Property Entrepreneurs

FAQs - Taking over the management of a block of flats with other tenants

The Commonhold and Leasehold Reform Act 2002 has given a new right to tenants of blocks of flats to take over the management of their building without having to acquire the freehold or having to show fault.

Under the Landlord and Tenant Act 1987, it is possible to appoint a manager but the tenants have to show fault.  This can be expensive and time consuming as it requires a trial before the First Tier Tribunal (FTT).

There may be some situations where it is advisable to bring a claim under the 1987 Act, particularly if the tenants wish to subsequently acquire the freehold, as no marriage value is payable, so the price is much less.  For further advice on whether it may be better in your circumstances to make a claim under the 1987 Act please contact us.

Why should you exercise the Right to Manage?

The main reason is to ensure the effective management of your building, particularly in circumstances where it is not desirable or practicable due to the lack of funds to acquire the freehold.

Exercising the Right to Manage will allow you to remove the existing managing agents and appoint new ones.  A well-managed building may also result in the value of the flats increasing.  This right does not allow tenants to extend the terms of their leases or reduce their ground rent to a peppercorn, which they could do if they acquire the freehold interest in their building.  See the Buying the freehold of flats FAQs.

What are the qualifying criteria?

The main criteria are that:

  • the building must be a self-contained block of flats (which includes a converted building as well as a purpose built one)
  • the building must have no more than 25% non-residential use.
  • two thirds of the flats must be let to qualifying tenants
  • a qualifying tenant is one who holds a flat under a long lease, i.e. for a term of more than 21 years when the lease was originally sold.
  • the qualifying tenants of flats who participate must comprise 50% of the total flats in the building.

What happens to the existing managing agents and any contractors appointed by the landlord to provide services to the building?

By exercising the Right to Manage, you can decide to appoint new managing agents if you are dissatisfied with the existing ones and also change any of the contractors on the same basis.  In practice, it may not always be practical to terminate some service providers as they will then remove their equipment, for example an entry-phone system.

What steps are necessary?

The 2002 Act lays down various steps which must be complied with prior to the Right to Manage being acquired.  First, a Right to Manage Company (RTM Company) must be formed by the tenants.  It is this company that will take over the Right to Manage on behalf of the tenants.  You cannot bring a claim without forming this company.

Once formed, the RTM Company will serve notices on all those qualifying tenants who have not yet elected to participate in the process, advising them of their right to participate and to become members of the RTM Company.  The right to participate is unique to this right to bring an RTM.  It does not exist for a collective claim.  If this step is overlooked the claim will be invalid.

After 14 days have expired from when the notice to participate to the other qualifying tenants is issued, the RTM Company will serve a prescribed Claim Notice on the landlord, informing it that the RTM Company wishes to take over the management of the building and specifying two dates.  The first date is the date by when the landlord can reply by serving a counter-notice (usually 28 days) and the second date is when the RTM Company proposes to acquire the Right to Manage (usually three months away).

The landlord can, if it wishes to object, serve a counter-notice by the first date specified in the Claim Notice, objecting to the right of the RTM Company to take over the management of the building.

If the landlord fails to object and, in the absence of any dispute, the RTM Company will take over the management of the building on the second date stipulated in the Claim Notice.  However, if the landlord objects to the right of the RTM Company, then the matter has to be referred to the FTT for determination which will delay the date on which the right is acquired.

Prior to acquiring the Right to Manage, the RTM Company can serve an Information Notice on the Landlord and its managing agents in order to obtain all information necessary to effectively manage the building.

How long will the process take?

In most cases, the earliest period within which the Right to Manage can be acquired is four months from the date the Claim Notice is given.

How much does it cost?

The cost will depend on numerous factors, including the size of the building, number of intermediate landlords and the number of participating tenants.  Clearly, the more tenants that participate then economies of scale will apply and the cost will be spread more evenly.  In addition to legal costs, the tenant may have to pay for the costs of an accountant, surveyor, new managing agents and counsel, should a barrister's opinion be required on any technical issue.

You would also be liable to pay the reasonable costs the landlord incurs in complying with the steps laid down by the legislation.

How do we get ourselves organised?

It is usual for a residents’ committee to be formed and for one or two key tenants to drive the matter forward.  Clearly, prior to proceeding, the tenants may wish to consult with the other tenants.  Once it is established that there is support for the idea, it would be a good idea to invite a solicitor to attend a meeting of the committee to answer questions, to explain what is involved and to set out the pros and cons. 

Do we need a binding commitment from every participating tenant?

We would always recommend this.  This can be achieved either formally with a participation agreement (which we would recommend even though it adds to the expense of the claim) or informally by waiting for funds at each key stage in the process.  These are at the preliminary stage, the formation of the RTM Company, the exercise of the claim and then prior to the taking up of the right when the landlords costs are known.

What happens once the RTM Claim is completed?

At this point the RTM Company can decide which contracts for services can be retained.  The RTM Company becomes responsible for the smooth running of the administration of the Building and will usually appoint a managing agent to undertake this obligation. The new managing agent (if appointed) will receive any accrued but uncommitted service charge funds held by the former managing agents. 

The RTM Company can now approve consents to assign or alter but is required to notify the landlord before such approval is given, either on 30 or 14 days' notice depending on the type of approval required.  The RTM Company should either arrange for a new policy to cover the insurance of the building or for the existing policy to be continued by the landlord.

When can the RTM come to an end?

When either the RTM Company is wound up, or if a manager is appointed under the 1987 Act or if it acquires the freehold.

Penningtons Manches Cooper LLP

Penningtons Manches Cooper LLP is a limited liability partnership registered in England and Wales with registered number OC311575 and is authorised and regulated by the Solicitors Regulation Authority.

Penningtons Manches Cooper LLP