Right to Manage

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Right to Manage

• Pauline Vernon
• Manager - Advice, Informationand Mediation
  Service (AIMS)
• Age Concern England

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• The leasehold system is flawed to its roots
• Abuses still flourish, causing misery and
  frustration to many leaseholders. We want a fair,
  workable and durable system.
• We want to provide leaseholders with the
  security and control other home owners enjoy.
• We plan to strengthen leaseholders rights while
  striking a fair balance with landlords
  legitimate interests.
• Hilary Armstrong
• Housing Minister
• 1998

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The result

• The Commonhold and Leasehold
• Reform Act 2002
• introducing the Right to Manage

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AIMS Project- funded by an Innovation and Good
Practice Grant from the Housing Corporation

• What do older leaseholders think about the
  legislation?
• What is the practical impact of RTM on older
  leaseholders?
• Access to information and advice for both
  leaseholders and managing agents
• Good practice guidance to inform decision-making
  process

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What we did

• Policy Forums consult managing agents and
  developers
• Residents Panel consult leaseholders
• Casework lessons learned from enquiries to AIMS
• Survey consult older leaseholders
• Presentations and training courses

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Which led us to

• Has the introduction of Right to Manage achieved
  its aim?
• Has Right to Manage met the specific needs of
  retired leaseholders?
• What measures might be needed to ensure
  Governments initial aspirations for Right to
  Manage are met?

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The good news

• Leaseholders have control over management
• Leaseholders have control of financial decisions
• No formal consent or court order required
• No need to purchase the freehold
• No need to prove incompetence
• No need to compensate landlord or managers

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The not so good news

• Retired leaseholders are less likely to exercise
  RTM, because
• The procedure is complex
• They are reluctant to take on the legal
  responsibility of becoming a company director
• They are older and moved to retirement housing to
  off-load responsibilities, not take them on
• They are worried about continuity of personnel
• They are worried about lack of skills and
  expertise
• They are worried about potential conflict

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Problems with the legislation

• AIMS has identified specific problems with the
  2002 Act that could act as disincentives for
  leaseholders.
• AIMS has further identified problems where
  exercising RTM has consequences that were not
  necessarily foreseen.
• AIMS believes that Government could have
  addressed leaseholders concerns through stronger
  regulation of managing agents.

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(No Transcript)
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RTM is difficult, or impossible

• Where retirement schemes consist of more than one
  block or
• Where retirement schemes contain separate
  properties such as bungalows.

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AIMS Recommendation

• Amend Section 72 of the 2002 Act, so that RTM
  could be exercised by an entire scheme of
  leasehold properties, where leaseholders pay into
  the same service charge account.

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RTM may be impossible where schemes have mixed
tenure

• At least two thirds of flats need to be held by
  qualifying tenants.
• In mixed tenure schemes, landlords could render
  an existing scheme ineligible by manipulating
  that mix.

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AIMS Recommendation

• Amend the 2002 Act so that Section 72 (1) (c)
  need not apply. The Act should require that at
  least half of the flats need to be held by
  qualifying tenants in order that RTM may be
  exercised.

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RTM is denied to those with shared ownership

• Only those with 100 equity are eligible.
• LSE schemes are exempt.
• Landlords can avoid RTM by selling on a shared
  basis.
• The Government has an ideological commitment to
  further shared ownership.

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AIMS Recommendation

• Amend Section 76 of the 2002 Act so that shared
  owners, with more than 50 of the equity in the
  property, would be qualifying leaseholders for
  the purpose of RTM.

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Equity release

• The 2002 Act does not mention Equity Release.
• Would a leaseholder in an Equity Release scheme
  be a qualifying leaseholder for the purpose of
  RTM?
• If ownership is shared, would neither owner be
  eligible to participate in RTM?
• If already a member of an RTM company, would a
  leaseholder lose membership if she joined an
  Equity Release scheme?

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AIMS Recommendation

• Amend Sections 75 or 76 of the 2002 Act to say
  that anyone who retains more than 50 of the
  equity in the property would be qualifying
  leaseholders for the purpose of RTM.

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Why not Commonhold instead?

• RTM would not have been necessary for new
  developments if the Act gave purchasers the
  option of commonhold.
• Commonhold is not compulsory and there is no
  incentive for a developer to offer it.

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AIMS Recommendation

• Amend Part 1 of the 2002 Act to offer incentives
  to developers to provide more commonhold.
• In particular, the Government could require any
  new leasehold developments using public money or
  Section 106 agreements to be commonhold.

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Contracts and consultation period

• Section 151 of the Act requires consultation for
  long-term contracts which can take more than
  three months to complete.
• In these circumstances, RTM companies find it
  difficult to appoint new managers (or other
  contractors) for more than one year.
• Professional managers are reluctant to commit to
  such a short period.
• This has reduced choice for RTM companies.

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AIMS Recommendation

• Amend the 2002 Act so that Section 151 does not
  apply to RTM companies appointing a managing
  agent, or any other contractor, in the first year
  of the RTM companys existence.

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Whose money is it, anyway?

• Under Section 94 (1), accrued service charges
  must be handed over on acquisition.
• But Section 94 (4) allows a reasonable delay
  from the outgoing landlord.
• AIMS knows of several schemes where the RTM
  company has had difficulty obtaining the accrued
  service charges and sinking fund.

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AIMS Recommendation

• Amend Section 94 (1) of the 2002 Act to say
  must make to the company a payment equal to the
  amount of any accrued uncommitted service charges
  held by him on the acquisition date or within two
  months of this acquisition date. Any failure to
  do so will be an offence under the 2002 Act and a
  financial penalty, determined by the LVT, will be
  added to the uncommitted service charges.

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RTM exercised to remove poor performers

• RTM is being exercised to remove landlords who
  breach the Landlord Tenant Act.
• RTM may not therefore have been necessary if
  local authorities had a duty (rather than a
  power) to investigate such breaches.

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AIMS Recommendation

• Amend Section 34 of the Landlord Tenant Act
  1985 to read Proceedings for an offence under
  any provision of the Landlord and Tenant Act
  1985, as amended by the Landlord and Tenant Act
  1987 and the Commonhold and Leasehold Reform Act
  2002 will be brought by the Local Housing
  Authority (LHA). The LHA will have a duty to
  investigate the allegation and take the
  appropriate proceedings where there is sufficient
  evidence.

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Aggressive marketing tactics

• RTM offers opportunities for less-established
  companies to tout for RTM business and market
  their services.
• Lower management fees, while attractive, may
  prove unrealistic and provide poorer standards.
• This could be avoided if greater reliance is
  placed on the ARHM Code of Practice.

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AIMS Recommendation

• To ensure national minimum standards of
  management, the Government could introduce
  legislation requiring all organisations managing
  leasehold property to be members of a recognised
  trade body.

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Access to Ombudsman compromised

• All RSLs must belong to an Ombudsman scheme.
• When disposing of the freehold or de-registering
  as an RSL, it is a statutory requirement that the
  scheme remains under the jurisdiction of the
  Ombudsman.
• No such requirement exists should the RTM company
  appoint a managing agent which is not an RSL.

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AIMS Recommendation

• Issue a Statutory Instrument requiring that when
  RTM is exercised, the RTM company, and the
  managers they employ, will be required to belong
  to a recognised ombudsman scheme.

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Counter claim notice

• The 2002 Act allows a landlord to issue a counter
  claim notice, disputing the validity of the
  claim.
• AIMS has knowledge of cases where a frivolous
  counter claim was issued without validity,
  presumably as a delaying tactic.

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AIMS Recommendation

• The Government could give the LVT the power to
  fine landlords who issue a counter claim notice
  that is determined by LVT to be frivolous or
  without validity.

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The VAT man cometh

• Leaseholders have to pay VAT on management fees
  when
• The landlord appoints another organisation as
  manager or
• RTM is exercised and the RTM company appoints
  another organisation as manager.
• However, HM Revenue Customs is not clear as to
  whether VAT is payable should the RTM company
  retain the same managing agent.

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AIMS Recommendations

• (a) To ensure consistency and fairness, the
  Government may wish to abolish VAT on management
  fees for all retirement or supported leasehold
  housing.
• (b) The relevant Government department needs to
  give guidance to HM Revenue Customs on whether
  VAT becomes payable on management fees when an
  RTM company retains the landlord as manager.

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RTM is a complicated and expensive way of
dealing with what is really a simple problem. A
leaseholder 2006 The majority came here to
offload such responsibilities. A
leaseholder 2005 If RTM gets exercised, then we
are really doing a bad job, because of all the
grief residents have to go through. Managing
Agents 2007
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Advice, Information Mediation Service

• Lo-call 0845 600 2001
• Email aims_at_ace.org.uk
• Web www.ageconcern.org.uk/aims
• Post AIMS
• Age Concern England
• Astral House
• 1268 London Road
• London SW16 4ER