The right to manage

These rights are set out in Chapter 1, Part 2, of the Commonhold and Leasehold Reform Act 2002.

The right to manage (RTM) is not subject to any requirement for consent or order of a court or Leasehold Valuation Tribunal (LVT). It is exercisable as a right which is begun simply by the service of a notice. However, there are some areas where disputes, costs or other issues are able to be referred to the LVT by the RTM company for determination.

An application may be made for a determination:

• that the building is not eligible (for example because more than 50% of the building is non-residential or less than two-thirds of the flats are owned by qualifying tenants)
• that the RTM company is not eligible (for example because the membership is less than half of the qualifying flats), or the company has not been set up in accordance with the regulations
• that the RTM company has not fulfilled all necessary procedures and requirements of the application process

The landlord does not have a valid challenge on grounds of simply objecting to losing the management (because the landlord’s consent is not required), or from any misgivings about the management experience or competence of the RTM company.

Where the RTM company has received a counter notice containing a statement of challenge by the landlord, it may apply to the LVT for a determination that it was, on the relevant date, entitled to acquire the right to manage the premises. The application must be made within two months of the landlord’s counter notice. The tribunal’s jurisdiction and consideration of the application relate simply to whether, on the date of service of the claim notice, the RTM company was entitled to acquire the right to manage.

If the LVT determines that the RTM company was not entitled to acquire the right, then the claim notice ceases to have any effect and the LVT can order the company to pay the landlord’s reasonable costs arising from the notice and the LVT hearing. A determination becomes final at the end of the period allowed for appeal (if not appealed against), or at the time when any appeal is finally disposed of.

Application Form – Right to Manage

If the RTM company cannot serve the claim notice on the landlord (or other relevant parties to the lease) because they are untraceable, the RTM company may apply to the LVT for an order that it is entitled to acquire the right to manage.

The RTM company will be expected to have made all reasonable enquiries into the identity or the whereabouts of the landlord, for example, by writing to the last known address or writing to the solicitor who drew up the original lease. If this is unsuccessful and an application to the LVT is necessary, a notice must first be served on all the qualifying tenants of the building advising them of the intention to seek the order from the LVT. (There is no prescribed form for such a notice.)

The LVT will consider the steps taken by the RTM company and may require it to take further action, including advertising its intentions, if appropriate. If the landlord (or a landlord of any part of the premises) is traced by this means, the LVT will take no further action on the application and the RTM company will be able to proceed with service of the claim notice.

If the landlord is not traced then the LVT may make an order which will, effectively, confer the right to manage on the RTM company. The LVT can also make directions as to the steps to be taken for giving effect to the right.

Should the landlord be found after the application is made but before the LVT makes the order, no further steps can be taken with a view to obtaining the order. Instead, it will be treated as though the claim notice was given at the date of application, and all the rights and obligations will be determined thereafter as though a claim notice had been served. However, if the order has been made, the application may not be withdrawn without the specific consent of the newly traced landlord or by permission of the LVT.

On the day the RTM company takes over the management, or as soon as practicable afterwards, the landlord, manager appointed under S24 of the Landlord and Tenant Act 1987 and any third party to the lease must pay over to the RTM company all ‘accrued uncommitted service charges’. These are the total of:

• all the service charges collected from the tenants; plus
• any investments which represent such sums together with any interest accruing; less
• any amount required to meet the service charge expenditure incurred before the RTM company acquired the right to manage

Either the landlord, a manager appointed under S24 of the Landlord and Tenant Act 1987 and any third party to the lease or the RTM company, may seek a determination from the LVT of the amount of the payment.

If a landlord arranges an external audit of the amount, the reasonable fee payable for this audit will be chargeable to the RTM company as part of the costs. The RTM company could then challenge the audit by application to the LVT if there was reason to question its accuracy. However, the audit is not a legislative requirement and it is entirely within the remit of the LVT to determine the amount to be paid to the tenants, based on the information available. Clearly both parties to such an application will need to provide substantial evidence of:

• the amounts of service charges demanded during the charging period
• the amount actually paid by the leaseholders
• the outstanding arrears
• the monies paid by the landlord for works and services
• the amounts of service charge monies in any investment account and the interest on these amounts

One of the RTM company’s functions after acquisition of the management is in the granting of approvals under the terms of the lease. Leases often require the tenant to seek an approval from the landlord for matters specified in the lease, for example, for the assignment of the lease, or for consent to subletting the flat or making alterations to it. This function passes to the RTM company on acquisition of the management of the building.

The RTM company may not grant an approval relating to assignment, underletting, charging or parting with possession, the making of structural alterations or improvements, or alterations of use without having given the landlord (or landlords) 30 days’ notice. In any other case for approval the time period is 14 days. If the landlord (or landlords) objects to the approval, or seeks to impose conditions, they must notify this to the RTM company and the tenant. The matter may then be referred to the LVT. The application may be made by the landlord, the RTM company, the tenant in question or, if the issue concerns the approval of an act of a sub-tenant, that sub-tenant.

Where the right to manage has been exercised in a building but has, for some reason, ceased to operate, then the right may not be exercised again for a period of four years from the time when the previous right ended. (This does not apply where the right ceased due to the freehold being conveyed to the RTM company.) However, an application may be made to the LVT for determination that a new application for the right to manage can be made before the expiry of the four-year period. The LVT would require to be satisfied that it would be reasonable to allow the application.