Brady Solicitors’ Lesley Brentnall looks at the different options open to leaseholders who want to take control of the management of their block.
If you own a leasehold flat, you have two basic rights to enable you and your fellow leaseholders to take control of your block of flats:
Firstly, there is the right for a group of leaseholders to acquire the freehold of their building under the provisions laid down in the Leasehold Reform and Urban Development Act 1993. This is known as collective enfranchisement.
Alternatively, leaseholders can seek to take control of their block through the Right to Manage legislation created by the Commonhold and Leasehold Reform Act 2002.
Collective enfranchisement – it isn’t cheap…
The right to acquire the freehold is known as “collective enfranchisement”. This is the more costly route as you will need to pay the freeholder for the value of the freehold you are acquiring. It is also usual to acquire the freehold in the name of a Management Company comprising all of the flat owners who wish to join in with the purchase.
There are the costs of setting up such a Company, the legal costs of the purchase and the Company and you will need to pay the freeholder’s legal fees and valuation costs. In addition to this it is also necessary to pay any arrears of rent and service charge in addition to the purchase price.
..but it can increase value and improve saleability..
However, a flat owner who also owns a share of the freehold is generally thought to have a more saleable property.
Ownership of a share in the freehold can also increase the value of the flat. Added to that the fact that the property owners can take control of the management of their building (often resulting in cost savings on the service charge payments), can stop paying ground rent and increase the length of their leases to 999 years for no cost (other than the legal fees to create the updated documentation) and you can see why this route is one which many flat owners have chosen to pursue.
…although be prepared for it to take a while…
On the downside, collective enfranchisement can take some time to finalise, particularly if you have a difficult freeholder to contend with.
It can sometimes also be difficult to reach a consensus amongst the property owners themselves. Although the Company can appoint a managing agent to oversee the day to day management of the block (and this is usually sensible, particularly with larger buildings) a number of the flat owners will need to be prepared to take on responsibilities with regard to the running of the Company and liaising with the managing agents over issues such as licences to alter or dealing with nuisance claims.
This means that some degree of commitment is required both to move the matter to a successful conclusion and to keep everything running smoothly after the acquisition.
Qualifiying for collective enfranchisement
In order to qualify for the right to collectively enfranchise, the building must be self-contained or part of a self-contained building. If there is a commercial element then this can be no more than 25% of the whole (excluding any communal areas).
There must be a minimum of two qualifying tenants. This shouldn’t be a problem though as the majority of owners will qualify as there is no requirement for the flat owner to have held the flat for a minimum of two years (as is the case with applications for individual lease extensions) nor do they have to be resident in the property. It should be noted however that any person who owns three flats or more cannot be a qualifying tenant and would be excluded from joining in with any application.
At least 50% of the qualifying tenants must join in the claim. By way of example, if you have a block of three flats at least two tenants must make the application, in a block of 60 you would only need 30 people to agree.
Right to Manage – a quicker and less costly option
If the costs of collective enfranchisement seem too high then a Right to Manage claim may be the preferred option as there is no premium to pay to the Landlord nor any requirement for a valuation. This does not grant you the freehold interest but, if you have problems that stem from bad management of the block, then this may be the way forward as it is a cheaper and quicker route.
There is no need to show fault on the part of a Landlord and so successful claims can be made on blocks where there are no real issues if this is what the tenants want – the Landlord has very limited grounds to refuse the application.
If successful, the residents who wish to apply would set up a Right to Manage Company who would take over the management of the block from the freeholder.
…but the Landlord will retain certain rights…
Bear in mind however that the Landlord remains the owner of the freehold and, as such, he has certain rights. He is entitled to become a member of the RTM Company and he must also be given notice prior to any granting of approval for works or assignments. If the Landlord objects the RTM Company is unable to grant consent. This requirement to consult can delay the decision making process particularly if the Landlord wishes to be difficult.
Appointment of a Manager
Leaseholders who are unhappy with the standard of service from their management company can also follow the Appointment of a Manager route to remove a current managing agent. Unlike RTM, Appointment of a Manager is a ‘fault-based’ process, so it doesn’t need a minimum number of leaseholders but does need to specify the areas of discontent. Read more about what is involved in the Appointment of a Manager in this recent blog post
Which route is best for you and your fellow leaseholders?
There are qualifying criteria for making an RTM Claim but they are similar to those required for a collective enfranchisement application and so the choice as to the route to follow will vary from block to block.
There is no right or wrong way to deal with this as it depends on what you and your fellow leaseholders are looking to achieve and the finances you have at your disposal.
As always, the key is to ensure you are armed with all of the advice you require. Ask for help from people (such as Brady Solicitors!) who are specialists in the area – there are time limits which need to be adhered to with both routes and the potential complexities of the applications mean that lawyers who are not familiar with the process can run into difficulties. In addition, the leaseholders must be committed to working together to reach agreement on a plan that is acceptable to them all.