The Right to Manage (RTM) has been available for flat owners since it became law in 2002. It allows flat owners the right for the management functions of their building to be transferred to them even where the landlord is not at fault. The rights are transferred to a RTM Company (RTMC) that is incorporated for this specific purpose.
Only 5-6,000 RTMCs have been incorporated since 2002 (according to Law Commission figures) which suggests that RTM has not been as successful as it should have been.
One of the main failings is that the law assumes the landlord will cooperate once a RTM claim is made. This is, unfortunately, not always the case. The landlord has the right to challenge a RTM claim on certain grounds within a month from receipt of a RTM claim. They can recover certain professional costs from the RTMC, even if their challenge to a RTM is unsuccessful.
This means that even if a landlord disputes the RTM claim and the matter has to be decided by the First Tier Tribunal, there is no general power for the Tribunal to award costs against a landlord if their objection fails. Due to the inequality in costs, some landlords have made a practice of raising objections in any event to delay handover in the knowledge that they suffer no significant financial consequences in doing so.
The RTM is transferred to the RTMC three months from either the landlord admitting they are eligible for a RTM or they do not respond to the RTM claim. The law provides that the landlord needs to disclose management information on request to enable the RTMC to comply with their obligations once the RTM is transferred to them. Some landlords refuse to provide this information or only provide it once the RTMC acquires the RTM on the due date. In addition, there is no timetable for the transfer of funds held by the current management to the RTMC. This leaves the RTMC often with no money to carry out urgent repairs or leave the building unmanageable as the RTMC cannot operate without this information.
The RTMC can serve a default notice on the landlord and then make an application to the court to compel the landlord to hand over management information should they refuse. However, the court is likely to be limited to the grant of such an order only. The RTMC may still have to make a separate application to the Tribunal to determine the amount of funds to be transferred in uncommitted service charges and/or amounts held in reserve funds if these are in dispute.
Once the landlord hands over management information, there is no legal requirement stating whether existing management contracts (eg cleaning contracts etc) are not automatically terminated by the RTMC or not. This can be a particular problem where there are fixed term contracts or contracts with long notice periods in place, as it means uncertainty as to whether the contract has been terminated and what amount of compensation is payable to the contractor.
All of the above can mean delay, frustration and substantial costs for flat owners. The Law Commission has been appointed to examine and recommend changes to simplify the process and make it more cost effective. This is welcomed, especially where there is inequality over recoverability of costs, which places the burden firmly with flat owners who are often operating with limited funds.
To discuss anything related to Leasehold Enfranchisement, why not contact Sarah Osborne, who is a Partner and the Head of Department, directly?
This is not legal advice; it is intended to provide information of general interest about current legal issues.