Right to Manage vs Collective Enfranchisement
Welcome to our guide on Right to Manage vs Collective Enfranchisement. Whether you’re a flat owner, tenant or landlord, this guide will help you understand the intricacies of these two important legal rights that can affect your property.
In this guide we’ll explain how each right works, the benefits of each, and when they apply, so you can make an informed decision about whether either is suitable for you. We’ll also look at some common questions related to the topic to help you get all the key information you need to make your choice.
The decision between RTM and collective enfranchisement is not always about which is better in principle. It is often about what is achievable given the group, the building, and the budget at the time. Imagine a 10-flat block where the freehold premium is estimated at between £85,000 and £105,000. The group has six committed participants and the budget to cover professional fees, but three leaseholders are abroad or unresponsive. They need 10 participants to reach the 50% qualifying threshold for a 20-unit building, and they are short.
RTM requires the same 50% threshold in principle but is procedurally cheaper and faster to implement as a first step. A group in this position can exercise RTM first, demonstrating to non-participants that collective action works, and return to collective enfranchisement once participation improves.
Once 50% is secured, the collective enfranchisement proceeds with all statutory protections in place. The RTM period builds the evidence base and group cohesion that the enfranchisement then relies on.
Right to Manage (RTM) vs Collective Enfranchisement
If you own a flat, you have individual rights, defined in your lease, but many people do not know that you also have collective rights over your building, defined in law.
Two such rights are the right to manage your building (RTM) and the right to purchase the freehold of your building (Collective Enfranchisement). Both these rights give you more control over your building and can have significant financial advantages for you as a flat owner. However, you cannot exercise either of these rights on your own; at least 50% of flat owners who are classified as qualifying tenants in your building must join you.
Right to Manage (RTM Company) Definition
The Right to Manage (RTM) is a legal right of leaseholders to take over responsibility for the management of their building from the landlord (freeholder) and was introduced in the Commonhold and Leasehold Reform Act 2002. The RTM process involves several legal steps, including serving a notice inviting participation to all qualifying leaseholders.
In order to exercise the Right to Manage, at least fifty percent of leaseholders must agree to participate in a well-defined legal process. A valid RTM company must be formed, adopting specific articles as required by legislation, and registered at Companies House. Participating leaseholders are added as members or shareholders and the landlord (freeholder) is served a legal notice, known as a notice of claim, to which the landlord may respond with a counter notice.
The acquisition date is the date when the RTM company acquires management functions from the landlord. On this date, the RTM company takes over the landlord’s management functions, including day to day management, service provision, and collection of service charges.
Collective Enfranchisement Definition
Collective Enfranchisement is a legal right of leaseholders under the Leasehold Reform, Housing and Urban Development Act 1993, to take ownership and management of their building from the landlord (freeholder).
Collective enfranchisement is usually carried out by forming a private company limited by shares, which acquires freehold ownership of the building. In order to exercise the right to Collective Enfranchisement, at least fifty percent of leaseholders must agree to participate. The freeholder cannot refuse to sell the freehold but may contest the premium.
Benefits of Right to Manage (RTM)
Flat owners who exercise their Right to Manage enjoy certain benefits:
- Control over the cost of running the building
- Leaseholders may save money on management costs
- Ability to prioritise works and avoid unwarranted works from taking place
- Ensure emergencies are dealt with quickly and fairly
- Ensure major works are done in a timely and cost-effective manner
- Ensure the building and common areas are not neglected
- Decide which contractors are employed and change them as needed
- Each leaseholder has a right to an equal vote and greater visibility of management
Benefits of Collective Enfranchisement
Flat owners who exercise their right to enfranchise enjoy these benefits:
- All the benefits of the Right to Manage (RTM)
- A share in the freehold
- Co-Ownership of the common parts, grounds and airspace of the building
- The right to grant lease extensions
- The right to a perpetual lease of the flat (999 years)
- The right to eliminate or reduce ground rent following a statutory lease extension
- An increase in the market value of their flat, making it easier to sell
Differences between Right to Manage and Collective Enfranchisement
Both Right to Manage and Collective Enfranchisement require at least fifty percent of flat owners to work together in a similar legal process and both allow leaseholders to gain control over the management of the building.
When exercising their Right to Manage, flat owners remain leaseholders with the same freeholder, the same lease length and paying ground rent.
When exercising their right to collective enfranchisement, flat owners pay a premium and, in return, receive a share of freehold, own their flat forever (with a 999 year lease) and do not pay ground rent (known as peppercorn ground rent).
Whereas RTM allows leaseholders to take on some obligations without having full control, Collective Enfranchisement gives leaseholders all the benefits of RTM along with the benefits of owning a share in the freehold.
Closing recommendations
When it comes to Right to Manage vs Collective Enfranchisement, exercising your Right to Manage is an important stepping stone but it is far more beneficial to exercise your right to Collective Enfranchisement.
Whichever right you choose to exercise, following the guidance of specialist, expert and experienced professionals like our team at The Freehold Collective is essential to securing the best outcome. Contact us today to find out how we can help you purchase your freehold.