Press Release
Embargoed: 00.01 January 28 2019
LKP warmly applauds the Law Commission’s proposals to reform right to manage, published today (press release below).
Sebastian O’Kelly, director of the Leasehold Knowledge Partnership said:
“For years commercialisers in the leasehold sector have run rings around this legislation, either thwarting leaseholders efforts to gain control of the management – and money – in their buildings; or wasting a lot of time with meritless delays.
“The most pedantic and abstruse arguments have been deployed to derail right to manage, sadly with some success as a credulous property tribunal has bent over backwards to accommodate silly challenges to leaseholders’ Parliament-granted rights.
“It has become a cottage industry, with legal professionals dreaming up convoluted impediments to right to manage.
“The court record of these cases shows the aggressive determination of monetisers in the sector – often hiding behind nominee directors or based offshore – to keep control over the management of blocks of apartments.
“As they are not supposed to be profiting from this – ground rents are the only legitimate annual income stream under the lease – one has to question why they are doing it.
“Of course, owning the freehold to a block and controlling the management is a licence to print money and abuse power. This is why right to manage was introduced.
“To make it effective is essential.”
Here are a few appalling cases:
Israel Moskovitz loses epic Elim Court right to manage battle in landmark Court of Appeal decision
Terrys Mews right to manage fails for not knowing Peverel OM is now FirstPort
Metcalfe Court: how a retirement site has benefited from RTM
No.1 Deansgate wins epic RTM battle, as freeholder throws in the towel at the Court of Appeal
Law Commission Press Release
Embargoed until 00.01 on Monday 28 January 2019
Make it easier for leaseholders to manage their properties, propose Law Commission
The Law Commission is proposing changes that would make it quicker and easier for leaseholders to take control of the day-to-day management of their building.
Currently, homeowners with long leases over flats can acquire the “right to manage” (RTM), which gives the homeowners, rather than their landlord, responsibility for management functions relating to services, repairs, maintenance and insurance. It is a “no-fault” right, so leaseholders can exercise it without having to prove mismanagement by their landlord.
However, the current system is seen by many as too technical, slow, restrictive, uncertain and expensive.
What are the current problems with RTM?
Leaseholders have found a myriad of issues with the current RTM system which have made it more difficult take over the management of their building. We have been told that the process is:
• Too expensive – The leaseholders have to pay most of the landlord’s costs.
• Too technical – Small errors in complying with the procedural requirements can delay the process significantly and even prevent leaseholders acquiring the RTM.
• Too slow – There are often delays in RTM companies receiving information necessary for them to manage the building effectively, such as the insurance history.
• Too restrictive – The RTM is currently unavailable to owners of leasehold houses (as opposed to flats), those who want the RTM over multiple buildings on an estate, and those whose buildings have more than 25% commercial or other non-residential space.
• Too uncertain – RTM companies often don’t know the extent of the management functions they have become responsible for, particularly in relation to shared property like gardens and car parks.
Law Commission proposals
In response to these criticisms, the Law Commission is consulting on proposals that aim to make the process more accessible, simpler, quicker and less uncertain. The proposals include:
• Extending the qualifying criteria so that leasehold houses, not just flats, qualify for the RTM.
• Permitting multi-block RTM on estates, and removing the 25% commercial space restriction.
• Reducing the number of notices that leaseholders must serve as part of the claim process.
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• Introducing deadlines for procedures and exchanges of information between the landlord and RTM company, so that the process doesn’t stall.
• Exploring options for a more balanced costs regime.
• Giving the tribunal exclusive jurisdiction over RTM disputes so it can resolve disputes quickly, and waive minor procedural mistakes made in the process of claiming the RTM.
Stephen Lewis, Commercial and Common Law Commissioner, said:
“The right-to-manage process is not working at the moment and change is needed.
“This is a very practical project and we’ve been focused on developing proposals that make sure the Right to Manage is more user-friendly, particularly for leaseholders.
“We look forward to hearing how the public thinks we can make the process as effective as possible.”
Housing Minister Heather Wheeler MP said:
“This Government is determined to reform the leasehold sector to better support homeowners. This includes making it easier for those who wish to exercise their Right to Manage and take direct control of their block.
“I welcome the Law Commission’s consultation proposals and encourage all those with an interest to come forward and offer their views.”
Welsh Government Minister for Housing and Local Government Julie James said:
“Right to Manage has not been widely adopted in Wales, and we have heard anecdotal evidence that the procedures are difficult and allow freeholders to obstruct the wishes of leaseholders attempting to exercise the right.
“We want to make it easier for leaseholders to take ownership of managing their property and we welcome the Law Commission’s proposals to reform the process”.
-ENDS-
Notes for Editors
The Law Commission has released a Consultation Paper today (28 January 2019) containing significant proposals for change, and inviting the public to respond with their views.
The RTM consultation will be open until 30 April 2019.
This is part of the Law Commission’s project to reform leasehold law in England and Wales. As part of this work, the Law Commission has published two other consultation papers: 3
• Leasehold home ownership: buying your freehold or extending your lease (LINK); consultation closed.
• Reinvigorating commonhold: the alternative to leasehold ownership (LINK); consultation open until 10 March 2019.
You can find out more about the project and how to respond to the consultation here: https://www.lawcom.gov.uk/project/right-to-manage/
Media enquiries
For all media enquiries, please contact Dan Popescu on 07784 275513 or Daniel.popescu@lawcommission.gov.uk
Related posts:
Right to Manage added to the ever growing list of leasehold reforms
Law Commission seminars on commonhold and RTM launched
Law Commission doesn’t expect leasehold reform before 2020
Leaseholders and the sector react to Law Commission reforms to commonhold and right to manage
Law Commission: no problem employing barrister Justin Bates to reform right to manage, while he sets about stuffing another one …
New LEASE chair declines to endorse peppercorn ground rents on BBC
Time for Parliament to stop Lawyers thwarting Right to Manage (RTM)
The decision of the Court of Appeal regarding Triplerose opened the appalling prospect that sites of multiple blocks that have won RTM – often after years of blatant ripping-off – could find landlords coming back to court to reverse the decision.
Does LKP know if any Landlords have attempted to reverse a decision based on Triplerose?
Having now seven years’ experience of setting up and helping run an RTM company, I find it depressing that the Law Commission is overlooking the practical obstacles to effective exercise of right to manage.
Getting the right is one thing, making it mean something in practical terms is quite another.
Assuming, that is, that the point of RTM is that leaseholders gain the legal authority and power to self-manage, whether using an agent or not?
We achieved RTM in 2013. The landlord caused no obstacle and their modest fee was quite a pleasant surprise.
It all went down all thereafter.
It would take too long to list all the twists and turns over the seven years to date, but the sum total of experience exposes the true obstacles:-
1. RTM companies come under the Companies Act. Home owners do not readily volunteer to be unpaid company directors governed by the same legal liabilities as any company director just to manage their own homes collectively.
2. In my experience few lessees have prior basic skill in making collective decisions. In a shark-infested sea such as leasehold, an RTM company needs its wits about it and directors prepared to fight for its best interests. A situation that starts without discernible respect for the RTM company by its agents, and only paper authority in practice, descends soon into contempt by the agents and no authority in practice. Not discernible anyway.
3. Could an RTM self-manage without an agent? An RTM company cannot charge a management fee because the lease usually refers to managing ‘agents’. Oddly, landlords can and do and nobody queries their right.
Leaseholders cannot afford barristers to quibble every small detail of a landlord’s powers. The courts seem to take umbrage if leaseholders dare.
4. An RTM company cannot even collect for its D&O insurance as a service charge, even when saving thousands on previous block insurance and agent fees.
5. Without company funds, the RTM company is truly a “Dad’s Army” caper with broom-handles for guns. Even Trigger would have no joy cherishing this broom.
Managing agents surely know this. The signed agency contract is a paper, toothless tiger to be ignored at whim. As is any existing code of practice. Who’s to stop it?
6. What is the client RTM company going to do? Move to another agent? Frying pan to fire comes to mind. It would need a huge change in regulation of managing agents for RTM to be a real and viable prospect for change.
7. Pig in the Middle: RTM companies find themselves trapped between freeholders who can act as if the RTM company does not exist – varying lease clauses, entering premises, building new flats over existing, and free to oppose any decision of the RTM company or charge a ‘consent fee’ for not opposing.
All apparently perfectly legally. They are the landlord after all. RTM is a paper execise only.
Meanwhile, managing agents know the RTM company client is powerless to defend its terms of contract and can ignore the negotiated contract at will. Push for respect for the contract and they resign. Frying pan into fire again.
I see no proposals to fix the real obstacles to RTM?
Better I guess just to pretend.
You need to tell the Law Commission your experiences Paddy. We briefly looked at RTM. Another big problem is motivating reluctant leaseholders to take an interest in their building, especially when there are a lot of flats. Too many cannot be bothered or stick their heads in the sand. A way needs to be found to encourage these people to take part.
Generally, a £100,000 plus major works bill over which they have almost no say does the trick.
An invoice of just £3,000 ea for balcony railings was enough to tip us over the edge whilst at the same time rain was pouring through the roof and down the the communal hallway stairs!!!
@ Simon: If I thought the Law Commission was in danger of making RTM viable I would, but I do not believe there is any meaningful reform afoot. (Time will tell. Read the build up to the 2002 Act and compare with what transpired in practice).
@ Admin: sadly by the time that major works bill arrives, seeking RTM will be no solution to that bill. And nobody will afford RTM anyway!
The higher courts have made clear that an estimated invoice is still payable in full by its due date, even if a final bill proves less.
This means that a lessee who does not, or cannot, pay by the due date is de facto already in breach. Those who foolishly imagine they have a just cause not to pay what they may see as an unreasonable bill overlook that (a) legal fees for breach will overtake any reduction in the original bill a tribunal may award and (b) “reasonable” in leasehold is not as commonly defined elsewhere in business or life generally.
The only safe response is to pay the huge invoice in full and protest later. Assuming you could afford it.
Catch 22. That is how leasehold is designed. Deliberately.
Even should lessees sensibly foresee the wisdom of side-stepping huge bills by exercising RTM, my point is that they will not find RTM viable in operation due to structural gotchas that nobody so far is proposing to fix. Maybe they don’t understand the law they created? Like so may other laws.
Does anyone know as fact how many RTM companies succeed? Or for how long?
By ‘succeed’ I mean literally: i.e. lessees exercising the right to manage, not being managed by agents who seem determined that RTM simply offers a contract that can be ignored because an RTM company is, in practice, a Dad’s Army company without clout?
Become a volunteer RTM director and this truth will dawn.
You are on your own. You cannot rely on advice from any agent. You do not have limited liability as a director in some significant areas. The agent can keep you in the dark and just expect you to sign off annual accounts without knowing the background figures or making spending decisions. The agent may well spend money without any consultation. If an agent messes up they can resign and the RTM company will have no funds to seek redress under contract law.
Whereas even an RTA must have annual subscriptions by its members (to get a certificate anyway), RTM members have no liability to support their company beyond guaranteeing £1 on wind-up.
The fact that RTM membership is by guarantee rather than by share, members who sell are not replaced. Post claim process there is no minimum number of members apart from one leaseholder as, rather bizarrely, RTM directors do not have to be leaseholders.
It can get lonely and foggy very quickly being an RTM director.
Lessees do not exercise RTM expecting to have to pay for legal advice for their volunteer directors. Let alone pat for action to defend a contract.
There are seemingly endless gray areas where no ready advice is available to volunteer RTM directors, even should they wish to act with diligence.
I have not experienced a ‘professional’ agent ready to give advice to directors.
Study case law for how many cases go against lessee-run companies where an agent may be mentioned. Who pays the consequences?
D&O insurance is reactive/defensive only, and my own reading of such policies revealed a prior requirement to gain Counsel’s opinion as to the merits of a defense for the policy to be used. Who pays for such advice?
Perhaps some RTM companies enjoy membership from a business and perhaps even a legal background. Hopefully some book keeping or accounting knowledge as a minimum.
I suspect many do not. Good luck in that case.
Agents who act as company secretaries can seem ignorant of the obligations of a company to its members. Company secretaries must by law keep company registers – membership etc.
Our RTM has had four agents charge for such CS services. Few kept company files. I would learn this at handover and have to cobble data for the new agent. Trouble was, I could not be certain I had accurate data. The articles only record members at the time of incorporation. Should a lessee later opt to join the company, the directors may not know because the agent may pass no data on of any kind. Financial or otherwise, None. Hard to believe maybe but a regular experience for us. Begging and pleading makes no difference.
Are we just unlucky?
One attractive solution to avoid a dire experience with managing agents would be self-management. Aside from the hassles imposed on directors to do all the admin work involved: issue invoices, chase arrears etc, lessees usually cannot run a business from their leasehold (which lessee sensibly wants their home used as a registered RTM office?) so the go-it-alone RTM company needs an external secretary service with registered office.
Fairly common and inexpensive. But who pays? Not the service charge, sorry. This is a company expense, see.
And who pays to communicate with lessees and members and issue notices or just service charge invoices or debt recovery stuff?
No management fee is available on the service charge, sorry – an RTM company is not a managing agent.
A sucker director or two would have to claim itemised expenses on the service charge! And lose the will to live.
One solution apart from a legal management fee would be to bind RTM members to paying an annual management subscription.
Good luck getting members in that case.
RTM membership is voluntary. In my experience it is tough to get the service charge collected let alone hope to get management fee contributions or, forbid the notion, contributions to a legal fighting fund.
RTM in my experience anyway is just another nice-sounding paper ‘right’. Same as the other leasehold ‘rights’ that evaporate on exposure to air.
Yes I am jaded. Hope over experience may work for others, mind.
Paddy
You are absolutely spot on as always with your observations and comments. However I have been a director of a self managing RTM since Aug 2010. It has certainly not been easy but is most definitely preferable to the rip off managjng agent previously!! Our choice to self manage was precisely because a) we did not trust ANY managing agents and b) we wanted every penny collected to be used on bringing the buildings back to the condition they should always have been. This has now been achieved so I guess you could say it has been a success?
Paddy, put simply RTM is an essential and progressive development that restricts freeholders to Ground Rent income and permits leaseholders to draw away from the unscrupulous few whose nefarious activities would otherwise remain unchecked. and continue unabated.
At a recent gathering of RTM Directors at the Law Commission, I was very pleased to note there was general consensus that RTM Co’s should appoint professional Managing Agents (RICS) and, with statutory regulation due in respect of MA’s generally, there can be no reason for any qualifying premises not to embrace RTM.
Notwithstanding Brexit, (and by the way somebody should outlaw the postal vote – especially in England) I am also pleased to note that Prof Nick Hopkins and his team at the Law Commission remain on schedule.
And with proposals re commonhold in the pipeline =RTM is an initial step for leaseholders to gain complete independence and control over their own property.
Hi Alec, at risk I know of my sounding demented (woof) on this stuff but it is frustrating to witness years of hard work go down the toilet because of managing agents….
After four managing agents to date, I am prepared to consider our RTM company experience has just been unlucky. Sadly from forum reading, I doubt it.
I smile at the mention of RICs affiliated agents only because our RTM company appointed one of those too.
It was by far the worst experience we had to date as an RTM company and we had to terminate them.
My mission here, such as it is, is to argue based on experience that RTM is not fit for general purpose under current law or so far seen proposed reforms.
Not unless RTM companies are empowered to:-
1. RTM companies are governed by a curtailed chapter revision of the Companies Act 2006. Membership by share so that membership transfers on sale. After all, the RTM company when in existence manages ALL the block, so it is nonsensical to argue that lessees should not automatically become voting members of their own landlord company as somehow a freedom of choice?
2. RTM companies able legally to charge a reasonable management fee (approved at AGM) on the service charge due collectible from all flats – to accumulate company funds distinct from the other service charge costs. A company without funds is a joke, because any contract it signs with another entity is worthless as it cannot defend itself. Real guns, not broom handles.
3. Agents are properly regulated, including RICs affiliated agents, so that codes are legally binding. (Though I doubt even this alone will help based on experience of how agency contracts can be ignored).
4. Likewise to a model set of RTM articles, government prescribes an RTM-Agency contract to balance protections between the parties where an agent is appointed. No more cleverly loaded one-sided contracts that dis-empower the RTM party.
5. The model contract should stipulate what routine data an RTM company director is entitled to receive from an agent without needing to beg or refer to vague comments in a non-binding RICs code. With financial penalties under the model contract. No unpaid RTM director should be expected to manage an RTM company in the dark. Delegation of authority to an agent is not abdication of company law or other legal responsibility.
6. RTM companies legally free to open and control the client service charge bank account and give spending mandates to an agent if/when appointed. Thereby protecting client funds at all times and avoiding the hassle with handovers and stand offs. Directors no longer need to beg for bank statements or cashbook data.
No other company would operate the way RTM companies are expected to operate. Accept this simple premise above all, and reform accordingly.
Then I will believe.
I really truly deeply want to believe.
Paddy, as an RTM Dir since 2004 (a dew weeks after enactment of 2002 Act) and having met similar at Law Commission and elsewhere on several occasions, we all have stories re good/bad agents.
Pending upcoming regulation of MA’s my advice has always been to go for RICS regulated. It should never be for leaseholders in RTM companies to manage premises themselves – it is a role for professional agents to do so on their behalf. The RTM company serves to overview the accounts and ensure works/maintenance etc is completed at competitive (tendered as appropriate) cost. A quarterly meeting of Dirs and an annual AGM to report to the members and draw in new blood.should suffice.
By reducing freeholders to Ground Rent income only through RTM, it is no wonder the unscrupulous have gone to every length to frustrate RTM acquisition. As LKP rightly states “…owning the freehold to a block of flats and controlling the management is a licence to print money and abuse power. This is why right to manage was introduced.”
As an RTM Co. we had no difficulty taking the freeholder to the old LVT (2008) and recovering overcharged buildings insurance premiums (demanded before we acquired RTM) and it remains as a constant reminder that had we not done so the freeholder in question would have continued unabashed and collected in excess of £160,000 by now (c.£16,000 pa x 10 yrs). And that’s just buildings insurance! Thankfully the rest is history, as all extortionate practices are curtailed through RTM.
Also, as above, on this sire, I am pleased to note James Brokenshire appears to be rethinking his “nominal” ground rent proposal in lieu of gr reducing to zero. as any nominal rent would simply allow the unscrupulous to continue their extortionate practices unabated. I also have a guarded welcome for his recent comment that he is considering setting up a Housing Court. Provided this mirrors the old LVT, allowing leaseholders to challenge all extortionate activity directly, and not be lured into a legal “deep pocketed” quagmire, a dedicated Housing Court could have mileage .
Personal reasons my decision was to abstain from the RTM company chosen by a majority vote. I also felt as a small development, & older age group, as mentioned difficulties in understanding , & the responsibilities c, & speaking for myself, not reliable..I am not sure how I stand, in my situation, should I need to sell, perhaps to go into a Care Home. Is my lease a legal document?
Sheila,
There is a website called About Firstport, if you post on that we will try and help, if you require it!