Right to Manage: a guide for leaseholders and landlords

Right to Manage: a guide for leaseholders and landlords

If you’re a leasehold property owner, you may be able to invoke your Right to Manage (RTM).

If you own a flat within a building, whether you rent it out or live in it yourself, it’s important to know the rights available to you. Right to Manage allows you to take over the management the building you live in – even without the agreement of your landlord. This may be due to dissatisfaction with the current management of the property, to save costs, or simply to gain more say in how the building is being run.

Here, AXA looks at your Right to Manage, the pros and cons involved and how it can affect you as a leaseholder or landlord.

What is Right to Manage?

In England and Wales, Right to Manage is when some leaseholders of a building (for example owners of a few flats in one property) agree to come together to take over management of the building from the landowner or landlord.

This means that responsibility for things like collecting service fees, cleaning and maintaining communal areas like stairwells or gardens, upkeep of the structure of the building including the roof, and dealing with any complaints or issues with the building overall, will fall to the leaseholders in the building and not the building’s owner, freeholder or landlord.

The leaseholders of the building can agree to take over the management of the building by forming a Right to Manage company, and can do so with or without the approval of the building’s landlord if they meet certain criteria.

The Right to Manage is part of the Commonhold and Leasehold Reform Act 2002.

Leaseholder, freeholder or landlord?

When finding out who has the responsibility for what when it comes to managing a property, it’s helpful to understand the definitions between a leaseholder, freeholder and landlord.

Freeholder – someone who owns the land a building sits on for as long as they want. They may also manage the property themselves or employ others to do this on their behalf. The freeholder may sometimes be referred to as the landlord. Typically, a freeholder is responsible for the maintenance of the shared spaces and overall upkeep of the building.

Leaseholder – someone who owns a lease on a property for a set period of time, but not the land it sits on. For example, they may own one flat within a block, but not the full block itself. They usually own the lease on the property for a set number of years, between 21 years and 999 years, while the land itself still belongs to the freeholder. The leaseholder typically pays service fees to the freeholder for maintenance of shared spaces and upkeep of the building.

Landlord – could refer to a number of different parties. ‘Landlord’ could refer to the owner of the building; it could refer to a third party brought in by the freeholder to manage the building; or ‘landlord’ may refer to a leaseholder who is letting out their property to someone else in a buy-to-let.

Tenant – as with Landlord, this could refer to a couple of different people. In some cases, the ‘tenant’ may refer to the leaseholder, who is leasing the building from the freeholder. However, ‘tenant’ may also sometimes refer to a person renting a property from a landlord in a buy-to-let.

It really depends on the circumstances of your ownership and your relationship to the other people in the ownership agreement.

For example:

John owns a building and the land it sits on. The building is separated into 7 flats.

John sells one flat to Marie, who lives in the flat herself. In this scenario, John is the freeholder and Marie is the leaseholder. John may also be described as the landlord, while Marie is the tenant.

John also sells a flat to Mark. Mark decides to let out this flat to Anna. Here, Mark is the both a leaseholder and a landlord and Anna is the tenant.

Why choose Right to Manage?

For leaseholders, the main benefit of Right to Manage is that they gain greater control over the running of the building they live in. This may be a plus if they feel that the building isn’t being cared for properly by the freeholder, or if they feel they may save money by taking things into their own hands.

In a Right to Manage company, sometimes decisions on works may be made and carried out more quickly, more cheaply, or with more oversight and control from the leaseholders themselves.

For freeholders, allowing your leaseholders to form a Right to Manage company may also save you time, money and even stress. However, it also means giving up some control over the maintenance of the property you own – although you usually have the option to join the RTM company too.

Who qualifies for Right to Manage?

In order to exercise their right to manage, there are some qualifying factors and processes which leaseholders must follow.

• RTM applied to leaseholders of a building (or part of a building) containing two flats or more
• The building must be mostly residential (commercial areas like shops may not make up more than 25% of the floor area of the building)
• RTM does not apply in local housing authority properties
• At least half of the qualifying tenants in the building must agree to participate. If there are only two flats in the building, both must participate.
• At least two thirds of the flats must be let to ‘qualifying tenants’ – leaseholders whose lease was granted for an original terms of more than 21 years.

What is the process for exercising my Right to Manage?

How do I insure a building under Right to Manage?

Given the sometimes complex nature of ownership, rights and responsibilities in a RTM building, there is usually no simple online process for insuring this kind of property. Instead, you may need to contact an insurer or broker directly to arrange your cover.