Understanding the right to manage for property leaseholders

What is the Right to Manage?

The Commonhold and Leasehold Reform Act 2002 gave leaseholders the right to assume responsibility for the management of their property through a specially-formed company. 

The Right to Manage (RtM) gives leaseholders the ability and the legal right to take over the management of their property, via a Right to Manage Company. The legislation applies to any self-contained building, consisting of two or more flats or apartments which are held by ‘Qualifying Tenants’ (QTs). 

What is the criteria to be a Qualifying Tenant?

To be a QT, leaseholders must:

• Hold a lease which was for more than 21 years at the time it was granted
• At least two-thirds of the residences must be owned by the QTs
• The building must also be at least 75% residential
• No less than half of the tenants must be members of the RtM company.

How does Right to Manage affect the landlord?

If the leaseholders in a landlord’s property do decide to exercise their RtM, it is important to note that ownership of the building will not be affected. The entitlement merely applies to its management.

In order to exercise their RtM, the QTs need not demonstrate that the landlord is at fault in any way and, most importantly, landlords cannot object to the process, nor are they entitled to any financial compensation. Landlords can be members of the RtM company if they wish – they will receive at least one vote and perhaps more, depending on how many apartments they own in the building.

The leaseholders will contact the landlord after they have set up a RtM company. A ‘Right to Information’ notice will be issued, which will ask for information from the landlord to assist the tenants in their claim.

What is a Notice of Claim?

The notice of claim is a formal document, informing the landlord that the tenants intend to proceed with their RtM. It will tell the landlord the date by which they must respond and the date by which the RtM company will take over the building’s management.

Can landlords dispute a Notice of Claim? 

Landlords can either accept the claim or dispute it. If they dispute it, they must serve a counter-notice to the RtM company stating the reasons for their objections. For example, the landlord may think that the building does not qualify for transfer, that the RtM company has failed to comply with the legal requirements or that fewer than half the residents are represented on the RtM board. The final decision will be made by a Leasehold Valuation tribunal within two months.

Finally, when the management of the building is transferred to the RtM company, the landlord will receive a notice. This means that they are required to transfer any service charge money on the ‘date of acquisition’ or as soon as possible after it.

How does Right to Manage affect leaseholders?

A transfer to RtM means that tenants will be ultimately responsible for the collection and management of the service charge, maintaining communal areas such as stairs and hallways, the upkeep of the structural elements of the building such as the roof, and dealing with any complaints received from leaseholders about the building. The RtM company can choose whether to continue to use the current managing agent or appoint a new one, or indeed if they wish to self-manage.

The RtM must also inform the landlord about issues such as:

• Assignment (where an apartment is sold or transferred into someone else’s name)
• Any subletting which is taking place and any charges to the leaseholders 

In cases where consent is required the RtM company must also inform the landlord about structural changes to the building or any changes in its use.

What are the benefits of forming a Right to Manage?

Many leaseholders choose to form a RtM company in order to establish more self-determination in terms of how their building is managed, and most find that it also brings more control over the standard of any work undertaken on the building and saves them money on service charges too – up to 30% on management fees in some cases.

Further considerations when forming a Right to Manage

However, this freedom also brings responsibilities. It is the RtM company’s directors’ responsibility to maintain the building as if it was their own and operate within the terms of company law. They must also make sure that the maintenance conditions of the lease are met and that Health and Safety regulations are rigorously upheld. Failure to do so may result in legal and/or financial penalties for them.

Transferring a block of residential flats to a RtM company is a fairly straightforward process and can have benefits for the tenants as well as freeing up the landlord from his or her maintenance responsibilities. If you’re a tenant who wishes to investigate the procedure further or a landlord whose tenants have put in a RtM request, and you’d like further confidential and professional advice, contact the Eddisons team to discuss your rights and responsibilities.

If the leaseholders in a landlord’s property do decide to exercise their RtM, it is important to note that ownership of the building will not be affected. The entitlement merely applies to its management. If you are interested in maximising your property management strategy, contact one of our experts today.