Is Right to Manage worth the Effort?
As the number of people in privately rented residential accommodation increases, the ability of tenants to manage their homes in a way that works for them has become increasingly important. The Right to Manage (“RTM”) legislation, which landlords cannot contract out of, was introduced in 2002 to give tenants of flats more control if they are dissatisfied with the way a landlord or property manager was managing the services in their building.
How does Right to Manage work?
The RTM right was introduced by the Commonhold and Leasehold Reform Act 2002, and applies to premises that:
- consist of a self-contained building or part of a building;
- contain two or more flats held by qualifying tenants; and where
- the total number of flats held by qualifying tenants is not less than 2/3 of the total number of flats in the premises.
To be a Qualifying Tenant, a leaseholder must have long leases of 21 years or more from the date of grant.
Premises owned by local housing authorities and buildings where more than 25% of the internal floor area (excluding common parts) is non-residential are excluded from these provisions.
To exercise the RTM, the tenants must set up a private company limited by guarantee (“the RTM Company”) and notice must be given to every qualifying tenant to invite them to participate in the RTM.
The RTM Company then has to serve a claim notice on anybody who is:
- a landlord under a lease of the whole or any part of the premises;
- any party to those leases that is not a landlord or a tenant; and
- a manager appointed (under Part II of the Landlord and Tenant Act 1987) to act in relation to the premises or any part of them.
On the day that the notice is given, the number of Qualifying Tenants that are members of the RTM Company must be at least half of the total number of flats in the premises. If a Landlord or Manager disagrees that the RTM Company is eligible to acquire the RTM, it will need to serve a counter-notice. To then progress with the RTM, the RTM Company would then need to apply to a Tribunal for determination.
If the RTM Company acquires the right to manage the premises, it will assume management functions in relation to services, repairs, maintenance, improvements, insurance and management. The RTM Company does not take on functions reserved to the Landlord such as the right of re-entry or forfeiture and matters relating only to flats not held by Qualifying Tenants.
Why might setting up an RTM be so difficult?
For a group of tenants willing to act together and with the right skillset, RTM can be a great way to ensure quality management of shared areas and services and expenditure on services that are important to them.
In a recent review, the Law Commission has commented that take up is limited and those who have done so have found the process expensive and challenging. Difficulties were particularly identified regarding using the correct prescribed form of notices, managing additional parts of estates used by others (e.g. access roads) and the inability for one RTM Company to manage multiple blocks on the same estate. With mixed use developments containing both commercial and residential properties becoming more popular, the exclusion for buildings with more than 25% of commercial space is excluding and increasing number of tenants.
Given these issues it is not surprising that the uptake o the RTM Scheme since 2002 has been slow. It is expected that the Law Commission will publish a consultation paper by the end of 2018 with a view to “making the procedure simpler, quicker and more flexible”. The changes resulting from that consultation may well mean that more landlords will face RTM claims going forwards.
Why are RTMs so difficult to manage?
The initial triumph felt be mange tenants once they have exercised the Right to Manage can be short lived as the practical implications of having to collectively manage the estate become apparent. Each member and director of the RTM Company will be the owner of at least one flat in the property. This means that they each have a vested interest in how management is undertaken, and, at times, these can often be contradictory. While the directors have a duty to act in the best interests of the RTM Company and thus the overall estate, it is often the case that personal interests take precedent.
The requirement for decisions to be reached by consensus where there can be conflicts of opinion can make it very difficult for an RTM Company to act effectively and can provide a situation ripe for disputes. These can often be volatile and lead to a breakdown in relationships between neighbors. When individual flats are sold, introducing new owners into the estate, this can also often lead to issues arising.
While the intentions behind the RTM model may be laudable, tenants need to take into account the practicalities of exercising the right and the risks associated with that move. While reducing the complexity of the process to exercise the right may make conversion easier, it will not address the longer-term practical difficulties that are faced in an RTM scenario.
For more advice these issues please contact Claire-Elaine Arthurs, Property Litigator at gunnercooke
DD: +44 (0) 7791 143 284