Hazelvine
RIGHT TO MANAGE
In 2002 the Government created a new right for groups of tenants to take over the management of their buildings. This right applies only to tenants owning their properties under a lease and does not apply to freeholders.
The right does not rely upon the landlord or person currently managing the building to be at fault and is relatively inexpensive. Provided that the tenants meet the qualifying criteria and the correct procedure is followed there is very little scope for the landlord to object to or hold up the process.
There are a number of qualifying criteria but briefly:
- The building must be a self contained building or part of a building.
- Two or more flats are held by qualifying tenants who hold their flats under a long lease originally granted for 21 years or more.
- The total number of flats held by qualifying tenants must be more than ⅔ of the total number of flats in the building.
- At least 50% of the tenants in the building want to go ahead with the procedure.
- No more than 25% of the building is non residential (excluding common parts).
The claim has to be exercised by a specially formed “Right to manage” (RTM) company.
All qualifying tenants must be offered the chance to participate (you can’t exclude your “neighbor from hell”!). If the claim is successful the qualifying tenants who participate and the landlord become members of the RTM company. The RTM company then takes over all the obligations in the leases for maintaining the building.
Although taking over the management of the building may seem an attractive option you should consider the pros and cons of doing so very carefully.
The pros
- The tenants control the management of the building deciding the level of services provided and exercising effective supervision of the services
- No compensation is paid to the landlord
- The tenants do not have to raise the capital to purchase the building. The ownership of the building remains with the landlord with the management functions only passing to the RTM company
The cons
- Only the management functions transfer. The landlord is still entitled to payments of the ground rent and may retain some involvement in other functions such as the granting of consents and licences.
- Some or all of the lessees will have to become directors of the RTM and will be subject to the responsibilities of directors under company law.
- The directors and tenants of the RTM company will have to spend possibly a considerable amount of their own time in managing the building
- The RTM company may not be able to negotiate discounts for bulk order of services which may be available to a larger landlord
- The RTM company may not be able to negotiate discounts on insurance premiums which may be available to a larger landlord placing a large portfolio
- The RTM company, and through it the tenants, will be liable for all contractual arrangements entered into by it
- The landlord still has a right to vote at general meetings
- The RTM company will be responsible for carrying out the management functions under the lease and will be liable to all the tenants for doings so
- The RTM company will be responsible for enforcing payment of service charges by tenants – this can lead to a situation where you are taking action against your own neighbor which could escalate into wider ranging disputes
- There may be a number of complicated issues involved in obtaining detailed information on the services currently provided and taking these over or discontinuing them.
In view of some of the disadvantages mentioned above many tenants who go through the RTM process decide to appoint a managing agent to take over the day to day management duties but leaving themselves to decide on the larger issues of how the building is run in conjunction with the managing agents
How we can help you if you decide to pursue a RTM claim.
1. We can manage the whole process for you by:
- Checking whether the building qualifies
- Checking that there are sufficient qualifying tenants and a sufficient number of these wish to participate
- Advising what land apart from the building itself should be included in the claim
- Preparing a participation agreement or letter of intent by those intending to go ahead with the claim; this will make it clear what the liabilities are of each participant so as to avoid misunderstandings in case some participants wish to withdraw from the process
- Acquiring or forming an RTM company
- Ascertaining the names and addresses of the freeholder and any intermediate landlord on whom to serve the claim
- Preparing and serving all the required notices on the tenants and the landlord
- Obtaining as much information as possible about the current management and management contracts
2. We can act as professional managing agents with the RTM company to carry out the day to day management functions
3. We can advise on practical issues to ensure that when you take over management, contracts for services are in place and there are funds to pay for them.
4. We can do it all for free!!! – if you appoint us as managing agents for the first two years. We are confident you will also want to retain our services after the initial two-year period. Our standard terms of business will apply.
How much does it cost?
Our fees range from £75 to £125 plus Vat per flat subject to a minimum fee of £1500 plus VAT. However, if you wish to take advantage of our offer above, the fee will be payable up front but will be credited back against our fees for acting as managing agents in equal installments over the first two years of management.
You will also be responsible for the landlord’s reasonable costs in connection with the claim notice. If the costs are not agreed the RTM can apply to a Leasehold Valuation Tribunal who will then decide what is reasonable.
How long will it take?
You should allow:
- a reasonable period before starting the procedure to call a meeting of the tenants to discuss and agree proceeding in principle.
- 14 days to carry out the preliminary checks that the tenants and building qualify
- 14 days for notice of invitation to all tenants
- Once the claim is issued and if not disputed by the landlord the right to manage passes not less than four months after service of the notice. The landlord can only effectively challenge it on the basis that the building or participating tenants do not qualify.
It is usually best to try and tie the takeover date in to a service charge year end date if this is feasible.
For more information on Right to Manage please click on the link below to download this document from the Leasehold Advisory Service