The right to manage [or RTM] can, and does, work well in certain cases – but it has its downsides…. some of the problem issues commonly experienced in practice include;
• the RTM Company has no source of income other than service charges it collects which are held on trust for the lessees
• whilst RTM may solve the immediate problem of block management, the freeholder still retains an involvement in the block with regards to providing consents to assignments and alterations as well as the fact that a leaseholder would still need to approach a freeholder for a lease extension. When clients approach experienced RTM solicitors with a view to acquiring the right to manage, they are often encouraged to buy the freehold – a process known as common or leasehold enfranchisement. – which solves all the problems in one go but there may be of course financial constraints limiting the ability of leaseholders to acquire their freehold
• the RTM Company [ie not all lessees] is liable for the landlord’s costs which can be quite significant. This seems to be something which many lessees simply don’t realise. In fact it does put some off RTM where they only just meet the participation qualification.
• The RTM route may provide a solution in the short term to alleviate problems, but the advantages of some enfranchisement give much greater long term benefits in bringing control of your block
There’s no doubt that collective enfranchisement is the jewel in the crown but besides raising the funds there’s the need to get 50% participation. For lessees who cannot overcome that dual obstacle, exercising the right to manage is a relatively cheap and effective way of gaining control of management despite its drawbacks. • It is also important to remember that the RTM Company [ie not all lessees] is liable for the landlord’s costs which can be quite significant. This seems to be something which most lessees that I speak to have not been advised. In fact it has put some off RTM where they only just meet the participation qualification.
• There is sometimes an advantage in exercising the right to manage before a freehold purchase where there are issues with service charges. The RTM will cystallise the service charge liability to the landlord which stops the landlord trying to hold the leaseholders to ransom at completion of the subsequent freehold purchase with disputed service charge amounts. Clearly the client has to be cautioned very clearly when they are considering this due to the extra costs involved in this – double landlord fees, double leaseholder fees and also two sets of company formation fees.
• Often Leaseholders are under the impression that taking over the management of their block will fix all the problems they face with the mis-management of their building, but do not understand that it is essentially a take-over process, not one which will immediately remedy their grievances regarding previous years finances or extreme mismanagement. They can find themselves left with the same problems that they now themselves will have to rectify, potentially with a lack of funding considering an right to manage company effectively has no assets beyond what is in the service charge account.
For such situations, it’s well worth considering all available options before proceeding. In some cases where there is mismanagement by the Landlord, RTM or collective enfranchisement would seem to be the solution to the tenants’ problems. However it’s also important to remember (especially in the larger blocks) that managing the building yourself is not always easy and where it is owned and/or managed by the tenants you have no one but yourself to complain to or about. Is that something which you are prepared to take on?
Tim Bishop is senior partner of Bonallack and Bishop – solicitors with a team of UK right to manage company and leasehold enfranchisement specialists. For expert help with RTM or freehold purchase, call them on 01722 422300 or visit their specialist website at http://www.enfranchisementsolicitors.co.uk.