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 your situation. 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.
Right to Manage vs Collective Enfranchisement
Right to Manage vs 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 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.
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 Right to Manage company is incorporated, participating leaseholders are added as members or shareholders and the landlord (freeholder) is served a legal notice. The freeholder does not need to provide consent.
At the end of the process, the freeholder must hand over control of all management matters to the leasehold company. The company can manage matters directly or as is often the case, appoint a managing agent to undertake management responsibilities such as administering budgets, collecting service charges and performing maintenance works.
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).
In order to exercise the right to Collective Enfranchisement, at least fifty percent of leaseholders must agree to participate in a well-defined legal process. A Freehold limited company is usually incorporated, participating leaseholders are added as shareholders and the landlord (freeholder) is served a legal notice which includes a premium (purchase price). The freeholder cannot refuse to sell the freehold but may contest the premium.
At the end of the process, the company takes full ownership of the building, ground, and airspace and as a bonus, takes full control of the management of the building (in a similar way to the RTM).
Benefits of Right to Manage
Flat owners who exercise their Right to Manage enjoy certain benefits:
- Control over the cost of running the building
- 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 Right to Manage
- A share in the freehold
- Co-Ownership of the common parts and grounds of the building
- The right to a perpetual lease of the flat (999 years)
- The right to grant lease extensions
- The right to stop paying ground rent to a freeholder
- An increase in the market value of their flat which is easier to sell
Find out how to buy your freehold today.
Differences between Right to Manage and Collective enfranchisement
Both Right to Manage and Collective Enfranchisement require a majority of flat owners to work together in a similar legal process and both allow leaseholders to gain control over the management of the building. The area of law is complex. Being organised professionally, for example under guidance of a specialist project manager, is extremely important.
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 (replacing the freeholder to own the land, airspace and fabric of their building), ‘own’ their flat forever (with a 999 year lease) and do not pay ground rent (known as peppercorn ground rent).
Both RTM and Enfranchisement Claims follow a similar process and, where not contentious, can cost roughly the same.
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.
When it comes to right to manage vs 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.
RTM & Collective Enfranchisement FAQs
Should I choose Right to Manage or collective enfranchisement?
Which path is right for you depends on your individual circumstances. Right to Manage is the cheaper option but does not give you ownership of the freehold or the right to a 999 year lease. Collective Enfranchisement, on the other hand, provides all the advantages of RTM and more, and so exercising this right can often be the best choice for leaseholders. Collective enfranchisement will also increase the value of your home/investment, and when you sell or remortgage you will receive a higher value.
What is collective enfranchisement?
The collective enfranchisement procedure is when a group of leaseholders collectively purchase the freehold of the building they live in from the resident landlord or other current freeholder. The process includes submitting a notice to acquire the freehold, assessing counter-notices and negotiating with the freeholder, which may include a premium (purchase price).
What are the benefits of collective enfranchisement?
The main benefit of the collective enfranchisement process is that all participating tenants can then receive a share in the building’s freehold, but enfranchisement also offers all of the benefits that Right to Manage does.
As such, a collective enfranchisement claim can also allow flat owners to benefit from improved property values and greater control over their building management.
How do you qualify for collective enfranchisement?
To qualify for collective enfranchisement, at least two-thirds of the flats must be owned by qualifying leaseholders, there must be at least two flats in the building and no more than 25% of the building’s internal space can hold a business or commercial lease. To be named a qualifying tenant, leaseholders must have held a lease for more than 2 years.
Do all leaseholders have to agree to buy the freehold?
As long as there are at least two flats in the building and at least two-thirds of your leaseholders are qualifying tenants, then it is possible to proceed with collective enfranchisement even if some leaseholders refuse to participate.
However, we recommend guidance from a specialist enfranchisement expert or collective enfranchisement solicitors to ensure that all parties can be contacted in the right ways and you can achieve the best possible outcome for your group.