The right to manage (RTM) using the Commonhold and Leasehold Reform Act 2002 is an important right for flat or apartment owners in Britain.
If leasehold property such as an apartment or flat in a development is owned, then owners will take a keen interest in how the property is managed and the way the buildings are repaired and cared for. Often there is a common garden area and paths between the buildings and it is important to have good landscaping so the overall estate looks good. After all, owning a flat is a major investment and needs maintaining to keep up its value.
In some cases a managing agent is either overcharging or poorly maintaining a development, and in cases like these, the flat owners can take the management of their own buildings into their own hands. That’s not to say that the owners will be doing the day-to-day maintenance, or repairs, rather that they will control the management, and decide on their own maintenance priorities, or choose the managing agent.
The way the right-to-manage process works is that the flat owners set up a limited company and then send in an RTM claim to the freeholder to takeover the management. Many owners have ditched a managing agent and saved money successfully all over the UK.
There is a complication in a development of multiple buildings in an estate. The RTM claim notice defines the premises to be included in a claim in Section 72 of the 2002 Act. This section deals exclusively with the premises to which the right to manage provisions apply, namely that they should be a self-contained building or part of a building.
This provision of the Act is open to different views on the definition of what the premises are. If a freeholder disagrees with an RTM claim, then they can issue a counter notice to dispute the leaseholders’ legal right to manage. In cases where the claim is disputed, the determining body is the government’s Leasehold Valuation Tribunal (LVT), recently reorganised as the first-tier tribunal of the Property Chamber.
There have been a number of LVT cases determined around the country with conflicting interpretations of this section. Some have said that one RTM company can only manage one building (which is literally what the Act says) and some have said that it must have been intended that an RTM company could apply to manage more than one building.
In an attempt to clarify the position, permission to appeal has been granted in a limited number of test cases. In another case new provisions enabling a first-tier tribunal to refer a case directly to the Upper Tribunal have been applied.
So at the moment leaseholders are in limbo, not knowing which way the upper land tribunal will interpret the Act. At the end of the day, it makes a lot of sense to have a single RTM company in a development and have the apartment owners submit claims specific to their building, as then after the RTM company takes over the management can be consolidated.
Imagine the scenario with a small estate of 4 buildings around a common grassed area. It the Act treats each building as separate premises, then there would be gross inefficiency. For a small development there would be 4 RTM limited companies with 4 sets of directors and corresponding separate accounts and reporting to Companies House and the Inland Revenue. Then there would be 4 separate contracts with window cleaners, 4 separate contracts with building cleaners, 4 separate contracts with fire alarm companies, not to mention the difficulties of cutting the grass or maintaining the grounds. And imagine if there was a common electric entry gate – which company would maintain and repair that?
So the jury is out, so to speak, and we look forward to seeing the outcome of the Upper Tribunal decision, which will have a big impact on leaseholders going through the right to manage process.