Setting up a communal property management company
Almost all flats or apartments in England and Wales are leasehold. This comes a surprise to some people who believe they ‘own’ their own flat.
The reality is that, in a nutshell, you have only bought the right to live there for a period of time.
This is because the structure and shared aspects of the block of flats, together with the land it stands on, is owned by a landlord.
As a leaseholder you are therefore paying your landlord, or more often the management company who work on his behalf, for essential aspects such as building maintenance, keeping the grounds neat and tidy, etc – often referred to as a service charge.
If you live in a flat you could work together with your neighbours to collectively purchase the freehold of the block. This is known as leasehold enfranchisement or collective enfranchisement.
Your right to manage and set up your own property management company
The ‘right to manage’ was introduced by the Commonhold and Leasehold Reform Act 2002. It provides leaseholders with a statutory right to take over the management of their property from the landlord by setting up a special company – known as a right to manage company (RTM).
RTM or ‘enfranchisement’ is an important right for leaseholders. However, it’s not something you can do alone. At least two thirds of the flats in the building must be let to “qualifying tenants” and of those qualifying tenants you will need 50% of them to join you in exercising the right to manage.
What are the benefits of RTM?
The main benefit is that you and your neighbours will gain full control over maintenance decisions and any future development of your building. In effect, it puts you and your neighbours in the driving seat.
Many flat leaseholders who feel their current management company or landlord is not listening to their wishes or doing a good enough job, are now exercising their right to manage.
Are there any downsides to RTM?
Entering into an RTM is not something you should do lightly, without checking out exactly what’s involved and whether you qualify – which is why it is important to seek specialist legal advice from the team at Palmers.
A few things to bear in mind include:
- Legal costs associated with obtaining an RTM
- Additional responsibilities for residents
- Potential conflicts with tenants – you can’t keep everyone happy all of the time, meaning your committee will sometimes need to make tough decisions for the benefit of the majority
- Service charge collection from fellow residents – including chasing arrears
- The administrative running of the RTM company – and setting up new contracts with maintenance suppliers which can be time-consuming
Most of these potential issues are not insurmountable and many leaseholders across the country have already taken the plunge and set up their own management companies.
At Palmers we can support you and your fellow residents through every stage of the RTM process. If you are considering enfranchisement for your block of flats, get in touch with us now and we will be happy to explain what is involved.