The Olympus Blog

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QUARTER 4, 2023

Right To Manage is a popular process that is available to leaseholders who are unhappy with the way that their building is being run by their freeholder. There are a number of options for leaseholders in this position – Right to Enfranchise is seen as the ultimate solution because it completely removes the current freeholder and gives the rights and responsibilities to the leaseholders, but this is a very costly option and, in many cases, just simply unaffordable. So Right To Manage is your next best thing.

 

This blog is designed to give an overview of the Right To Manage process and help you to understand whether this might be the right option for you. It is purely a guide, however, and will not go into the finer detail of the legalities. For any specialist or legal advice, please contact us so that we may engage with a solicitor on your behalf.

Does Your Building Qualify?

Right To Manage came into existence with the enactment of The Commonhold and Leasehold Reform Act 2002. It allows qualifying leaseholders to take over the management of their building by taking control of the management clauses of their leases via a specially formed company.

 

The first step is to determine whether your building qualifies:

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    At least 2⁄3 of the flats must be let on long leases, i.e. an original term of more than 21 years.

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    Commercial floor area (if any) must be below 25% of the total internal floor area.

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    The immediate landlord must not be a local housing authority.

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    The “Resident Landlord Exemption” must not apply.

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    A minimum of 50% of qualifying tenants must participate.

If you meet all of the above criteria, then it would be useful to elect a few people to be the Project Management Team, liaising with the lawyers and keeping the rest of the participating leaseholders updated. This would help to avoid overcomplicating the process, would streamline communication and therefore, reduce the solicitor’s fees!

A Fighting Fund

Although Right To Manage is much more cost effective than Right to Enfranchise, there will still be some costs involved, namely the solicitor’s fees and the costs of incorporating the Right To Manage Company. It is important to obtain quotes for the fees at the beginning of the process so that you can start collecting the appropriate funds to enable you to settle any balances on time.

 

Another problem which collecting funds in advance would solve is leaseholders initially saying ‘yes’ and then not committing later down the line. This could potentially derail the whole process as you must have more than 50% of leaseholders participating to qualify. Asking for contributions to the Fighting Fund from each leaseholder wishing to participate upfront ensures early commitment, and you will want to encourage as many people as possible to participate because the more people take part, the cheaper the costs per person will be.

The Information You Need to Provide

You will need to provide your solicitor with the following:

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    Contact details for all occupiers (eg. tenants of non-resident leaseholders) for access to the flats;

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    The full names of all leaseholders, as confirmed by the Titles;

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    Full contact details for leaseholders (address, email, phone, etc);

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    The lease for each individual flat;

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    Lease plans for each flat;

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    Photographs of the building – all exterior elevations.

Right To Manage Company

Right To Manage is exercised by your specially formed company, not by the individual leaseholders. Therefore, once the solicitor has been instructed, a new Right To Manage Company needs to be incorporated. Not all of the participating leaseholders will need to be named Directors when forming the Company – your Project Management Team can fulfil that role for the initial setup.

 

The Company Memorandum and Articles of Association for a Right To Manage Company are prescribed in the Commonhold and Leasehold Reform Act 2002 (as amended). You cannot use the standard, off the shelf Articles. Statutory Instrument 2009 No.2767 refers.

Notice Inviting Participation

The Right To Manage process is fairly simple but very precise. You and your solicitor need to ensure that process is followed absolutely correctly otherwise the freeholder will have legal grounds for dismissing your claim. That is one of the reasons for using a qualified leasehold specialist solicitor.

 

In brief, there are several criteria which affect the validity of the Notice Inviting Participation:

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    ALL qualifying leaseholders are entitled to become members of the Right To Manage Company.

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    The notice must be in writing (hard copy, not email).

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    The notice must be in the prescribed form.

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    The notice must be served on ALL qualifying leaseholders who are not already members of the Right To Manage Company.

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    The notice must state the Right To Manage Company intends to acquire the right to manage (of the specific building).

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    The notice must state whether the Right To Manage Company intends to self-manage or instruct a Managing Agent.

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    The notice must state the names of the (current) members of the Right To Manage Company.

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    The notice must invite the recipient to become a member of the Right To Manage Company.

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    The notice must provide other information required by the regulations; e.g. company number, registered office, director names, freeholder/landlord name.

Legislation does not require the Right To Manage Company to produce a business plan or budget, nor to provide information about how it intends to manage the property. However, this is something that you may wish to consider as many leaseholders will ask these kinds of questions before committing. The overall costs per leaseholder is usually the deciding factor for most people, and often one of the motivating factors for Right To Manage is that future management will be pro-active and cost-effective compared to the past. So you may wish to set your Project Management Team to the task of quantifying that with actual objective figures.

 

This is where we, as your Managing Agent can help. We can assess the building’s needs, analyse the historic service charges, and then prepare a fully costed service charge budget which will reflect the way the way the building is to be run in the future, as opposed to the way it has been run in the past.

Notice of Claim

If you meet all of the qualifying building requirements and all of the statutory Right To Manage Company requirements, then you are in a position to proceed with obtaining the Right To Manage. The claim may not be served until 14 days after service of the Notice Inviting Participation.

 

The notice must be served on:

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    The landlord of the whole or any part of the building;

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    Any intermediate landlords;

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    Each qualifying leaseholder in the building;

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    Any parties to the lease other than leaseholders, e.g. a named Management Company or First-tier Tribunal appointed Manager.

The form of the Notice of Claim is prescribed, i.e. the legislation requires specific information to be included otherwise the notice will be invalid. The Notice must:

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    Specify the premises;

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    Include a statement of grounds on which the premises qualify for Right To Manage;

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    State the names and addresses of qualifying leaseholders and Right To Manage Company members;

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    Provide sufficient details to identify each qualifying leaseholder’s flat and provide lease terms;

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    State the name and address of the Right To Manage Company’s registered office;

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    Specify a date (more than a month after the claim) for any counter-notice;

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    Specify a date (more than three months after counter-notice) on which the Right To Manage Company intends to take over management.

Please note that this list is not exhaustive. The complete requirements can be found at: Statutory Instrument 2010 No.825.

 

If the freeholder is “absent”, i.e. their registered address is unknown and cannot be obtained, an application can be submitted to the First-tier Tribunal (Property Chamber) if the property is in England, or the Leasehold Valuation Tribunal if the property is in Wales.

Right of Access for Inspection

It is unlikely that individual leaseholders are going to be familiar with all parts of the building – particularly with larger more complex buildings which may include an element of commercial or retail units that you may have not even had access to. In some cases therefore, there is a need to inspect areas of the property which are not normally accessible to residents and leaseholders.

Section 83 of the Commonhold and Leasehold Reform Act 2002 provides for any person authorised to act for the Right To Manage Company to inspect any flat and/or part of the building. At least 10 days advance notice must be provided to the occupiers of that part of the building, and this right of access is only available after service of the Notice of Claim.

Freeholder’s Counter-Notice

Although the freeholder will not be losing an asset – as they would if you were to exercise your Right to Enfranchise – it is still likely that they are going to be disgruntled by this claim and want to fight it.

 

The first chance the freeholder has to dispute the Right To Manage claim is via the freeholder’s counter-notice. There are only two possible responses to the claim:

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    Agree with the Right To Manage claim;

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    Allege reasons why the Right To Manage Company is not entitled to proceed.

If you have done your research thoroughly, ensured that all of the requirements are met for both the qualifying building and the Right To Manage Company, and followed the correct form for the Notices, then the freeholder will have no grounds for disputing your claim and will have to admit the right. This is why it is crucial that you obtain specialist, professional advice and guidance.

 

Once the freeholder admits the right, that’s it! Management passes to the Right To Manage Company on the date specified in the Notice of Claim.

 

If, however, the freeholder does dispute the claim, the Right To Manage Company may submit an application to the First-tier Tribunal (or the Leasehold Valuation Tribunal in Wales). That application must be submitted within two months of the counter-notice. The Tribunal will then determine the issue and will provide directions for the parties.

 

If the application is not submitted to the Tribunal within the two-month deadline, the claim will be deemed withdrawn.

 

If the parties dispute the Tribunal’s findings, there is a right of appeal to the Upper Tribunal by leave of the First-tier Tribunal or Upper Tribunal.

What happens to the freeholder?

If the Right To Manage Company succeeds in its claim and takes over management of the building, the freeholder is then entitled to become a Member of the Right To Manage Company. They would have full voting rights determined by the number of units held in the building. If no units are held, then the freeholder has one vote. This right extends to intermediate landlords too.

As for their costs in dealing with the claim – the legislation requires the Right To Manage Company to reimburse the freeholder for all reasonable costs incurred, whether the claim is successful or not.

The freeholder’s duties

As the freeholder is no longer in a position to fulfil existing contracts for the management of the building, those contracts become ‘frustrated’ in legal terms and must end.

 

The freeholder is required to serve notice on contractors and suppliers:

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    To identify the relevant contract;

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    Including a statement that the Right To Manage is to be acquired by the Right To Manage Company on [date];

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    Including the name and address of the Right To Manage Company;

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    Including a statement advising the contractor or supplier to contact the Right To Manage Company if they wish to continue their services to the building.

These notices must be served as soon as practicable but because there is a three-month gap between the determination date and the acquisition date, there is plenty of time for the notices to be prepared and served before the transfer of management.

 

The freeholder also has a duty to transfer service charge funds to the Right To Manage Company (usually care of their managing agents) “as soon as practicable after the acquisition date”. An upset or difficult landlord may not rush to complete that task which is why your Project Management Team needs to ensure it has sufficient funds collected in order to deal with management during the new setup.

Right To Manage

The Right To Manage is not registrable at HM Land Registry. However, you need to be able to notify potential flat purchasers of the management setup. Therefore, the affected freehold title (and/or intermediate leasehold title) can have an entry added by the Registrar, as per Rule 79A of the Land Registration Rules 2003.

 

Right To Manage does not permit the leaseholders to take over all functions previously performed by the freeholder, but only to take over the ‘management’ clauses of the leases.

 

Your management responsibilities would include, but are not exclusive to:

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    Repairs, redecorations, maintenance of the building structure and common parts, including cyclical maintenance and maintenance of plant;

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    Improvements to the building (only where allowed by the leases);

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    Provision of services – lighting, cleaning, gardening, caretaking, etc;

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    Arranging buildings insurance;

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    Levying and collecting service charges, accounting, etc;

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    Compliance with statutory requirements relating to management, e.g. Health & Safety;

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    Day-to-day management of the building;

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    NOT management of non-residential parts of the building;

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    NOT functions relating to forfeiture and possession.

And of course, this is where we come in. If you chose to appoint a Managing Agent, then we can administrate all of these functions on your behalf. If the due process is followed correctly, then exercising your Right To Manage is a sure way to take control over the management of your building, and relatively inexpensive too.

 

At Olympus Management we do not project manage Right To Manage claims but we will gladly support you through them by providing an analysis of the historical finances and the current management requirements of the building, and providing a detailed service charge budget for a Right To Manage Company. So if this is the route for you then please do contact us, and we wish you every success.

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After a very successful time working for a boutique firm managing Prime stock across Mayfair and Marylebone, then opening a new office in London Bridge, Ella took a short break from her career to start a family before joining Olympus Management in 2023 as a Director.

Her organisational skills and methodical approach to problem solving make her a key asset to the team, and her personable approach to property management ensures that our clients receive the 5* Olympus Experience.

Ella's a lover of literature and creative writing, though is finding less time for either now that she has a very active son to keep busy! She also loves playing the piano, skiing in the winter, and travelling to new places to experience their culture, but more importantly their cuisine!

We're delighted that she's able to tap in to that passion for literature and creative writing for the articles she's contributing to our blog.