The Commonhold and Leasehold Reform Act 2002 provides a right for leaseholders to force the transfer of the landlord’s management functions to a special company set up by them – A Right to Manage Company. The right was introduced, not just as a means of wresting control from bad landlords, but also to empower leaseholders who generally hold the majority of value in the property, to take responsibility for the management of their block.
It is vital that procedures are strictly followed and the necessary criteria fulfilled. Lawson Lewis Blakers can provide the necessary expertise.
The landlord’s consent is not required, nor is any order of court. There is no need for the leaseholders to prove mismanagement by the landlord. The right is available whether the landlord’s management has been good, bad or indifferent.
Does your building qualify?
The building must meet certain conditions and a minimum number of leaseholders is required to take part.
- The building must be self-contained (or if part of another building, be capable of being redeveloped independently);
- It must include at least two flats;
- At lese two-thirds of the flats must be let to “qualifying tenants”;
- It can be part commercial but the non residential part must not exceed 25% of the total floor area.
“A “qualifying tenant” is a leaseholder whose lease was originally granted for an original term of more than 21 years. There is no requirement for any past or present residence in the flats, nor any limit on the number of flats which can be owned by one person.
The required minimum number of qualifying tenants must be equal to at least half the total number of flats in the building.
The right to manage may only be exercised by a right to manage company and the members of the RTM company must comprise sufficient number of qualifying tenants.
The right relates to a building, so, in an estate of separate blocks, each block would need to qualify separately and an individual RTN notice served. In the case of an estate of flats under the same managements, it would be sensible to take over the management of the whole estate, but this would have to be accomplished by application in respect of each separate block.
The right to manage company
The right to manage is exercised by the company, not by the individual leasehlders, and so cannot be put into practice without the formation of the company. It is the company which obtains the right to manage and which then takes responsibility for the management; the individual leaseholders may change over time, but the company remains in place.
The RTM company must be set up and run in accordance with statutory requirements. It must be a company limited by guarantee nd registered with the Registrar of Companies at Companies House. It must have a Memorandum and Articles of Association (“Mem & Arts”), which govern the purpose and running of the company. The Mem & Arts for the RTM company are prescribed by law and a company will not be a valid RTM company for the purposes of the Act if it does not match these provisions.
The right is exercised by the service of a formal notice on the landlord. the Landlord does have a limited opportunity to object and serve a counter notice but these rights are limited to matters concerning procedure and qualification of the members of the Company.
After a set period of time, the management transfers to the right to manage company (the RTM company) which has been set up by the leaseholders. Once the right to manage has been acquired, the landlord is also entitled to membership of the company.
The landlord’s costs
The RTM company must reimburse the landlord for any costs he has incurred in the process.
Can we help?
The law surrounding this right is particularly complicated and therefore this article is intended to only provide you with a very broad outline of the rights available to you. It does not in any way attempt to summarise the law or procedure, which is required to instigate this right.