Today sees the coming into force of several provisions of the Leasehold and Freehold Reform Act 2024 (‘LFRA 2024’) relating to the Right to Manage. This note explains some more detail about this and what these changes mean for leaseholders and freeholders.
What is the right to manage?
Leaseholders have a collective right to take over the management of their building under a no-fault right known as the Right to Manage (‘RTM’). RTM is a statutory no-fault right introduced by the Commonhold and Leasehold Reform Act 2002 and provides a useful alternative to buying the freehold as there is no capital outlay (other than costs).
In order to effect this change at least half of the qualifying leaseholders in the building must serve the relevant notices and participate in the process.
What are the changes?
The reforms make changes to the basis of qualification, the ability of the landlord to recover costs in a standard case and to the articles of association of the Right to Manage Company.
Changes to qualifying buildings
Until now buildings would only qualify for RTM of not more than 25% of the property is used for non-residential purposes. Now, buildings with up to 50% of the property in non-residential (e.g. commercial use) will qualify for these rights.
This means that many more buildings will fall within the scope of the Right to Manage. The Act also proposes that the freeholder will not be able to recover its costs of dealing with the RTM claim from the leaseholders.
Landlord’s Costs – now generally not recoverable
Up until now the landlord has been able to recover the costs of dealing with the RTM claim from the RTM company at the end of the process. Now, the standard provision has been amended so that in a non-contentious claim the landlord cannot recover any of its costs from the RTM company or the participating leaseholders.
The law relating to service charges is being amended too so that non-litigation costs cannot be recovered via the service charge (where in the past this may have been possible in some cases where section 19 of the Landlord & Tenant Act 1985 would permit this).
There are some qualifications to this. Where a court or tribunal orders that a party should pay costs then an RTM company can be asked to pay the landlord’s costs. The First Tier Tribunal of the Property Chamber (FTT) will have the power to award costs where a claim has been made and withdrawn (or become deemed withdrawn), or where the RTM company has acted unreasonably. Members of the RTM company can be held jointly and severally liable for these costs. These are likely to be circumstances where there is a dispute about the validity of the notice or there is a challenge made to the actions of the RTM company.
However, the general effect will be that as costs will not be payable in an uncontested case that bringing an RTM claim has become less costly from the leaseholders’ perspective.
Changes to the RTM Company Articles
The RTM Company is a ‘creature of statute’ – its articles are prescribed by the Commonhold and Leasehold Reform Act 2002 (‘the 2002 Act’).
After the handover takes place, the landlord is entitled to a vote for each interest that it has in the building. This could include multiple interests and a concern was raised that the freeholder or a landlord could end up with control of the company or a very significant vote now that the qualification criteria have been amended so that a building with 50% non-residential will qualify.
To prevent this happening a set of regulations (the RTM Company (Model Articles) (England) (Amendment) Regulations 2025) have amended the standard RTM company articles so that now the votes exercisable by landlords cannot exceed one third of the votes exercisable by the qualifying tenants.
What else is changing?
There are also provisions preventing first instance applications to the High Court. This is to prevent attempts to circumvent the costs provisions. In addition, where a party seeks to enforce obligations arising under the RTM these applications must now be made to the tribunal rather than to the court in the first instance.
In Conclusion
These changes are part of the first raft of changes made under LAFRA and are as promised by Matthew Pennycook in his 21st November 2024 statement.
For leaseholders wanting to exercise the Right to Manage this is good news as the absence of landlord’s costs and the new qualification threshold will probably result in more claims. For managers and landlords, the need to obtain effective advice remains but with the sting that this is at their own cost when a claim is exercised. Will this lead to improved management service levels? Possibly, if the threat of ‘losing the account’ is there. It also might make claims more drawn out if landlords fail to respond.
Whilst these are not the most significant changes envisaged by LAFRA they are certainly ‘game changers’ in the field of Right to Manage.
Mark Chick
3rd March 2025