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 yourhow to buy your freehold 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 (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.

Exercising the right to manage requires forming an RTM company, which is a private company limited by guarantee. This RTM company must adopt specific articles of association tailored for management functions, as required by law, and is responsible for managing the property rather than owning the freehold. In contrast, collective enfranchisement usually involves forming a company limited by shares, which is used to acquire the freehold interest in the building.

Aspect	Right to Manage (RTM)	Collective Enfranchisement
Main Purpose	Take over management from the landlord.	Buy the freehold and gain full ownership.
Legal Basis	Commonhold and Leasehold Reform Act 2002.	Leasehold Reform, Housing and Urban Development Act 1993.
Company Type	RTM company (limited by guarantee).	Freehold company (limited by shares).
Ownership Outcome	Leaseholders remain tenants; landlord keeps freehold.	Leaseholders become co-owners of the freehold.
Participation Requirement	At least 50% of qualifying leaseholders.	At least 50% of qualifying leaseholders.
Costs	Legal and administrative costs only.	Legal, valuation, and premium (purchase) costs.
Key Benefits	Control over building management and costs.	All RTM benefits plus ownership, no ground rent, 999-year leases.
Ground Rent	Still paid to landlord.	Eliminated (peppercorn rent).

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 the prescribed form.

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. If there is a dispute regarding the RTM application, the matter may be referred to the First-tier Tribunal (Property Chamber), also known as the tier tribunal property chamber, which will determine the outcome.

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. The RTM company may appoint a professional managing agent to assist with ongoing management and compliance. It is responsible for maintaining a reserve fund for long-term repairs and must ensure that essential services are not reduced. The RTM process may involve legal costs, landlord’s costs, and other costs incurred, so leaseholders should seek professional advice to handle difficult and sensitive issues.

The RTM process is only available if the entire building qualifies, there are at least two flats (or only two flats with both as qualifying tenants), and the leases were originally granted for more than 21 years. The immediate landlord, non-residential units, and ground floor area may affect eligibility, as well as whether the freeholder or landlord’s only or principal home is in the building.

After the acquisition date, the RTM company is responsible for the ongoing management of the building, must comply with relevant legislation, and is required to register the change at the Land Registry. The company remains in place to ensure continuity of management functions, regardless of changes in leaseholder membership.

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 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.

RTM, RMC, Collective Enfranchisement 

Residents Management Companies (RMCs) are different from Right to Manage (RTM) companies, as they are not established under statutory rights and do not have the power to acquire the freehold. However, under collective enfranchisement, at the end of the process, the company acquires full ownership of the building, ground, and airspace and also gains full control of the management of the building (in a similar way to the RTM).

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, but should avoid reducing essential services to ensure the building’s integrity and value are maintained
• Ability to prioritise works and avoid unwarranted works from taking place
• Importance of maintaining a reserve fund for future repairs, ensuring sufficient funding for long-term maintenance and safeguarding the building’s value
• 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
• Appointing a professional managing agent can help ensure compliance, efficient management, and expert guidance on legal and operational matters
• 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
• Collective enfranchisement results in the participating leaseholders acquiring the freehold ownership of the building.
• This is usually achieved by forming a private company limited by shares (“nominne purchaser”).

Find out how to buy your freehold today.

Differences between Right to Manage and Collective enfranchisement

Both Right to Manage and Collective Enfranchisement were introduced by the same act in 2002, but they involve different management functions and legal implications. RTM gives leaseholders the right to take over management functions—such as services, repairs, maintenance, insurance, and other management duties—from the landlord, while collective enfranchisement allows leaseholders to acquire the freehold itself. Understanding and managing legislation is crucial in both processes, and seeking professional advice is highly recommended to ensure compliance and effectiveness.

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. The area of law is complex. Therefore, 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  (Right to Manager) and Enfranchisement Claims follow a similar process and, where not contentious, can cost roughly the same in professional fees.

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 (RTM) 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.

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 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. The new company will be responsible for managing the service charge, including the collection and administration of service charge accounts. 

The process may involve legal costs and other costs incurred, such as fees for professional services and potential expenses related to disputes. Leaseholders are advised to seek professional advice to handle difficult and sensitive issues that may arise during the process, ensuring compliance and effective management.

How do qualifying leaseholders qualify for collective enfranchisement?

To qualify for collective enfranchisement under the provisions of the Commonhold and Leasehold Reform Act 2002, at least two-thirds of the flats in the building must be owned by qualifying leaseholders, and the building must contain a minimum of two flats. A qualifying leaseholder is a tenant whose lease was originally granted for a term of more than 21 years. Additionally, no more than 25% of the building’s internal floor area may be used for non-residential purposes. Where the building contains only two flats, both flats must be owned by qualifying tenants in order for collective enfranchisement to proceed. 

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.