Is Right to Manage Might The Right Alternative To Enfranchisement?

Enfranchisement is the process through which leaseholders or tenants of a building can acquire the freehold to that building from the landlord. The Right to Manage (RTM), on the other hand, enables tenants to take over control of the management of the building, without acquiring the freehold.

Essentially both enfranchisement and RTM, enable tenants to take over control of the management of the building or block of flats in which they live from the landlord, albeit in different forms. Consequently, depending on the aims of the tenants, there might be reasons for preferring one over the other.

The Right to Manage as an alternative to enfranchising

RTM may be seen as a better alternative to enfranchising. This is primarily because RTM is considered to be less costly because it doesn’t require tenants to actually purchase the freehold. RTM also avoids costs associated with purchasing a freehold, such as surveyor and solicitor fees.

In addition, depending on what the tenants hope to gain, RTM can be an excellent way to empower leaseholders. It enables them to take control of the managing of the building in which they live and in which they have a great vested interest in managing to the highest standards.

Drawbacks to the Right to Manage

Although it’s true that RTM may be less costly than enfranchising, there are nonetheless still costs involved in RTM. For instance, ground rent continues to be payable. Also, for reasons explained below, it may be both wise and necessary for leaseholders to employ someone to advise them once the RTM is acquired, which obviously costs money.  Finally, whilst it’s true that having to purchase the freehold makes enfranchisement the more expensive option, purchasing the freehold will ultimately increase the value of your property, which isn’t the case with acquiring the RTM.

Moreover, there may be additional problems associated with RTM, which enfranchisement avoids. For instance, whilst RTM empowers leaseholders by giving them decision-making powers in relation to a building through a company, it also imposes on them the same duties and liabilities imposed on landlords. So the RTM company will be required to comply with various housing and health and safety laws, as well as with codes of management practice.

Breaches of these laws and failure to comply with codes may have serious repercussions and result in the RTM being brought to an end. The leaseholders are also responsible for all budgetary and financial issues in relation to management and for ensuring that the company remains solvent. It may thus be necessary to seek advice in relation to all legal and other issues, which ultimately increases costs.

Comment

Given the complexities involved in running and managing a building, especially a larger one, it could be that tenants are not the best-placed people to undertake this task. On this view, enfranchisement, although arguably more costly at the outset, may work out to be a simpler option for tenants wishing to gain control of their building from the landlord.

* Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*