If you are a landlord with properties in a block, you may be fed up with complaints about communal areas. Crystal Horwood advises.
Since the 2002 Commonhold and Leasehold Reform Act, leaseholders have had the legal right to take control of their block through the Right To Manage (RTM) process, effectively replacing their managing agent. Yet, despite the fact that a number of managing agents have a bad name leading to complaints about poorly maintained ‘common parts’ such as stairwells, lifts and entrance lobbies, many leasehold owners have been scared off.
There are perceived difficulties in forming an RTM, questions over the costs involved versus the benefits, and the associated risks. However, RTM does not necessarily mean self-management. Unless the block is small (say, six flats or less), then most RTM companies appoint their own managing agent.
What RTM really achieves is to put you firmly in control, whilst making significant cost savings.
Forming an RTM
Provided specific criteria are met, the RTM can be exercised by all leaseholders, including landlords who let out their properties.
Furthermore, leaseholders are not required to prove that their existing managing agent has done anything wrong.
First and foremost though, an RTM company must be formed – that’s the easy part since establishing an RTM company simply involves registering a limited company with Companies House. Actually, forming the company can be done by the leaseholders, a solicitor or a local agent. The qualifications for acquiring the RTM, however, requires following clearly defined technical legalities.
By and large, your building (or block) must meet the following criteria to qualify:
- The building must be in part self-contained, and have at least two flats
- No more than 25% of the block may have non-residential use
At least two-thirds of the flats must be let to ‘qualifying tenants’. 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 RTM company must consist of a sufficient number of qualifying tenants.
The required minimum number of qualifying tenants must be equal to at least half the total number of flats in the building.
The right relates to a building, so, in an estate of separate blocks, each block would need to qualify separately and an individual RTM notice served.
Resident Landlord Exemption
RTM does not apply where the premises fall within the Resident Landlord Exemption.
To fulfil this exemption would require the following:
- The premises must be other than a purpose-built block; and
- They must consist of not more than four flats; and
- One of the flats must be occupied by the freeholder or an adult member of their family as their only or principal home for the last 12 months.
The RTM company is the body that takes on the management responsibility, and its formation is a relatively straightforward process when carried out by an external
agent. Usually, this will involve all company-founding leaseholders being made directors in smaller blocks, with larger blocks dedicating representative directors.
As already mentioned, in order to progress with acquiring the RTM, at least 50% of leaseholders in the block must be willing to become members of the RTM company. This might seem a tall order, but by the time meetings have been held to discuss the benefits, the figure is usually met.
A notice to participate must be issued to all non-participating leaseholders, who then have 14 days to respond.
Once it is clear that 50% of leaseholders are prepared to become members of the company, a formal notice containing specific information must be submitted to the freeholder informing them that the company intends to acquire the RTM. Once this claim notice has been served, the freeholder has one month in which to respond. If no response is issued, it is deemed that the freeholder has consented to the acquisition request
If they contest the claim, they will be required to provide reasons. If, having heard the freeholder’s objections and all attempts at negotiation or compromise fail, the leaseholders still wish to proceed with acquisition, they will need to take the opposing party to the Leasehold Valuation Tribunal (LVT).
However, in reality this is rare and there is little to which the opposing party can reasonably object, other than if your building has not qualified under the criteria. It should also be noted that the landlord of the building also has the right to belong to the RTM company.
Responsibility for costs
Once leaseholders have obtained consent to acquire the RTM, they have about three months to prepare for the acquisition date.
For ease of reference, the costs involved in acquiring the RTM can be split into two main areas, and the responsibility for meeting the costs is with the party initiating the RTM.
There is an administrative cost paid directly to the company for overseeing and managing the RTM process. Typically, there will be a cost per unit with a minimum fee for any single block. Then there are the landlord’s reasonable costs, for which the RTM company is responsible. These costs will vary depending on the size of the block, but are relatively small considering the cost-saving to be made.
An important point to note here is that although an RTM company can receive uncommitted service charges back from its previous managing agent it is not allowed to use the monies to pay the landlord’s reasonable costs.
The charges involved in acquiring the RTM are typically recovered almost immediately. Time and again, our experience at my own company shows that landlords can expect to see a significant reduction in service charges, insurance premiums and related charges. Leaseholders become incentivised decision makers, and under a RTM company have the flexibility to secure the best value for money in the services they enlist. Equally, with managerial control comes the desire to ensure all services are carried out to a high standard.
Moreover, those RTM companies that enlist the support of their own choice of agent to manage their block develop a directly accountable relationship. It is always worth appointing a local agent that directly works with reliable local contractors at a competitive rate.
In fact, there is no substitute for identifying a managing agent with true local knowledge – don’t be afraid to ask them how they select their panel of contractors and how long they have been working with them. Similarly, appointing one that is able to deal with emergencies on a 24/7 basis is equally important.
Although difficult to come by, it is also worth digging around to find an agent that will effectively run your block, on your terms; after all, surely that is the point of exercising your RTM in the first place.
Don’t be afraid to go through your collective expectations and demands: reporting should always be a key priority.
Look for an agent that will appoint an inhouse property manager to look after your block – this way there is no middle-man, giving you even greater control over how the block is managed.
A word of advice, though: since block management agents can end up holding a considerable sum of money on behalf of the block, it pays to opt for an agent that is duty-bound to protect its clients’ monies.
Look for an agent that is signed up to a Client Money Protection Scheme – and the easiest way to tell is if the agent uses the SAFEagent logo.
In the next issue of RPI, I will explain about savings that can be made on service charges. For detailed information, go to the Leasehold Advisory Service: www.lease-advice.org
Crystal Horwood is Managing Director at PACE (Property and Commercial Enterprises) PLC and has been in her role since 2010.