The Commonhold and Leasehold Reform Act 2002 (“the 2002 Act”), in theory at least, gives a majority of qualifying leaseholders a no fault based right to acquire management obligations from their landlord in respect of a qualifying building containing two or more long leasehold flats. The management is acquired by a special Right to Manage company incorporated by the tenants for this purpose.
There are strict qualification criteria for the leaseholders, the landlord and the building itself, and there are many exemptions, the detail of which fall outside of the scope of this note. Broadly speaking, however, the substantive requirements are as follows:
a) At least two-thirds of the flats must be let to qualifying tenants (which is defined as a leaseholder whose original lease was originally granted for a term of 21 years or more).
b) A minimum of qualifying tenants equal to at least half of the number of flats in the building must be members of the Right to Manage company at the time of service of the claim notice upon the landlord.
c) Any non-residential part of the building must not exceed 25% of the total floor area of the building.
d) Exemptions include the existence of a local authority as the landlord or a resident landlord (there is a very strict definition of “resident landlord” which is outside the scope of this note).
The process is strictly set out in the 2002 Act itself and broadly involves, the incorporation of an RTM company, the service of Notices of Invitation to Participate on all qualifying tenants that are not already a member of the company at the time such notices are served, and the service of a Claim Notice upon the Landlord (and in some cases some third parties). Once the Claim Notice is served the Landlord is afforded one month to serve a Counter-Notice either admitting the tenants claim to acquire the Right to Manage or objecting to it. If an objection is received the First Tier Tribunal (Property Chamber) has jurisdiction to make a determination as to whether or not the tenants are entitled to acquire the Right to Manage. The onus is on the RTM company to apply to the Tribunal and there is a strict time limit applicable. Legal advice should be sought prior to making any application to the Tribunal because there may be costs consequences of that application, particularly if it fails.
There are many reasons why a Landlord might object to an RTM claim by its tenants. These include;
a) The building may not qualify for the RTM.
b) An exemption may be applicable.
c) There may have been an error in the way the tenants have dealt with the process.
d) The Claim Notice may not be valid in that it may not comply with all of the requirements of the 2002 Act.
e) The Landlord may simply wish to delay the RTM process. If a Landlord objects to the claim the tenants must obtain a declaration from the Tribunal before management obligations will pass. Obtaining a declaration may take up to 12 months and longer if there is an appeal to an initial decision. By delaying the process the existing managing agents hold on to their management fees for a longer period of time.
f) The Landlord may want to retain management obligations, either for themselves or for their managing agents (sometimes the same individuals will own both the landlord company and the managing agency). The Landlord will know that the tenants will incur further legal costs in making and dealing with a Tribunal application which are generally not recoverable from the Landlord even if the tenants application is successful. On the other hand there is an argument that the tenants will have to pay the Landlords legal costs of an application if the tenants are unsuccessful. Landlords appear, perhaps unfairly, to have the upper hand.
There have been some ingenious objections raised by Landlords over the years in an attempt to avoid or delay a Right to Manage Claim, some of which have been successful and other unsuccessful. Some examples of some of the more interesting objections follow:
i) One of the very first cases to be brought before the Leasehold Valuation Tribunal as it was then named, was 8 Frognal Lane RTM Co Ltd v. Kirk (2004). The Landlord objected to the RTM claim on several basis including that an RTM claim could not be validly made until the RTM company had held a company meeting, and that there were actually two flats (and not one as the tenants had argued) in the basement of the building. If the landlord’s latter contention was correct then the number of qualifying tenants in the building would have been less than two-thirds of the total number of flats and thus the building would not have qualified. The Tribunal decided that an RTM company did not have to hold a meeting prior to exercising the right to manage, and that there was only one flat in the basement of the building. The accommodation which the landlord argued was a separate flat was in fact merely cellar rooms used by the tenant of the basement flat.
ii) In Danescroft RTM Company Limited v. Inspired Holdings Ltd and Eagil Trust Co Limited (2) (2013), which is a case where the writer represented the tenants, the landlord, unbeknown to the tenants, had incorporated an RTM company a few months before the tenants incorporated their RTM company. When the tenants served their claim notice, the landlord objected to the claim on the basis that there was already in existence an RTM company which had as its objectives the intention of managing the Danescroft Estate, and therefore, the claim could not succeed because section 73(4) of the 2002 Act states that a company is not an RTM company in relation to premises if there is already an RTM company in relation to that premises. Thankfully, the Tribunal saw through the Landlords attempt at retaining management and decided that section 73(4) of the 2002 Act did not operate to defeat a tenants otherwise valid claim.
iii) In 13 Murray Grove RTM Company Ltd v. Candle Investments Limited (2014) the landlord objected to the tenants claim on the basis that the claim notice did not give the landlord the requisite one month to serve its counter-notice. The tenants solicitor had given a date in 2014 as opposed to 2015 by mistake. The Tribunal found in favour of the tenants and concluded that the error was obvious to a reasonable recipient of the claim notice and was thus saved by section 80 (1) of the 2002 Act.
iv) In Empress Heights RTM Company Ltd v. E & J Ground Rents No 5 Ltd (2015) the landlords objected to the claim on the basis that the claim notice included two extra words “leasehold valuation” than it needed to. The prescribed form of notices for RTM claims changed after the Leasehold Valuation Tribunal became the First Tier Tribunal (Property Chamber) and the Transfer of Tribunals Functions Order thus amended the Right to Manage (Prescribed Particulars and Forms) (England) Regulations 2010 by changing the words “leasehold valuation tribunal” to “tribunal”. Other than the addition of these two words there were no other objections to the claim. The Tribunal found in favour of the tenants. The Tribunal was very clear to comment on the lack of any substantive objection by the landlord and held that the additional two words were an inaccuracy which was saved by section 80(1) of the Act.
v) In 8 Southover Street Brighton RTM Co Ltd v. Westleigh Properties Limited (2015), which is another recent case in which the writer acted for the tenants, the Landlord objected to the claim on the basis that, contrary to section 80 of the 2002 Act, the claim notice did not specify whether or not the premises had appurtenant property. There was no suggestion by the landlord that the premises did have appurtenant property so the objection was merely based on an alleged omission in the claim notice. The Tribunal decided in favour of the tenants, that there was no requirement to actively specify there was no appurtenant property when there was none. The Tribunal went on to say that even if they were incorrect, the alleged omission would have been saved by section 81(a) as a mere inaccuracy. This point had actually already been decided by the Court of Appeal in Gala Unity Ltd v. Ariadne Court RTM Co Ltd (2012), and thus, either the landlords were unaware the point had already been decided, or the objection was a simple attempt to delay the process.
What practitioners can deduce from these cases, is that Landlords can and do take ingenious points of law in objecting to RTM claims. Sometimes objections are validly raised, sometimes objections are raised because a novel point of law has arisen, and other times objections are raised simply to try and delay the process and place extra expense at the door of the leaseholders. It is extremely important that both tenants and landlords seek legal advice from a qualified experienced solicitor before embarking on or responding to any RTM claim.