Reforming the right to manage

James Driscoll outlines the key proposals in a new Law Commission consultation paper looking to solve the problems of the right to manage. A centre piece of the reforms made by Part 2 of the Commonhold and Leasehold Reform Act 2002 was the introduction of the right to manage (RTM). It allows leaseholders of flats to take over the management of their building to run it themselves, or appoint their own managing agents. RTM is a no-fault based right and the qualifying conditions are, broadly speaking, the same as those for collective enfranchisement. For example, mixed-use premises only qualify for RTM provided that not more than 25% of the floor area is in non-residential use. The RTM procedures are relatively simple. However, experience has shown that landlords successfully challenge RTM claims where they find mistakes or errors in the claim forms. In other cases landlords challenge claims arguing that the building does not qualify. The consultation Many will welcome the Law Commission’s recently published consultation paper on RTM (Leasehold home ownership: exercising the right to manage, Consultation Paper 243, January 2019), which describes what have proved to be shortcomings in the current legislation and how these problems can be rectified. This is part of the Commission’s project on residential and commonhold reforms which has three strands: commonhold, residential leasehold enfranchisement and the RTM. It comes at a time when there is considerable public debate on leaseholds – the paper says that, following a call for evidence in 2017, the Housing, Communities and Local Government Committee received some 1,800 responses; about 500 of them referring to the problems with RTM. The Commission also consulted with residents groups, organisations and other “stakeholders”. In this interesting and thorough consultation paper (which runs to some 341 pages), there are several proposals that, if implemented, would make RTM simpler and fairer to use. Qualifying buildings Leasehold houses should become subject to RTM. The Commission noted that there was strong support for this from leaseholders, particularly where the house is situated on an estate, and the house leaseholder contributes to the costs of estate services. Left open for consultation is the obvious issue of whether this should be limited to RTM of the house, or whether it should take the form of a right to join a multi-building RTM on an estate. Another significant proposal is that the current rule excluding RTM where more than 25% of the building is held for non-residential use should be abolished. But where the building has more than the 25% limit, a managing agent would have to be appointed. It is also proposed that the current exemption of premises with a resident landlord should be removed. Why, reasoned the Commission, should leaseholders be denied RTM simply because the freeholder is a resident landlord? Other qualifying factors On the level of leaseholder support for an RTM application, the Commission proposes that the current requirement that at least two-thirds of the flats must be owned by leaseholders should be reduced to 50%. It has been held that RTM cannot be exercised over more than one building (Ninety Broomfield Road RTM Co Ltd v Triplerose Ltd and two similar appeals [2015] EWCA Civ 282; [2015] EGLR 51). This causes problems with estates where there may be several blocks of flats and possibly leasehold houses as well. Where the buildings receive services via communal installations, or they share such appurtenances, it may be sensible and convenient to appoint one RTM company to manage the estate. Yet, in Triplerose the Court of Appeal decided that one RTM company may not take over management of an estate. The Commission recommends that a single RTM company should be able to manage an estate consisting of more than one building The Commission recommends that a single RTM company should be able to manage an estate consisting of more than one building. In a like recommendation, the Commission argues that the qualification and participation qualifying requirements would have to be satisfied for each building included in a claim, rather than being applied across the estate. Some landlords incorporate an RTM company to take advantage of the rule that only one RTM company can exist. This practice prevents leaseholders from incorporating their own RTM company to make a claim. The Commission proposes that where one RTM company gives a claim notice, no other claim can be made. Some landlords challenge claims arguing that there are defects in the notices. The ­First-tier Tribunal (FTT) should have jurisdiction to waive defects in notices and to allow a variation of the notice. Landlords should be required to state all possible objections in their counter-notice and they should not (generally) be allowed to raise new points at a later stage. Where there is no counter-notice RTM companies should have the right to apply to the FTT for a determination that the applicant is entitled to exercise the RTM and the terms on which it acquires management functions. New statutory provisions should clarify how notices are to be served on the landlord. Currently, an RTM claim cannot be made unless the company has given a participation notice to every leaseholder. According to the Commission, some landlords go to great lengths to challenge RTM claims on the basis that there are defects in the participation notices. Participation notices have been largely used as a vehicle for landlord’s objections rather than as a means of empowering leaseholders to participate. The participation notice requirement should be abolished. After all, reasoned the Commission, leaseholders have the right to join the RTM company at any time. In other recommendations on RTM companies, training should be provided for leaseholders who are prepared to become directors of the company. More generally, the Commission recommends that RTM companies should be able to recover any management costs incurred regardless of whether the leases allow for this or not. Another important feature of the transfer of management functions is the insurance of the building which passes to the RTM company. Here the Commission recommends that the landlord should have the right to apply to the FTT if it considers the building is under-insured. The paper makes several recommendations for the legislation to be amended to make new provisions governing the position where the RTM company faces insolvency, or where there are other factors preventing it from continuing. Dispute resolution and costs At present both the FTT and the county court have jurisdiction over RTM disputes. The Commission notes that the Ministry of Housing, Communities and Local Government is consulting on the introduction of a new specialist housing court which could bring together disputes currently heard either by the FTT or the court. Drawing on this, the Commission proposes that the FTT should have exclusive jurisdiction over RTM disputes. This should include new enforcement powers, such as a power to enforce an obligation by the landlord to disclose documents. Currently the RTM company must pay the landlord’s reasonable costs in dealing with the claim, as well as its own professional costs (“non-litigation costs”). Any litigation costs are at the discretion of the court and the FTT has limited powers to make costs orders. The Commission invites comments on whether the RTM company should be required to make any contribution at all to the landlord’s non-litigation costs and, if so, whether fixed costs should be applied. As to litigation costs the Commission proposes that each party should usually bear its own costs, except in cases where there has been unreasonable behaviour, or wasted costs. The FTT’s power to make an order under section 20C of the Landlord and Tenant Act 1985, limiting recovery of a landlord’s costs, should be changed to include a presumption in favour of making such an order. Details The consultation paper can be found at: https://www.lawcom.gov.uk/project/right-to-manage The closing date for responses is 30 April 2019 James Driscoll is a solicitor and a writer