On a daily basis, our newspapers are filled with articles on the rising cost of living crisis. The Government is still expected to introduce legislation in respect of the much-publicised proposals concerning leasehold reform, which would purportedly make the enfranchisement process cheaper and fairer, but in the meantime some leaseholders in large blocks of flats may struggle to raise the capital necessary to acquire the freehold.
Fortunately, a statutory right is afforded to leaseholders to take over the management of their building through a ‘right to manage company’ (RTM), by virtue of the Commonhold and Leasehold Reform Act 2002. It is a ‘no fault’ right, which leaseholders can exercise without having to demonstrate any complaint against their freeholder or managing agent. The right is not curtailed in instances where the freeholder is absent as an application can be lodged with the First-tier Tribunal for an order entitling the RTM company to acquire the right.
As appealing as it sounds to empower leaseholders to wrestle control from disinterested freeholders and well-remunerated managing agents, the complexity of the process should not be underestimated. Strict eligibility criteria will apply in respect of the building and the leaseholders. The right is exercised by way of service of a formal notice on the freeholder and before the management of the building is transferred to the RTM company, a series of formalities would have to be met.
Ultimately, the RTM company will take over all the management functions previously afforded to freeholders or landlords in the leases including maintenance and repairing obligations, services such as heating, lighting and cleaning the building, demanding and collecting service charges and insurance. In large blocks, it would often be prudent for the RTM company to appoint a professional agent to manage the day-to-day management. The freeholder is also entitled to membership of the RTM company in respect of its interest in the building and in respect of any flat not let on a long lease.
As is the case with lease extensions and freehold purchases, a freeholder is entitled to recover costs which it has incurred in the process. The legislation refers to costs in respect of professional services for which the freeholder was personally liable. This includes professional legal services in respect of the service of the notice, any accountancy costs arising from provision of accounts and any managing agent costs associated with the hand-over of management functions and records. It cannot be emphasised enough that the RTM process should be steered by an experienced and specialist solicitor at the helm, as leaseholders would still be liable for the freeholder’s ‘recoverable’ costs if the RTM process was not successfully navigated.
For those leaseholders among you living in smaller blocks or fortunate enough to have deep pockets, the ideal route would always be to take control by acquiring the freehold. Aside of taking over the management functions, this route would enable leaseholders to add value to their respective flats in having long leases granted to them and by removing the obligation to pay ground rent following the introduction of The Leasehold Reform (Ground Rent) Act 2022 last July.
Bishop & Sewell’s Landlord and Tenant team are industry experts on Leasehold Reform legislation, including Enfranchisement, Lease Extensions and Right to Manage. If you would like to discuss any of the points raised in this article, please do not hesitate to contact Laurent Vaughan, Senior Associate in Bishop & Sewell LLP’s Landlord & Tenant team on 0207 079 4193 or firstname.lastname@example.org.
Laurent Vaughan is a senior associate in Bishop & Sewell’s Landlord and Tenant Team
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