From 3 March 2025, certain provisions of the Leasehold and Freehold Reform Act 2024 (LAFRA 2024) come into effect, making the right to manage process both cheaper and more accessible for buildings as part of the Government's aim to level the playing field between landlords and tenants, which is likely to lead to a sharp increase in buildings pursuing the right to manage as an option.
What is the Right to manage?
Chapter 1 of Part 2 of the Commonhold and Leasehold Reform Act 2002 (CLRA 2002) gives the right to qualifying leaseholders of flats in a qualifying residential building, the right to take over the management responsibilities of the building.
It is a common misconception that the right to manage can or should only be pursued when the building has been badly managed. This does not need to be proved or argued, you merely need to qualify for the right in order to exercise it, it is a “no fault right”.
What is the rationale for pursuing the Right to Manage?
Acquiring the right to manage can provide substantial benefits, as it will allow for the leaseholders to be responsible for collecting and managing the service charges as well as tendering the required services to enable them to be in control of the associated costs. It is a regular concern of leaseholders in the current economic climate, whether their block is being adequately managed, whether the costs for the same are appropriate and if the work is being done by a reputable provider. It naturally follows that the leaseholders who are liable to pay their proportions of these services and reside in the flats, will take a different approach to the management than an impartial third-party company. To some it’s simply a job, but to you as leaseholders, it may be your home and your livelihood!
How to qualify
Under Part 2 of the CLRA 2002, long leaseholders of flats in mainly residential buildings (subject to certain exceptions) have the right to take over the management of the building.
Qualifying premises
s.72(1) of CLRA 2002 provides that the Chapter applies to the premises if;
- (a)they consist of a self-contained building or part of a building, with or without appurtenant property
- (b)they contain two or more flats held by qualifying tenants, and
- (c)the total number of flats held by qualifying tenants is not less than two-thirds of the total number of flats
The latter of the three criteria is set to be varied to enable more blocks to be deemed qualifying premises under the CLRA 2002.
Review of the reforms
There are three key reforms being implemented that you need to be aware of as a leaseholder:
- 1 Increase of the commercial area threshold
Under the current legislation, a premises will not qualify for the RTM where the internal floor area of a non-residential nature exceeds 25% of the overall floor area which poses a significant barrier to leaseholders. Fortunately, section 49 of LAFRA 2024 is raising this percentage of the non-residential limit threshold to 50%, meaning that many buildings that have previously missed out due to this provision, will now be able to qualify. This makes the Right to Manage vastly more accessible. The precise nature of calculating the percentage of floor space which is residential or commercial is the remit of a surveyor usually, unless it is particularly clear.
Although this makes the RTM a more viable option for many blocks, we are yet to see how it will play out on a practical basis and how recovery of service charges in respect of the commercial areas will work in practice, this means that obtaining legal advice is as imperative as ever.
- 2 Leaseholders will no longer be responsible for the freeholders’ legal costs
Under the existing regime, leaseholders are liable to cover the freeholders' reasonable legal costs (although what is reasonable is vague and often subjective!) and any costs of proceedings if the application is unsuccessful. Section 50 of LAFRA 2024 removes this provision and the only exception to this will be where there is an agreement between the parties or the Tribunal awards costs (only available if the claim fails and the RTM company has acted unreasonably, among other things). The removal of this requirement can save leaseholders anything from £3,000 to £5,000 or more, dependent on the size of the block.
Another benefit of this change is that it may reduce delays in the process and prompt the freeholder to be more cooperative in the stance they take towards the claim as they will be footing the cost. The Right to Manage is a heavily litigated area and this may have the effect of reducing that.
- 3 Amendment to the RTM Model Articles of Association, capping the freehold voting powers
All limited companies need a constitution known as the Articles of Association which are essentially a rule book that determines how the company is to be run. With RTM companies specifically, there are set model articles that cannot be altered
A little-known aspect of the RTM is that the freeholder can become a member of the RTM company and this cannot be denied. If the premises includes non-residential areas, the votes that are exercisable by the landlord are determined by reference to the internal floor area of the non-residential areas. This created a problem, for those buildings with non-residential areas that are close to the new 50% threshold, as in some circumstances the landlord could have a sufficient number of votes to take control of the RTM company.
This potential problem has been averted by The RTM Companies (Model Articles) (England) (Amendment) Regulations 2025, which amends the model articles by capping the number of votes that Are exercisable by landlords to one third of the votes exercisable by qualifying tenants. This ensures that the freeholders voting powers cannot outweigh that of the leaseholders collectively.
Conclusion
In essence, pursuing the right to manage has never been more accessible for many buildings, especially those buildings which have previously fallen foul of the 25% commercial threshold, and is now a much more cost-effective process, however, the area remains inherently complex and litigious, so that’s why we are here to help you navigate the winding road that is acquiring the Right to Manage of your block.
Contact:
If you are looking to pursue the right to manage for your building, then our specialist Residential Leasehold Team would be happy to assist and take any queries. To contact, please email ResidentialLeasehold@brethertons.co.uk or call 01295 270999 (Banbury), 01869 252161 (Bicester), 01788 579579 (Rugby) or 01242 472747 (Cheltenham).
For further reading, please see the below:
Right to Manage: a guide for landlords: The Right to Manage - GOV.UK
Right to Manage - The Leasehold Advisory Service
Written by Abigail Laborero and Sam Hunt
Verity McMahon
Roger Hardwick
Sam Hunt