years of specialist knowledge of the building and the leases that may be helpful in the future) or not. The Directors of the RTM Company, if qualified to do so, may consider there is no need to appoint a management specialist but manage the property themselves. This may be very time consuming and possibly impracticable due to the ever increasing legislative demands involved, plus it is possible that in time, it could placing individuals directly in confrontation with their neighbours!
How do you Qualify for Right to Manage?
In order to set up a Right To Manage Company there are certain conditions that must be met and it is necessary for a minimum number of leaseholders to take part:
- At least 50% of leaseholders must want to go through the process
- Two thirds must have long leases at time of issue
- Less than 25% of the floor area of the building must be commercial
There are a few obscure rules and regulations which may affect you, so we would advise you to take professional legal advice before proceeding with an RTM.
Alternatives to Right to Manage
There are many often more practicable alternatives to Right to Manage to achieve your aims including:-
- Management Audits – The standards of management and costs of services provided by Landlords, and paid for by lessees via their service charge, can often seem unreasonable when looked at from the outside by individuals unqualified in the process. It is not unreasonable for anyone with an interest in leasehold property to want to know how their money is being spent and why. There are two resolutions possible within the law which can give leaseholders access to the information from an unbiased source.
- S84 and Schedule 4 of the Housing Act 1996 – states that a recognised tenants’ association has the right to appoint a surveyor to advise on service charges.
- S76 Leasehold Reform, Housing and Urban Development Act 1993 – allows leaseholders the right to carry out a management audit
- Appointment of a Manager – This is often the least complicated and most effective method to remove poor or inappropriate methods of management from your Estate. The Leasehold Valuation Tribunal can appoint a professional to undertake the proper management of the property in accordance with the lease provisions.
- Challenging Unreasonable Service Charges – Leaseholders have a right to challenge the service charges applied by their freeholder via the Leasehold Valuation Tribunal. The LVT will rule on whether a charge, or a proposed charge, is reasonable; however it is worth remembering that there is no statutory definition of what is ‘reasonable’. The Tribunal will consider all of the evidence presented and then make a decision on the matter.
- Freehold purchase – this can be expensive if you have a short lease or a waste of money if your lease is a long one.
Whatever route you as leaseholders decide to take, we recommend you take professional advice.
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