The law in England and Wales provides tenants of flats (upon meeting certain criteria) the legal right to effectively take the place of the freeholder by either getting together with fellow tenants to buy the freehold of the building they occupy (known as leasehold enfranchisement) or forming a right to manage company (RTM) which takes over the management of the building.
Broadly speaking, if 50% of tenants in a building on leases of 21 years or longer wish to acquire the freehold title, then they can do so upon following a set procedure. Such an option may seem attractive to tenants who wish to take control of granting their own lease extensions and of the management of the building.
Right to Manage
To qualify for the right to manage, tenants must hold a lease of 21 years or over and the qualifying tenants wishing to exercise the right must own at least two-thirds of the flats in the building. The building itself must also meet certain qualifying criteria. Assuming that there are the requisite number of qualifying tenants and the building meets the qualifying criteria, an RTM Company can then be set up to take over the management of the building. Any qualifying tenant is entitled to be a member of the RTM Company as is the freeholder.
Is it time to take control?
Both enfranchisement and the right to manage do offer leaseholders the potential to take some degree of control. Once in the driving seat, tenants are free to assume responsibility for managing the building themselves. However, both options are major steps and so it is essential that tenants take advice as to whether in their particular circumstances either route is advisable as there could be implications which should not be taken lightly.
The process of leasehold enfranchisement and right to manage may be costly depending on the size and complexity of the building. Managing a building is complicated and involves a whole host of laws and regulations. Often the tenants driving enfranchisement or right to manage are a small group who has to put in enormous amounts of time and effort and so a managing agent is required anyway. Tenants wishing to enfranchise or set up an RTM Company will need to strongly consider whether they have the stomach for a dispute with their neighbour over issues such as unpaid service charges. Can the tenants get on as a group? It is nearly always impossible to say as future owners come into the equation.
Both the right to manage and enfranchisement are important legal options available to some tenants. However, neither right is without its pitfalls, and tenants need to take advice to ensure that they go in with their eyes wide open. If you would like advice on your options as a leaseholder then please contact either Luke Rees or Christie Limb in the commercial and leasehold department on 01623 451111.