Right to Manage & Enfranchisement
- Are you unhappy with the management services at your block?
- Do you feel your agents are not responding to you and act in the interests of their freeholder client and not your own?
- Do you ever wish you could take control of the management of your block by appointing your own agents and controlling your own destiny?
- Did you know you are legally allowed to acquire the right to manage your own block or buy your own freehold (Collective Enfranchisement) and take back control?
We have a dedicated team of professionals who will assist you through the process. If you have any questions about the process or are considering Collective Enfranchisement, just give us a call – we’re here to help.
Call us on 020 8492 9850 to discuss.
What is the difference between Right to Manage and Enfranchisement?
There are a lot of differences and reasons to pick one route over another. In short some of the major difference are:
- Both are legal rights granted under different pieces of legislation.
- Right to Manage is a legally-acquired right to manage the development only. The freeholder still owns the Freehold and, in many cases, retains many rights such as forfeiture and the ability to collect a ground rent.
- Enfranchisement allows for the Freehold to be purchased by qualifying leaseholders. This often allows for the ground rent to be removed from participating leaseholders.
- One is infinitely more expensive and complicated than the other.
Each option has its benefits and disadvantages depending on your individual circumstances.
If you are considering taking back control over your building, call MLM Property Management to discuss the pros and cons for each option and find out which would suit your circumstances best.
What are some of the benefits of acquiring the Right to Manage / Enfranchising your block?
Acquiring the Right to Manage will enable you to take control of the management of your apartment block and allow you, rather than the landlord, to make the choices and decisions for your building.
Collectively enfranchising your block will also provide this advantage along with owning the freehold of your block.
When considering which option is best for you, there are some general joint advantages and benefits in managing your own affairs in your block.
- You can choose MLM as your professional managing agent, and the level of management services you wish us to provide.
- You decide what budgets are set following professional advice from MLM.
- You have the power to review all supply contracts making up the service charge budget.
- You can move any supply contract to a more suitable supplier at a better, cheaper, and more efficient rate – in many cases lowering service charge cost.
- You will create a more transparent service for your apartment block.
- You will gain control over the long-term planning for major works which will be required from time to time. Working in partnership with MLM Property Management, you will be supplied with a long-term maintenance plan so that all homeowners can budget properly for long-term cyclical work. A healthy reserve fund is always a good sign of a well-run development.
Enfranchisement is inherently more complicated and costly than Right to Manage, but Enfranchisement delivers the Freehold as the end reward.
How do I buy my freehold?
Buying a Freehold (also known as Collective Enfranchisement) is a right granted from the Leasehold Reform Housing & Urban Development Act 1993 (as amended) where owners of apartments in a block can ‘collect’ together to purchase their Freehold. It is a highly technical and specialised process which the team at MLM have extensive expertise. Getting this process wrong can be expensive and a costly mistake.
If you are interested in Collective Enfranchisement and wish to use an experienced team, please call MLM for some impartial advice on 020 8492 9850.
Stage 1 – Prequalification
There are a number of pre-qualifications necessary to proceed with a Collective Enfranchisement application.
In short, these include
- A minimum of 50% of the flats in the building must participate.
- Two thirds of the flats must be qualifying flats. Generally, a flat will qualify if it has more than 21 years remaining from the original term of the lease.
- No commercial leases.
- Your landlord must not be a charity.
- Where you own more than 1 flat in a building, multiple flats will be discounted from the two thirds needed.
- Commercial space must make up less than 25% of the building, excluding common areas. There are some complex rules relating to this requirement that two thirds need to be satisfied.some categories of building are completely exempt, such as National Trust Properties, crown properties, railway land / properties, Municipal buildings etc.
- Some categories of building are completely exempt, such as National Trust Properties, crown properties, railway land / properties, municipal buildings etc.
If your building qualifies and you have the right number of qualifying tenants willing to participate, you can progress to the next stage.
Stage 2 –Appointment of the team
At this stage, it is important to get the team in place for your purchase. This will include the managing agent to guide and assist you through the process, the lawyer that will deal with the notices and the granting of the new 999 year leases and, importantly, the valuer who will agree the price to be paid for buying the freehold.
Stage 3 – The Participation Agreement
Those interested in participating in the process now need to agree to a policy of the group and the joint actions taken to push the process to successful conclusion. This is known as the “Participation agreement”.
Other items within a participation agreement will be the rights of voting on matters within the group, and most importantly the individual leaseholder’s financial contribution to the purchase. This agreement is also useful to record what the process will be after the freehold is acquired, particularly in respect of the grant of new freehold leases, which are usually 999 years in length.
Stage 4 – Setting up the Freehold owning Company
The next stage considers the owning entity – usually a limited company. In other words, the freehold is purchased inside a company and the participating leaseholders all own a part of the company. This is commonly referred to as “Virtual Freehold”. The participating leaseholders all have the right to be granted a 999-year lease or equivalent term.
The company must be formed before the initial notice is served on the freeholder and will have a Memorandum and Articles of Association related specifically to Collective Enfranchisement.
Establishing an initial fund and collection of some costs is necessary as participation agreements and companies will need to be set up, together with the initial payments of other legal advisors might be needed.
Stage 5 – The Valuation
At this stage a valuation should be made of the cost of purchasing the Freehold interest by your nominated surveyor. The MLM team will have discussed and agreed the appointment of a suitable valuer with you.
There is no such thing as a set value for a freehold. Each building must be independently valued by an expert. The valuation will set the best and worst price for the sale of the freehold and the price for each leaseholder participating. The valuer will also be required to respond to a landlord’s valuer’s counter notice and will be experienced in negotiating the settlement of the price to be paid.
In considering the costs involved, one needs to also think about the freeholder’s legal and valuation costs, which need to be reflected in the price.
At this time, MLM Property will advise on the condition of the building and the future likely implications for future maintenance costs and service charges together with advice on future management issues and long-term capital expenditure plans.
Gathering the required information on your freeholder can be a lengthy process. But the law allows for an application to the landlord to provide information. The accuracy of the information provided on this notice is crucial to the success of any Enfranchisement. Getting this wrong incurs landlords’ costs from this point onwards.
It is also important that the Initial Notice is complete and contains no inaccuracies or misdescriptions, as an incomplete Notice can be rejected as invalid.
Stage 7 – The Landlords Counter Notice
The landlord must serve his Counter-Notice by the date specified in the Initial Notice. They can:
- Agree the proposals made in the notice.
- Reject the application out right (something in the application was wrong or perhaps they intend to develop the property etc.).
- Accept the right to purchase, but disagree the terms upon which are proposed, usually price-related.
In the absence of any sensible objections or agreement on price, an application can be made to the Courts for their determination of the grounds of the refusal and the price sought. At this time, your legal team will advise the strengths and weaknesses of the landlord’s case.
Stage 8 – The purchase
Once the price has been agreed, the formal contract for the purchase of the freehold can be completed and the acquisition date fixed. MLM will start to prepare for the handover of the day to day management and begin discussion over budget reviews, capital expenditure programmes, handover of information from the freeholders’ agents etc. Additionally, MLM would start to discuss the makeup of the 999 year lease to be awarded to those that participated in the purchase and discuss how others who did not join at the outset could join later if they so choose.
Can we exercise the Right to Manage?
The Right to Manage a block of apartments was created from legislation (Commonhold and Leaseholder Reform Act 2002). There are a number of steps to go through before you can acquire the right to manage your block. Since 2002 there have been a lot of objections to this process, creating a wealth of case law and numerous traps for the unwary. Having a professional firm partnering you through the process is crucial to obtaining a successful outcome at minimal cost. Getting the process wrong can be a costly exercise.
Are there any limitations to acquiring the right to manage?
As with Collective Enfranchisement, there are a number of stages to go through, but this process is simpler and less costly.
Stage 1 – Prequalification
- At least 50% of homeowners must consent to the process
- At least two thirds of homeowners must have long leases i.e. a lease with more than 21 years.
- No more than 25% of the block may be used for non-residential use. This can include some car parks, but will include things such as commercial premises in mixed use buildings etc.
- The block must be capable of having services independent from other buildings. It is generally accepted that if you are able to cut through your building in its entirety, (in the manner of a piece of cake being cut), then your block is likely to pass this test. This is known as vertical separation. So, for example, blocks of apartments on a large estate with an underground car park, might have a few problems, but standalone blocks of flats are likely to pass this test. Another example would be 2 buildings that are joined together structurally, but which are separate in every other way. In this case, 2 separate applications might be needed, one for each building.
There are a few other technical hurdles which you would need to clear before an application can be made.
Stage 2 – Formation of the RTM Company
At this stage, the Limited Company must be formed. RTM companies have specially prescribed rules and regulations that make them RTM companies and need to be set up in the correct way.
It is also important to inspect all land registry documents to make sure that the right names are on the application and that all lessees named as participants qualify.
At this stage, it is advisable to collect funds from those participating to deal with the cost of setting up the company and investigating the details for the notice and serving the notice of the Landlord.
Stage 3 – Serving the Notice and acquiring the Right to Manage your block
This stage requires the following items to be completed:
- Sign the RTM application in the prescribed form.
- Formally invite those who have not already done so to join the scheme.
- Send the RTM claim form to the landlord.
If the landlord is going to challenge the application, now is the time that they will do so. There are very strict criteria upon which a landlord can now object to an application. It is exceptionally rare for a landlord to successfully object if all the steps have been followed correctly.
If there is no reply from a landlord within 1 month, it is deemed as acceptance. The law is on the side of the homeowner in acquiring these rights to manage.
The legislation then requires a 3-month waiting period after which the Right to Manage Company “acquires” the statutory right to manage its own affairs for your block.
In the event that the landlord objects to the claim, you can either withdraw your application and pay the reasonable costs of the landlord or take the case the to the First Tier Tribunal (FTT) service who deal with Landlord and Tenant disputes.
Why should we use MLM to act for us in dealing with our right to manage / Enfranchisement claim?
MLM will offer all clients:
- A firm of Chartered Surveyors that are experienced right to manage practitioners.
- Regulated by the RICS, ARMA and ALEP.
- A personalised hands-on efficient service “hand-holding” blocks of flats through the process.
- Expert knowledge in the Right to Manage process with an enviable success rate.
- Expert knowledge in Right to Manage Legislation, Companies Act Law, Landlord and Tenant Legislation and Enfranchisement Law and practice.
- 99% of claims are resolved without the need to go to the FTT for resolution.
- All claim applications are prepared by qualified solicitors.
- Regular personal update service.
- All claims handled by senior personnel at MLM.
- Production of all statutory information and make-up of the statutory books for the RTM Company.
- Overseeing the formation and set up of the RTM company and ensure that it is set up correctly.
- Company secretarial services provided by MLM.
- Overseeing the production of the relevant right to manage notices and claim notices required as part of the process.
- £10 million of professional indemnity cover per claim.