"Leaseholders who rush into self management may find themselves in the dark when faced with the reality of maintaining a block of flats' ."
Darren Pither is a director of Gray's Inn Estates

 

Right to manage will often mean headaches for leaseholders and reduced income for landlords. But, says Darren Pither, cheaper and more flexible alternatives are already available. The biggest ever shake-up in residential freehold ownership started in earnest on 30 September. The long awaited "Right to Manage" section of the Commonhold & Leasehold Reform Act 2002 is now accessible to the estimated 1.3 flat owners in England. The legislation enables leaseholders to demand that the freeholder to their block of flats hand over the responsibility of managing the block. Landlords face losing not only management fee income but also insurance commissions as well as reduction in transfers fees and other funds generated by the freehold. The Right To Manage legislation is the culmination of successive governments' continuous policy of shifting power away from landlords in favour of lessees. However, many believe that the new laws go too far. The requirements for qualification have been well documented. Among other conditions, the legislation has greatly reduced previous qualifying residents tests, reduced the proportion of leaseholders required to participate and widened the scope for including blocks with non-residential parts. It is fair to say that the qualifying criteria is now so accommodating that the Right to Manage will be available to the vast majority of flat owners. The only remnant of control available to the aggrieved landlord will be as a member of the newly set up residents' RTM company. The landlord would be one lone voice among at least half of the flat owners within any single block. Any leaseholders wanting to invoke the legislation are required to negotiate their way through the protracted process of setting up an RTM company and making the appropriate application to the landlord. Many leaseholders will embrace their new rights as the panacea for cheaper service charges. This approach will lead to problems. The legislation should be used to alter management responsibility but the practical management should be left to professional experienced property managers. Where unqualified leaseholders pursue "self management" it is a fair bet that in most cases, the block will fall into disrepair and the RTM company could end up dissolving. In such an instance, the management then reverts back to the landlord who then receives a building beset with more problems than when they left it. What can the freeholder do to avert an RTM application in the first place or avoid picking up the pieces later in the future? One strategy may be for landlords to head off an RTM action by suggesting to interested lessee collectives one of two alternative propositions. RTA instead of RTM The first suggestion could be that the leaseholders form a tenants' association in accordance with the Landlord & Tenant Act 1985; Section 29, instead of going down the RTM route. This little-known facility has been available to flat owners for many years. Oddly however, it has been largely ignored during a period when flat management and service charges have been under considerable scrutiny. Such an entity is much simpler, faster and cheaper for the leaseholders to set up and administer than an RTM company. The powers of such an association are no where near as far-reaching as those assumed by an RTM company; however once the association is certificated by the local rent assessment panel, the leaseholders do have significantly increased influence on the day-to-day management of the block. The landlord must consult with the association on critical matters such as the appointment of a managing agent and major building works. This may satisfy some insurgent leaseholders groups. The second proposition involves a new breed of property professional. Popular thinking is that any operating RTM company would benefit greatly from the expertise of a professional adviser. It is envisaged that a qualified property manager could carry out a role similar to that of a non-executive director of a limited company. Consultancy service for leaseholder Bernard Wales's firm, Bruton KIFF, offers a consultancy service for leaseholders groups contemplating or invoking RTM. He says: "Many residents haven't analysed their situation objectively to identify the real issues. They merely blame the landlord and his agent for their unhappiness. We provide them with objective analysis and practical ways to achieve their goals, possibly through RTM but often not." There is nothing to stop such a consultant being engaged by the landlord facing an RTM application. As long as the leaseholders accept the consultant's impartiality, here is a potential arbitrator who can assess and determine the true level of the landlord's management service taking into consideration the landlord's relevant circumstances. The arbitrator can also convey to the ambitious leaseholders a realistic account of what taking on the management responsibility really means. It is curious that the first place leaseholders will most likely go to discuss RTM it to a solicitor. A solicitor is no more qualified to advise leaseholders on the real issues concerning this legislation than those who are seeking the solicitor's advice - in fact possibly less. The benefit to leaseholders of the recognised tenants association option is that they will immediately enjoy certain rights that will facilitate some control without the expense and dependence on leaseholder co-ordination that will be inherent with RTM. It is also easily reversible for those leaseholders dipping their toe into management waters and not liking it. Its benefit for landlords it that, while they end up forfeiting some control, they will retain other income from their blocks that would otherwise totally disappear with a completed Right to Manage application. Darren Pither is a director of Gray's Inn Estates Reprinted from Estates Gazette 06/12/2003.