Right to manage for leaseholders of flats

The Commonhold and Leasehold Reform Act 2002 introduced the right to manage.[1]

The Act allows leaseholders in a block of flats to form a right to manage company to take over management of the building. Leaseholders can take control of a block that is poorly managed, but mismanagement is not a condition. The right is available regardless of the quality of existing management.

The landlord can object by serving a counter-notice. The right to manage application will only be overturned if the leaseholders are not entitled because one or more qualifying conditions are not met.

See the LEASE factsheet about the right to manage for more information.

The right to manage company (RTM company) is responsible to all leaseholders in the block for services, repairs, maintenance, insurance, and management of whole or part of the premises.

The RTM company must be a private company limited by guarantee and its constitutional documents must specify that one of the objects, or the sole object, of the RTM company is the exercise of the right to manage the premises. Qualifying tenants (see below) and, once the RTM company acquires the right to manage, landlords of leases of the whole or any parts of the premises are entitled to be members of the RTM company.[2]

A RTM company is not the same as a commonhold association. There can only be one RTM company in respect of a premises. If a second RTM company is created, it will not be entitled to claim the right to manage the premises. A RTM company cannot own the freehold of any part of the building.[3]

The membership of the RTM company must comprise a number of qualifying tenants not less than half of the total number of flats contained in the premises. If there are only two qualifying tenants, they must both be members.[4]

The right to manage is only applicable if the:[5]

• premises are a self-contained (ie 'structurally detached' [6]) building or self-contained part of a building (ie each part has its own entrance); one RTM company cannot manage more than one self-contained building[7]

• premises contain two or more flats held by qualifying tenants (see below for information about qualifying tenants)total number of flats held by qualifying tenants is at least two-thirds of the total number of flats in the premises

The right to manage applies to any appurtenant property, for example a garage, outhouse, garden, yard, that either belongs to or is usually enjoyed with the self-contained premises.[8]

The meaning of 'appurtenant' property is limited to premises used exclusively by the qualifying tenants and does not include shared common parts used by the qualifying tenants as well as other inhabitants of the estate (for example, a car park or a garden).[9]

Exceptions

The right to manage is not applicable if:[10]

• more than 25 per cent of the building is not residential. A part of premises is residential if it is occupied or intended to be occupied for residential purposes, or is a common part, or is used in connection with a particular dwelling (eg garages, parking spaces, or storage rooms)

• different people own the freehold to different parts of the building and one or more of the parts with a separately owned freehold is self-contained

• there is a resident landlord (ie a freeholder of the whole or any part of the premises) and the block is not a purpose-built block of flats and contains fewer than four units (ie flats). For these purposes there is a resident landlord where the freeholder, or a member of his family, occupy a qualifying flat as their only or principal home and have occupied the premises throughout the last 12 months

• the local housing authority is the immediate landlord of one or more qualifying leaseholders

• the right to manage the premises is at that time exercisable by another RTM company, or the right to manage has been exercisable but has ceased to be so within the previous four years

To qualify for the right to manage the following conditions must be met:[11]

• the tenant must be a long leaseholder (ie a leaseholder with a lease of 21 years of more unless the lease was granted in breach of the terms of a superior lease and there has been no waiver by the freeholder

• the lease must not be a business tenancy

No flat can have more than one qualifying tenant. Where the lease is a joint tenancy, the leaseholders are regarded jointly as the qualifying tenant. If there is more than one long lease, the leaseholder with the superior lease is the qualifying tenant.

Although local authority tenants cannot form a RTM company, they have a right to manage through their right to form a Tenant Management Organisation.

In order to claim the right to manage, the RTM company must first give notice inviting participation to all qualifying tenants who have not yet agreed to become a member of the RTM company.[12] The notice must correctly identify the freeholder landlord.[13]

Not less than 14 days after giving the notice inviting participation, the RTM company must give notice of claiming the right to manage to every person who is a landlord under a lease of the whole or part of the premises, any other party to the lease(s), and any person at that time appointed to manage the premises.[14] The RTM must give each qualifying tenant a copy of the notice of claim. The copy can be served by email.[15]

Both the notice inviting participation and notice of claim must be in the prescribed form. Both forms include prescribed explanatory notes, the exclusion of which has been held to invalidate a notice.[16]

Compliance with the strict requirements of the statutory scheme is essential and substantial compliance is not enough.[17] However, the Court of Appeal held that this does not follow that every trivial defect in a notice or in the procedure invalidates the notice, and the failure to serve a claim notice on an intermediate landlord with no management responsibilities did not invalidate an RTM claim.[18]

The RTM company has the right to request any information pertaining to the lease that it needs in order to make the claim from any person who has that information, and the person must provide that information within 28 days.[19]

If the freeholder cannot be found, the RTM company can apply to the First-tier Tribunal (Property Chamber) for an order entitling it to acquire the right to manage.[20]

Counter-notices

Any person to whom a claim notice is served can serve a counter-notice on the RTM company, claiming that the company is not entitled to claim the right to manage.[21] The counter-notice must be served by the date specified in the notice of claim and must meet prescribed requirements.[22]

Where a counter-notice referred to a neighbouring block of flats instead of the block claiming the right to manage, it was held to be valid as it was clear from the context, including a covering letter, which block the notice was intended to cover.[23]

On receipt of a counter-notice, the RTM company can apply to a First-tier Tribunal (Property Chamber) for a determination of whether it is entitled to acquire the right to manage. The Tribunal is not limited in its consideration to only those grounds raised in the counter-notice; its statutory remit is to determine whether the RTM company is entitled to acquire the right to manage, and this allows it to consider even objections that may not have originally been raised.[24]

Withdrawing a claim

The claim can be withdrawn at any time before the RTM company acquires the right to manage by serving a notice of withdrawal to all the people on whom the notice of claim was served and all qualifying tenants in the block.[25] If a counter-notice is served, but no application is made for a determination, or an application is made but withdrawn, the claim is deemed to be withdrawn.[26]

Where a RTM company responds to a counter-notice by applying to the tribunal for a determination, but then subsequently withdraws that application, the notice of withdrawal does not in itself terminate the proceedings – the tribunal must decide whether to consent to the withdrawal and dismiss the application. This is relevant to making an award for costs, which can only be awarded when a claim is dismissed.[27]

Costs

The RTM company is liable for all costs in respect of the claim, including the reasonable costs of the landlord(s).[28] The RTM company remains liable for the reasonable costs of the landlord even if it withdraws its application, where the withdrawal occurs before the landlord serves a counter-notice.

The RTM company is liable for the costs of any proceedings before the tribunal if its claim for the right to manage is dismissed.

If no counter-notice is served, the RTM company acquires the right to manage on the date specified in the notice of claim. If a counter-notice was served, and the First-tier Tribunal (Property Chamber) determines that the RTM company is entitled to claim the right to manage, the RTM company acquires the right three months after the Tribunal has so determined.

If the freeholder cannot be found, the acquisition date will be the date specified by the Tribunal.[29]

When the RTM company has acquired the right to manage, any service charges collected by the landlord or manager, but not yet spent, must be paid to the RTM company.[30]

Once the RTM company has acquired the right to manage it takes over all of the management functions ‘with respect to services, repairs, maintenance, improvements, insurance and management’.[31]

This does not include forfeiture and possession, actions which remain the preserve of the freeholder.

Approvals under the lease

Most leases require that a leaseholder gets the approval of the freeholder for certain actions. The power to issue approvals passes to the RTM company.

The consent of the freeholder is required before the RTM company can grant approval to the leaseholder. The RTM must give the freeholder:[32]

• 30 days' notice for assignment, subletting, charging, making structural alterations or improvements

• 14 days' notice for other approvals

Consent is to be treated as given if the freeholder does not respond. If the freeholder objects the RTM company, freeholder or the leaseholder can apply to the First-tier Tribunal to decide the matter.[33]

If the RTM company does not give notice to the freeholder, the RTM company does not have the power to give approval to the leaseholder. In this circumstance a leaseholder must apply for an injunction ordering the RTM company to comply with its obligations.[34]