The


WRONGs RIGHTs


OneOfthemOst significantaspects of the Commonhold andLeaseholdReformAct whichcameintoforce in 2002 is thecreation of theRight toManage (RTM). This is the rightfor qualifyingleaseholders to establish a company to take over fromthe landlord the management functionsoftheir blockasset out in their leases. This rightislimited to premiseswhich


contain twoormore“qualifyingtenants”so excludinghouses. It also presentsdifficulties with mixed tenure estates.Blocksofflats must either be “a self-contained building” (i.e. structurally detached)or“aself-contained part of abuilding”. Thelatterneedstoshow an “earth to sky” vertical division in order to qualify forRTM,which usually rulesout buildings with substantial overhanging parts or underground car parks. So assuming your blockdoesqualify and


youwishtogoahead with RTM,what rights will youacquire?Thisisoften asourceof confusion and the recent case of GalaUnity Ltd v Ariadne Road RTMCo Ltd [2011]UKUT 425 (LC) clearlydemonstrateswhere problemscan arise. The case concerned two blocks and two coachhouseswhichmade up asingleestate. Allfourbuildingssharedcertain communal areas (the car park). The two blocks of flats each exercisedRTMviaone companybut the issuewaswhetheritnow hadresponsibility


for the common areas:- nsolely (i.e. it owed dutiestothe coach-houses


and the blocks of flats) or nnot at all (i.e. thecommonpartsremained


with the landlord) or nshared with the landlord (i.e. thelandlord remained responsible for the common parts of thecoach-houseswhilethe companyacquired responsibility for the blocks of flats)? In theevent,the UpperTribunal(UT)


held that thethird scenario wasapplicable (although this case is nowgoing to appeal). This is notideal andthe problemwas recognisedwhenthe UT expressed thehope that theparties wouldnegotiate asensible solution(although after abad-tempered andcontested claim arethe partieslikelyto wanttoadopt such agraciousapproach?). This situationcould also create difficulties forboth, forexamplewhereone arranges to cleanonMondaysand theother on Tuesdays. The duplication of costs surely would be unreasonable and unrecoverable? Apartfrom issueslikethese,running an RTMCompany also presents its own


Flat Living Summer 2012 Sowhatmoney does the landlord hand


over to the newRTMCo? Leaseholders need to appreciatethatexercisingRTMwill not necessarily give themaccesstomoniesthey thinkthe landlord should be holding. Yes, he is obligedtohandoverwhatevermonies arecurrently held in thebankaccountonce existing commitments have beenmet,but this is notanobligation to hand overmonies whichshouldbethere.Itisnot uncommon to findthe companyhas no cashinhandto take over themanagement of the building andunlessittakes overwhen anew service chargepayment is due, it will finditself unable to raisefunds throughthe lease provisions. Even with thesepotential difficulties,


RTMremains avaluableright allowing dissatisfiedleaseholders greatercontrol over thebuildingsthatcontain theirhomes.But itmust notbeseenasapanacea to solveall


of RTM and


RighttoManageisnot always as straightforwardas flat owners expect. Here, neilmalOney asks thefirst and most basic question of all – is it right for your block?


challenges. For example, it is unlikely that theleases will allowrecoveryofthe RTM company’srunning costs(secretarialfees, directorsand officers insurance, etc) viathe servicecharge,whereasmost leases allow thelandlord to do this.The LVT‘sviewisthat thesecostswould notusuallyberecoverable. If that is right, then RTMComembers need to know that they will be personally liable for these costs and the company needs to be sure that it has adequatealternative fundstomeet its needs. It is importantthatthisconcept is


understood and absolutely essential that members understand the difference between “company”and “service charge” funds. Problemsarisewhentheysee RTMasforming a“club”for themutualbenefitofthe residents (and ignoringthe contractualrightsand responsibilities of thelease).Membersoften push through“improvements”suchasgates, entryphonesand so on,eventhoughthe lease does not provide for recovery of these costs. Initialfunding is required fromthe RTMComembers, as are future running and maintenancecostswhich arenot recoverable.


ExercisingRTMwill notnecessarilygive themaccesstomonies


RTM usually rulesout buildingswith undergroundcar parks


ills.Itisone of arange of remedies.Before exercising theirright tomanage,leaseholders should first consider thelandlord’srightsand obligationsunder thelease as thecompany will take theseon. Otherwisedifficultieswill arise! Forexample thecompany mighthave to fund expenditurefor aconsiderabletimeif advancedcollectionofservice charges is not covenanted.


WHaT’s THe alTeRNaTIve? If RTMischoseninfavourofother options that couldequally be used to resolvedisputes or offer better serviceand cost effectiveness in thefuture, lesseesmight sufferaccordingly. It is wise to review all the available options with appropriately qualifiedprofessionals before


exercising RTM. Alternatives include: nAppointmentofamanager/receiver–a “fault”based rightunder Section 24 of the Landlord&TenantAct 1987;thiscan have very significantbenefits throughenfranchisement


of the property after two years. nSeekan“OrderofSpecificPerformance” for breach of contract (after all, that’swhat a leaseis)when thelandlord’sobligationsare notbeing performed. This is an equitable remedy that grants thelesseewhatheactually bargained for, rather than awarding damages


for not receiving the service. n“Variation”ofleases (bynegotiation)to provideaResident’sManagementCompany “head-lease” –thisputsthe residentsina


management role. nChallenge the reasonableness of the service charge-most appropriatewhenthisisthe only issue of concern – under Section 19 and 27a


of the Landlord&Tenant Act 1985. nEnsure that full consultation is undertaken forworks exceedingstatutory financial limits and for long term contracts – see Section 20 of theLandlord&TenantAct 1985 –respond positively to the Landlord’s notices and useprofessionalassistance to do so,where necessary. If youneed help or advice on anyofthese


issues, take professional advice froma chartered surveyor or solicitorspecialising in the leasehold sector.●


neillmaloneyFRICSFIRPMMEWI isadirectorofMy HomeSurveyor tel 020 7183 9020 email neil@myhomesurveyor.co.uk


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