The ‘right to manage’ rules that can give leaseholders more control

As many a leaseholder will testify, one of the biggest bugbears is having to stump up thousands of pounds a year in service charges without always seeing much value for money.

Most flats in England and Wales are sold as leasehold, meaning you have the right to live there for the number of years set out in the lease. While you do own your property, the reality under this feudal housing law is more akin to a long-term rental, since you do not own the property’s freehold.

Under a leasehold agreement you will have to pay money to the freeholder each year. This covers things such as insurance, upkeep of external walls, roof, lifts and cleaning of communal areas – but annual costs can often be expensive.

Time and time again we hear about residents who are unhappy with their management company and managing agents – who may be employed by freeholders – and fed-up with having to pay for shoddy or costly repairs. Stories about huge increases in leasehold apartment service charges and escalating ground rents have also repeatedly hit the headlines. Hundreds of leasehold-related complaints have been filed with The Property Ombudsman.

If you live in a block of flats and want to see it run more efficiently and more cost-effectively then you may be desperate to change the status quo. One way to take more control is by acquiring the “right to manage” (RTM).

Here, Telegraph Money explains what this entails.

What’s involved in ‘right to manage’?

“Right to manage” does not let you take over your building’s freehold (more on this below), but it does allow leaseholders to take control of the management of the building.

This option will be a lot cheaper than buying the freehold, which can easily cost a few thousand pounds. With the RTM, costs are more likely to be in the hundreds.

Paula Higgins, head of the HomeOwners Alliance, said: “The ‘right to manage’ can be a great option if you feel your building is being badly managed. Perhaps repairs and maintenance aren’t being completed in a timely manner, or you feel you are being overcharged for buildings insurance or services.”

Under the Commonhold and Leasehold Reform Act 2002, a group of leaseholders can club together and have the power to form an RTM company to take control of their own building.

Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “Under current legislation, the ‘right to manage’ applies to leaseholders of a building containing a minimum of two flats. At least two-thirds of the flats must be owned by long leaseholders and at least half of the flats in the building held by long leaseholders must take part.” 

If you apply for RTM, the current freeholder can object with a counter-notice.

Ms Higgins added: “But the only reason your application can be refused is if you don’t meet one of the list of qualifying conditions.”

Who can qualify for ‘right to manage’?

Not all leaseholders will be eligible for RTM rules, so you’ll need to check if any of the following affects your claim.

Firstly, the building must be made up of flats – houses don’t qualify at all – and at least two-thirds of the flats in the building must be leasehold, with leases of at least 21 years when they were granted.

In addition, at least 75pc of the building must be residential.

An RTM company can be set up with any number of property owners, but at least half of the owners in the building must be members before it can take over management.

Finally, the premises won’t qualify if it is not purpose-built, has fewer than four flats in the block and if one of those flats has a freeholder or a member of their family living there.

What are your ‘right to manage’ responsibilities?

While you, as an RTM company, may relish the idea of being in charge of ensuring your building is well maintained – and insured at a reasonable price – you need to be aware of all the responsibilities now falling on your shoulders.

These include having to register with Companies House, file accounts and annual reports, and collect service charges from fellow leaseholders.

It’s also now down to you to take on the legal obligations in connection with management of a building (such as health and safety), arrange the right insurance policies, and handle any disputes.

Be under no illusion: depending on the size and scale of the building – and the condition it is in – this can entail a large amount of work.

The key is to get together with your neighbours, form a strong committee and strive to get along well. With any luck your skills can complement each other.

Is this the same as taking over the freehold?

As mentioned, acquiring the RTM is different from clubbing together with your fellow leaseholders and buying the freehold for your building.

Also known as “collective enfranchisement”, the latter results in each flat owner ending up with a share of freehold.  

The amount you pay for the freehold will depend on how long is left on each of the leases, as well as the value of your apartments – but it could be costly.

As new reforms on buying freeholds have now been put before Parliament, it may be worth waiting if you can – as the hope is that if these reforms are voted in, the process will get both cheaper and easier. That said, it could take months before these proposals become law, if they are passed.

RTM can act as an alternative.

The upsides of ‘right to manage’

Taking over management responsibilities of your building means you are no longer subject to the whims of a third-party freeholder in the same way, which comes with lots of positives.

You will, for example, be able to get competitive quotes for any work that needs to be carried out. You will also be able to enlist an independent insurance broker to compare costs.

Ms Higgins said: “You’ll control what you spend so you can haggle for the best deals and keep service charges to a minimum. You will be able to get maintenance and repairs completed more quickly.”

It could even potentially make your home more “saleable”.

Marc von Grundherr, director of estate agent Benham and Reeves, said: “It will give you control of your building without the need to spend money on purchasing the freehold.”

But what are the downsides?

While this may sound appealing, you need to bear in mind that setting up your own management company can be complicated and time-consuming.

Mr Leaf said: “As with many things in life, be careful what you wish for. Some leaseholders believe that a ‘right to manage’ will solve all their problems, but this is not always the case. Saving some money on service charges may not help you in the long term if the value of your flat decreases because the communal areas are neglected.”

Problems can also arise if the residents involved have varied interests in the building, or if they can’t agree on key decisions.

Ms Higgins said: “If you are going to group together you need to be able to cooperate with your other leaseholders. It’s a good idea to meet with neighbours beforehand to ensure you get on – and have a shared view of how the building should be managed.”

This is a view shared by Mr von Grundherr.

He said: “The downside is that you are running a company, and that takes time, commitment and resources for all involved. You need to ensure everyone is committed to making it work.”

The Residential Freehold Association (a representative organisation of the UK’s largest freeholders) says there may not be as big an appetite for RTM as some claim.

A spokesperson for the RFA said: “Evidence suggests that most people simply don’t want to take on these responsibilities. This is reflected in low levels of adoption.”

The body urges leaseholders to think very seriously about the requirements of running an RTM company.

The RFA spokesperson added: “Our members have numerous examples of these being set up in their portfolios, only for residents to later dissolve them and ask to revert, given an unwillingness to manage the responsibilities which come with the role.”

What if you opt out?

If you’re on the fence about RTM but other residents in the block decide they want to proceed, where does this leave you?

In short, you will still retain your normal rights as set down in your lease as well as those laid out in current legislation.

Mr von Grundherr said: “You do have the option to opt out if you wish. In doing so, you will have no say in how the building is run. But ultimately, you will still benefit from the decisions made by other leaseholders – provided they are for the better of the building.”

As an added bonus, you may get to benefit from improvements that get made to the block, without having to attend (potentially boring) meetings.

Be clear on what you’re signing up for

While it’s important to tread carefully – and go in with your eyes open – you may be keen to go ahead.

If you do want to press on with acquiring RTM, you need to be prepared to roll up your sleeves and invest the time and effort required.

If you’re looking for more information about a “right to manage” claim, try the Leasehold Advisory Service.

What’s next for leaseholders?

The second reading of the Leasehold and Freehold Reform Bill is due to take place in the House of Lords on March 27. This could make long-term changes to the residential leasehold property system in England and Wales.

Propertymark is just one of the campaigners urging the Government to press ahead with the reforms.

Timothy Douglas, head of policy and campaigns at Propertymark, said: “It is vital a ground rent ban is considered as part of the bill. There are many steps policymakers can take to simplify leasehold, such as making enfranchisement easier, the lease extension process being simplified, and freeholders joining a redress scheme where there is no managing agent.”

It now remains to be seen whether proposed greater protections will come into play.

But don’t hold your breath because as mentioned above, even if they do, it could take months before any such reforms become law.