Colin Hussey explains the Law Commission’s proposals to create a Right to Manage regime that is “simpler, quicker and more flexible, particularly for leaseholders”, and assess the potential implications for all parties: freeholders, managing agents and leaseholders.
On 21 July 2020, the Law Commission published a raft of reports targeting ‘unfair practices’ in leasehold. One of these reports considered Right to Manage (RTM) and made a series of recommendations about how the RTM process can be made more leaseholder friendly.
Right to Manage (or RTM) is one of a number of options open to leaseholders wishing to exercise more control over how their estate is managed. RTM is a ‘no-fault’ process, which means that leaseholders do not have to have to prove that there is anything wrong with how their block is being managed.
Right to Manage applicants do however have to meet a number of pre-set criteria, including having no more than 25 percent commercial space; being larger than four units, and being a self-contained development that is structurally detached.
Under current RTM rules, leaseholders also have to pay the freeholder’s costs and must follow a stringent set of notices and timeframes. Deviation from these notices and timeframes can lead to an RTM claim being dismissed – with the leaseholders still then being liable for the freeholder’s costs.
Under the Law Commission’s proposals, the Right to Manage criteria would be relaxed to allow RTM claims for:
- Developments with up to 50 percent commercial space – up from 25 percent;
- Multi-block estates, removing the self-contained rule;
- Leasehold houses as well as flats, under a new classification of ‘residential unit’;
- Smaller blocks of four units or less, including where there is a resident landlord.
The proposals also include several changes to make the RTM procedure simpler and more accessible, most notably:
- No longer needing to serve notices on all leaseholders inviting them to join in the RTM claim;
- Being able to serve notices by email and with electronic signatures;
- Giving the First Tier Tribunal the power to waive procedural errors by leaseholders.
Reducing the cost of an RTM claim is also an important element, with the following proposals:
- Removing the liability to pay the freeholder’s costs. The only exception to this would be if the RTM claim failed and the Tribunal judged the RTM Company to have ‘acted unreasonably’;
- Granting the RTM Company the ability to recover certain management costs from leaseholders, regardless of what is in the lease.
The proposals also provide for better information and guidance for RTM company directors, with the suggestion that the Government makes this available free of charge and that at least one of the directors be ‘strongly encouraged’ to undertake online training.
Once the Right to Manage has been successfully acquired, the Law Commission recommends that the FTT is given the power to vary the lease should this be necessary for the management of the premises.
Service charge collection – and arrears management – is also considered in the RTM reforms.
The Law Commission proposes that the freeholder should, in certain situations, pay the RTM company any outstanding service charge arrears on the date that the RTM is acquired. This should clearly encourage any freeholder and their managing agent to ensure their service charge collection is working smoothly should they face a Right to Manage claim.
These proposals represent a major shake-up of the Right to Manage legislation and, if the Government puts them into practice, will create a much more leaseholder-friendly RTM process.
It is, we believe, in all our interests to create a sustainable and fairer leasehold system but there is clearly a balance to be struck between the interests of all parties.
Freeholders and their managing agents would no longer be able to rely on procedural errors in leaseholders’ RTM claims and nor would they have the cushion of knowing their costs will be covered. Many freeholders play an important role in choosing and setting performance standards for Managing Agents and one must consider the importance of the fledgling RTM Co ensuring any new Managing Agent is experienced, regulated, well respected and able to show a history of satisfied clients.