The Right to Manage Pros and Cons
Homeowners and property owners have the right to manage their own buildings, but what are the pros and cons? Read on to find out.
What does a freeholder do?
A freeholder has legal rights and responsibilities to manage and maintain a residential property. Every residential property is owned by a freeholder and, for any property other than a single house, is divided into leasehold areas (flats) and common areas (such as gardens, roofs and entrances) which are shared between the flat owners. Freeholders organise works in these areas on behalf of the owner of the building, as well as collect ground rent and overall take on building management responsibility.
A Right to Manage (RTM) Company, is a special type of residents management company, whose members can only include the flat owners themselves. The company has a legal right to manage the block, overriding what stated in the leases using powerful legislation, and is therefore responsible for everything from insuring the building to making repairs and has powers to set a budget and to recover its expenditure from flat owners.
How do I get the Right to Manage?
In order to claim your Right to Manage, you must join with at least 50% of other leaseholders in your building and follow a legal process. This is a ‘no fault’ claim so there is no need to prove how good or bad your freeholder has been.
Does the building owner have to agree to leaseholders’ right to manage?
You do not need consent from the building owner (freeholder) to secure your right to manage but the freeholder does have a right to challenge your claim if you have not followed the process to the letter. Disputes between a freeholder and leaseholders can be decided by the First Tier Tribunal, though this is not often necessary.
Advantages of Right to Manage
Taking control over the management of the building allows you to set an affordable service charge budget, prioritise the works to be done, (for example refurbishing the communal areas or installing a new communal boiler) and plan for major works. Leaseholders in buildings which are managed by way of an RTM Company benefit from several advantages.
Service charges are often lower because leaseholders are in charge of what they spend, on which contractors.
Mortgages are easier to obtain at better rates, flats because mortgage lenders know that the flat is in a building which will be well looked after.
Flat owners often find that their flats are easier to rent and that the value of flat increases, making them easier to sell for a higher price.
Disadvantages of Right to Manage
A Right to Manage company takes over the management responsibilities from the freeholder, but not the ownership of the property.
If the handover is not very carefully managed, the new RTM company and its directors could find themselves having to account for the freeholder’s past actions including funds it collected and spent.
The RTM company is fully responsible under law for meeting all management obligations under the leases as well as all statutory obligations such as health and safety requirements. This is a large responsibility and can be a full time job but a Right to Manage Company will normally employ a professional managing agent to manage and administer all the work.
Disputes between leaseholders can sometimes disrupt the smooth operation of a Right to Manage Company. However, as the company has prescribed articles of association disputes are often settled by majority voting if the need arises.
The RTM secures the management of the property but it does not eliminate the potential for disputes with the freeholder who still owns the fabric of the building, the grounds and airspace. There are certain actions such as major works that require the freeholder’s consent. The freeholder can still develop the property (for example by adding flats on the roof or renting out parking spaces).
Can a Right To Manage company buy the freehold?
An RTM Company does not have any special rights to purchase the freehold but its member leaseholder can follow a similar, though far more complex, process to buy their freehold. The process, known as collective enfranchisement. Whilst it is far more complex and costly than a Right to Manage claim, specialist companies can arrange all the organisational, legal and valuation work for leaseholders. A freehold purchase comes with the right to manage out of the box so leaseholders often exercise their right to a share of freehold instead of their right to manage.
Is Right To Manage a good idea?
In a word, Yes. Like any right, if exercised and managed correctly, the only regret will be not exercising the right earlier! So long as you seek professional help in the process and management handover and where the RTM Company is organised correctly, you will reap all the benefits. If you’re wanting to find out more about the value of your freehold, try our Freehold Purchase Calculator for an instant estimation.