The Secretary of State for Housing, Communities and Local Government, Rt Hon James Brokenshire MP, has asked the Law Commission to undertake a broad review of Right to Manage legislation and suggest reforms to improve its use in practice and increase its popularity amongst tenants.
What is the “Right to Manage”?
The “Right to Manage” (RTM) was introduced by the Commonhold and Leasehold Reform Act 2002 (the “CLRA 2002”) and gives long leaseholders of flats in a building to which the CLRA 2002 applies the right to take over the management of their building.
The leaseholders cannot exercise the right as individuals, but must instead set up a RTM company to to take over management responsibilities. The RTM company will acquire the management functions of the landlord, managing company or other third party under the lease. This includes obligations relating to services, repairs, maintenance, improvements, insurance and management. The landlord retains the reversion and the right to receive ground rents and other sums that may be due under the lease.
To exercise the RTM, the leaseholders must serve a notice on the landlord and follow the procedure contained in the CLRA 2002. The leaseholders do not require the landlord’s consent or court approval and there is no need to show mismanagement.
Why would leaseholders exercise the right?
The purpose of the RTM legislation was to prevent abuse by landlords and give leaseholders more control over the buildings where they live. Although long leaseholders will have the long term use and enjoyment of the building, management functions are typically carried out by the landlord or the landlord’s agents, who are likely to have different objectives. Depending on the length of the lease, the landlord may never expect to obtain the reversion and have little interest in how the building is managed.
Why is there a need for reform?
James Brokenshire has expressed concern that issues with the legislation have caused delays, increased costs and uncertainty for leaseholders and disuaded leaseholders from exercising the right.
The Leasehold Advisory Service (LEASE) has highlighted the following issues with the current legislation:
- Landlords have been able to object on technical, and sometimes minor, defects with the procedure, causing delays and increasing costs. In Elim Court RTM Co. Ltd v Avon Freeholds Ltd  EWCA Civ 89 the Court of Appeal called on the Government to simplify the procedure and reduce the potential for challenge by obstructive landlords.
- The right to manage cannot be exercised by a single RTM company over more than one building. Where there is a multi-block estate, the procedure must be followed for each block (Triplerose Ltd v Ninety Broomfield Road RTM Co Ltd  EWCA Civ 282).
- In Francia Properties Ltd v Aristou  L. & T.R. 5 it was held that the appointment of a RTM company did not prevent a landlord from carrying out development works to the building.
- The RTM process may frustrate existing supplier contracts, meaning that the RTM company will need to enter into new contracts with all existing suppliers.
In the Law Commission press release, James Brokenshire states that:
This Government is tackling unfair and abusive practices within the leasehold sector every day. Our work with the Law Commission is just one aspect of this.
Leaseholders wanting to manage their own building should be supported to do so without the fear of uncertain, lengthy and costly court procedures.”
The Law Commissioner Stephen Lewis states that:
Putting power in leaseholders’ hands can help them take control of their homes and lead to cost effective, good quality management of shared areas.
But the law isn’t working as it should be and leaseholders are missing out on their right to manage. We’ll be looking to get to the bottom of why that is, and come up with reform recommendations that work for everyone.”
The Law Commission will commence its review straight away and a public consultation on provisional proposals is expected later in the year.
For further information, please contact a member of our Real Estate Litigation team.