Expansion and control – the new right to manage
The right to manage regime set down in the Commonhold and Leasehold Reform Act 2002 has been fraught with complications and issues for leaseholders exercising their right. The recent report by the Law Commission sets out proposals to reduce costs, widen availability and make the process less complicated, mirroring the enfranchisement proposals.
Whilst the proposals will be a welcome prospect for leaseholders, landlords are set to lose further control and costs recovery in a claim whilst having additional obligations.
The Law Commission report sets out a number of expansions to the right to manage, which include:
- The inclusion of houses, by making the right available to 'residential units' with less strict requirements for a building to qualify
- Clarification that shared ownership leaseholders can qualify with less than 100% ownership
- Multi-building claims on estates are proposed, with the selection of buildings determined by a single RTM Co
- Simplification of the notice serving procedure and more robust rights to information for leaseholders
From a practical point for landlords, the potential new issues include:
- Right to manage costs cannot be recovered through the service charge with litigation costs borne by the parties
- Control over consent for assignments, underletting, charging and crucially alterations will all rest with the RTM company, with the landlord's right reduced to a right to receive notice and object
- Landlords may have a duty to reconcile service charge accounts prior to the acquisition of management and be bound to pay over uncommitted service charges on the day of acquisition
- Insurance is to be obtained in joint names of the landlord and RTM company
When considered in light of the enfranchisement regime reforms proposed, the prospect of freehold ownership for an investor is perhaps becoming less attractive. New avenues may be opening up for leaseholders who aside from wanting to control management, can seek to eradicate landlord's consent fees with less of a fight.