Law Commission publishes its provisional proposals to improve the Right to Manage

January 2019

The Law Commission published ‘Leasehold Home Ownership: Exercising the Right to Manage’, its consultation paper and proposals to improve the Right to Manage (RTM).

This latest step in reforming RTM follows the Secretary of State tasking the Law Commission, in July 2018, to undertake a broad review of RTM and propose reform recommendations which improve its use in practice.

Stephen Lewis, Commercial and Common Law Commissioner, said:

“The right-to-manage process is not working at the moment and change is needed. “This is a very practical project and we’ve been focused on developing proposals that make sure the Right to Manage is more user-friendly, particularly for leaseholders. We look forward to hearing how the public thinks we can make the process as effective as possible.”

Housing Minister Heather Wheeler MP said:

“This Government is determined to reform the leasehold sector to better support homeowners. This includes making it easier for those who wish to exercise their Right to Manage and take direct control of their block. I welcome the Law Commission’s consultation proposals and encourage all those with an interest to come forward and offer their views.”

Welsh Government Minister for Housing and Local Government Julie James said:

“Right to Manage has not been widely adopted in Wales, and we have heard anecdotal evidence that the procedures are difficult and allow freeholders to obstruct the wishes of leaseholders attempting to exercise the right. We want to make it easier for leaseholders to take ownership of managing their property and we welcome the Law Commission’s proposals to reform the process”.

The deadline for responses is 30 April 2019.

The Law Commission is keen to receive comments from as many stakeholders as possible, whether they agree or disagree with their provisional proposals. These views will be carefully considered and taken into account when forming their final recommendations, which will be published in a subsequent report.

You do not have to respond to every question.

Comments may be sent using the online response form. Where possible, it would be helpful if this form was used.

Alternatively, comments may be sent:

1. By email to RTM@lawcommission.gov.uk ; or
2. By post to RTM Team, Law Commission, 1st Floor, Tower, 52 Queen Anne’s Gate, London, SW1H 9AG.

The Law Commission’s website also includes a short survey which it invites individual leaseholders and RTM company directors to complete in order to share with it their experiences of the RTM process.

Current provisional proposals include:

1. Qualifying criteria for premises
   1. Extend the RTM to leasehold houses by adopting the concept of a “residential unit”, as recommended in the Law Commission’s enfranchisement consultation paper.
   2. Abolish the requirement for a minimum of two residential units held by qualifying tenants. This will allow qualifying tenants to acquire the RTM by themselves in a building where there are no other residential premises or one other flat which does not qualify for the RTM.
   3. That the exemption for properties with non-residential premises of 25% or more should be removed, replacing it with a requirement that RTM companies must instruct professional managing agents where there are commercial premises of 25% or more of the internal floor area.
2. Qualifying criteria for leases
   1. That shared ownership leaseholders who have long residential leases should be qualifying tenants for the purposes of the RTM, whether or not they have staircased to 100%.
   2. That the “resident landlord” exemption be removed.
   3. Remove the restriction where parts of a building are owned by different freeholders and one of the parts is self-contained. So that the entire building could be managed together, by one RTM company; and that the tribunal should have a power to reconcile any conflicting or diverging provisions in the different leases.
   4. That National Trust properties should be exempted from the RTM.
   5. Remove the exclusion of business tenancies such as work/live units do not qualify for the RTM under the 2002, and replace with an exclusion for leases which prohibit residential use.
3. RTM on estates
   1. Leaseholders in individual buildings to acquire the RTM, even if they are located on an estate. Both the qualifying criteria and the participation criteria should be met by each individual building.
   2. Allow for the RTM to be acquired over two or more buildings where the leaseholders in those buildings:
      1. contribute to a common service charge; and/or
      2. share the use of the same appurtenant property such as gardens or car parks.
   3. Proposals for a “flexible model”, allowing any combination of buildings on an estate to progress an RTM claim through a single RTM company. The multi-building
      RTM would not necessarily need to cover all of the buildings on the estate.
   4. Consequently, a-d above will allow for the RTM to cover leasehold houses on an estate joining a multi-building RTM.
4. The RTM company
   1. Preventing “bogus” RTM companies by abolishing the rule that once an RTM company has been established for a set of premises, there can be no other RTM company for that premises. Instead, once an RTM company has served a claim notice for a set of premises, no other RTM company could do so until the claim has been withdrawn or rejected by the tribunal or the RTM, having been acquired, has ceased.
   2. Introducing a rule that company directors must hold AGMs.
   3. Encouraging prospective RTM company directors to undertake free training on the RTM regime and their obligations under it.
   4. Allowing RTM companies to recover their reasonable management costs from leaseholders as part of the service charge, as if the lease expressly allowed for this.
5. Acquiring the RTM – notices
   1. Abolish the requirement to serve a notice of invitation to participate. To ensure that qualifying tenants are aware of their right to join the RTM company, we propose that the prescribed notes accompanying the claim notice should include a statement to this effect.
   2. That where no counter-notice has been served, the RTM company may apply to the tribunal asking it to determine:
      1. that the RTM is capable of being acquired;
      2. the date on which the RTM will be, or was, acquired; and
      3. any special arrangements for the management of other property not exclusive to the building.
   3. Simplifying notices eg giving a discretion to the tribunal to waive any requirement or allow a notice to be amended to fix an error.
   4. Require RTM companies to do pre-service checks (including searching HM Land Registry) to ascertain the most appropriate address at which to serve the claim notice. We made the same proposals in the Law Commission’s enfranchisement consultation paper (see para 11.83).
6. The acquisition date and information
   1. Change the set three-month periods into minimum three-month periods.
   2. Give RTM company the right to apply to the tribunal to vary the original acquisition date specified in the claim if it subsequently proves inadequate.
   3. Landlord sending prescribed information, as regards management contracts, as part of the ‘information notice’.
7. Management functions
   1. Insurance information eg policy and claims history.
   2. Clarify that reinstatement is a management function for the RTM company , provided the landlord is obliged to reinstate under the terms of the lease.
   3. Rights for the landlord eg right to a copy of insurance policy and to bring matters to tribunal to ‘top up’ on insurance where building(s) underinsured.
8. Post-acquisition rights and obligations
   1. Clarify uncertainty in the law, to ensure that the RTM company is only required to provide its own contact address on a service charge demand, and not that of the landlord.
   2. Options regarding consents (eg sub-letting and/or alterations) –
      1. RTM company and landlord could instruct a joint adviser to reduce the costs; or
      2. Current procedure could be reformed to make it more efficient, either by the leaseholder serving the application for consent on both the RTM company and the landlord; or
      3. The RTM company being obliged to pass the application to the landlord within a set time.
9. Dispute resolution and costs
   1. Tribunal to have exclusive jurisdiction over disputes arising from the RTM provisions, and in respect of the enforcement of such decisions.
   2. Each party should bear their own costs of litigation, unless there has been unreasonable behaviour or wasted costs on either side. This would give the parties the power to determine how much they are willing to spend on the claim and any disputes arising from it. It would also lessen the impact on RTM companies of landlords choosing expensive lawyers and making technical objections.
   3. Presumption in favour of an order under section 20C of the Landlord and Tenant Act 1985 to prevent landlords recovering their litigation costs from leaseholders through the service charge.
10. Termination of the RTM
    1. If the landlord or any leaseholder makes an application to appoint a manager due to poor management by the RTM company, the tribunal should take into account whether or not the RTM company remains supported by a majority of leaseholders as members.
    2. In any case of termination, and unless the issue is agreed between the parties or determined by tribunal, the default position should be that management reverts to the party who is responsible for management functions under the lease. If that person no longer exists, the management functions should generally revert to the landlord.

Further information:

• Full list of consultation questions
• Becoming a director of a Resident Management Company