Leasehold home ownership: exercising the right to manage [2020] EWLC 393 (July 2020)

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Law

Commission

Reforming the law

Leasehold home ownership: exercising the right to manage

HC585

Law Com No 393

Law

Commission

Reforming the law

(Law Com No 393)

Leasehold home ownership: exercising the right to manage

Presented to Parliament pursuant to section 3(2) of the Law Commissions Act 1965

Ordered by the House of Commons to be printed on 20 July 2020

HC 585

© Crown copyright 2020

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The Law Commission

The Law Commission was set up by the Law Commissions Act 1965 for the purpose of promoting the reform of the law.

The Law Commissioners are:

The Right Honourable Lord Justice Green, Chairman

Professor Sarah Green

Professor Nick Hopkins

Professor Penney Lewis

Nicholas Paines QC

The Chief Executive of the Law Commission is Phil Golding.

The Law Commission is located at 1st Floor, Tower, 52 Queen Anne's Gate, London SW1H 9AG.

The terms of this Report were agreed on 26 June 2020.

The text of this Report is available on the Law Commission's website at

http://www.lawcom.gov.uk

All webpages materials referenced in this document were last accessed on 9 July 2020.


Contents

GLOSSARY AND ABBREVIATIONS

Introduction

Home ownership after reform: a summary

The current law

Problems with the current law

Our project

The Consultation Paper and consultation process

This Report and our recommendations

Issues beyond the scope of our project

The impact of reform

The law in Wales

Next steps

Structure of this Report

Publications accompanying this Report

Acknowledgements

The team working on the Report

Introduction

The RTM for leasehold houses

A new foundational concept: residential unit instead of flat

The physical scope of the premises which qualify for the RTM

The non-residential limit

One qualifying tenant only

Proportion of residential units held by qualifying tenants

Leaseholder participation in an RTM company

73

Premises with only two residential units

CHAPTER 4: QUALIFYING CRITERIA: SPECIFIC CASES

Introduction

Types of qualifying tenant

Shared ownership

Types of landlord

Resident landlord

Multiple freeholders of the same building

The National Trust

Business tenancies

Introduction

A new right to acquire the RTM in respect of multiple buildings

Claiming the RTM in respect of a single building on an estate

Requirements for bringing a multi-building RTM claim

Joining and leaving a multi-building RTM

Governance of multi-building RTM companies

Introduction

The RTM company structure

Creation of the RTM company

Company law requirements

Introduction

Education of RTM company directors

RTM companies’ use of professional managing agents

Introduction

Notifying leaseholders of a forthcoming claim - the notice inviting participation

Signing the claim notice

The claim notice - who needs to be served?

Service of notices

Service by email

Deemed service of claim notices

Starting a claim: pre-service checks

The counter-notice

Where no counter-notice is served

No response to counter-notice: abolition of deemed withdrawal

Challenges to the validity of notices

The acquisition date

CONTRACTS

Introduction

Rights to information in advance of an RTM claim

Rights to information after RTM claim has commenced

Timing and enforcement of information rights

Copies of the lease

Material changes to information provided

Costs of complying with information rights

Summary of information rights

Impact of data protection legislation on information rights proposals

Provision of information about management contracts

Management functions - general

Management functions - regulated activities

Management functions - insurance

Management functions - appurtenant property

A power to vary leases

The service charge “pot”

Recovery of management costs through the service charge

Introduction

Process for granting approvals

Retrospective covenants and absolute covenants

Obligation to furnish leaseholders with a name and address

Transfer of employees to RTM companies

Introduction

Disputes arising from the acquistion of the RTM

Proceedings to enforce requirements of the RTM regime

Other disputes involving RTM companies

Mediation and arbitration of RTM disputes

Non-litigation costs

Litigation costs

Recovery of costs under the lease

Introduction

Consultees’ experiences of the RTM terminating

Existing grounds for termination

New grounds for termination

Responsibility for managing the premises when the RTM terminates

Treatment of service charges when the RTM terminates

Claiming the RTM after it has terminated

Glossary and abbreviations

1987 Act: Landlord and Tenant Act 1987.

2002 Act: Commonhold and Leasehold Reform Act 2002.

acquisition date: the date on which the RTM company acquires the RTM.

appurtenant property: in relation to a building or part of a building or a flat, any garage, outhouse, garden, yard or appurtenances belonging to, or usually enjoyed with, the building or part or flat.

articles of association: the rules governing how a company operates.

building: a built or erected structure with a significant degree of permanence, which can be said to change the physical character of the land. A building might be a house, a block of flats or commercial units.

collective enfranchisement / collective freehold acquisition: the purchase of a freehold interest of a building containing flats by 50% or more leaseholders. The former phrase is used in the current legislation. The latter phrase is the phrase adopted in our Enfranchisement Consultation Paper and in the Enfranchisement Report.

Commonhold Consultation Paper or Commonhold CP: Reinvigorating commonhold: the alternative to leasehold ownership (2018) Law Commission Consultation Paper No 241, published in December 2018.

Commonhold Report: Reinvigorating commonhold: the alternative to leasehold ownership (2020) Law Com No 394, published in July 2020. Available at https://www.lawcom.gov.uk/project/commonhold/.

Consultation Paper or CP: Leasehold home ownership: exercising the Right to Manage (2019) Law Commission Consultation Paper No 243, published in January 2019.

counter-notice: a notice that the landlord, or other relevant third party, may give to the RTM company in response to receiving an RTM claim notice. We refer to “negative counternotices” where the counter-notice states that the RTM company is not entitled to acquire the RTM and/or management of the non-exclusive appurtenant property, and “positive counternotices” where the counter-notice admits the RTM company’s entitlement.

claim notice: the notice served on the landlord by the RTM company to begin an RTM claim.

determination date: where the RTM is not disputed, the determination date is the date specified in the claim notice for service of a counter-notice. Where the RTM is disputed, the determination date is either the date when the Tribunal determines entitlement to RTM, or when the parties agree that it can be acquired.

ECHR: the European Convention on Human Rights.

enfranchisement: we use “enfranchisement” as a generic term to refer to claims to buy the freehold or extend a lease under the Leasehold Reform Act 1967 or the Leasehold Reform Housing and Urban Development Act 1993.

Enfranchisement Consultation Paper or Enfranchisement CP: Leasehold home ownership: buying your freehold or extending your lease (2018) Law Commission Consultation Paper No 238, published in September 2018.

Enfranchisement Report: Leasehold home ownership: buying your freehold or extending your lease (2020) Law Com No 392, published in July 2020. Available at https://www.lawcom.gov.uk/project/leasehold-enfranchisement/.

estate: a development containing multiple buildings with appurtenant property shared between them. A development may contain a mixture of flats and houses.

exclusive appurtenant property: appurtenant property the ownership or enjoyment of which is exclusive to the occupiers of a building (or multiple buildings) included within the same RTM.

flat: a separate set of premises (whether or not on the same floor) which forms part of a building, which is constructed or adapted for use as a dwelling, and either the whole or material part of which lies above or below another part of the building.

freeholder: the owner of the freehold interest in any property. The freeholder is at the top of any chain of leases of a given property.

house: a building designed or adapted for living in (whether structurally detached or not), so long as it can reasonably be called a house. A house may be held on a freehold or leasehold basis.

intermediate landlord: a landlord who has a leasehold interest in the property that is superior to that of the leaseholder’s interest. An intermediate landlord holds a lease of the property and has sub-leased it onto an inferior leaseholder. An intermediate landlord is distinct from the freeholder because they only own a leasehold interest in the property.

landlord: we use “landlord” as a general term for a person who holds an interest in property out of which a lease has been granted. A landlord may be either the freeholder of the property, or hold a leasehold interest in the property himself or herself.

lease: the document that grants the leaseholder a leasehold interest in their property and sets out the rights and responsibilities of the leaseholder and landlord.

leasehold: a form of property ownership which is time limited (for example, ownership of a 99-year lease), where control of the property is shared with, and limited by, the landlord.

leaseholder: a person who holds a leasehold interest in property. We generally use the term “leaseholder” instead of “tenant” when describing those who enjoy RTM rights. We do so because “leaseholder” is typically used to denote those who own their property through a long lease, whereas “tenant” is generally used to refer to those who rent their property on a short lease (such as a one-year “assured shorthold tenancy”). However, the 2002 Act uses the word “tenant” and we adopt that usage when referring to the legislation, for example, when referring to a “qualifying tenant”.

leaseholder survey: Survey on Exercising the Right to Manage (2019).

lease consent: an approval given by the landlord or RTM company to a leaseholder to do some act for which the lease requires consent to be given. Examples might include consent to undertake alterations or to sub-let.

long lease: a lease that is granted for a term of 21 years or more, subject to some qualifications.

managing agent: an agent employed by a landlord, management company or RTM company to exercise management functions on their behalf.

management company: in the context of this Report, a party to a tripartite lease with responsibility for management functions.

model articles: articles of association which are prescribed by law. Currently an RTM company’s articles of association are prescribed by The RTM Companies (Model Articles) (England) Regulations 2009 (SI 2009 No 2767) in England and The RTM Companies (Model Articles) (Wales) Regulations 2011 (SI 2011 No 2680) in Wales.

MHCLG: Ministry of Housing, Communities and Local Government.

negative counter-notice: a counter-notice denying the RTM company’s right to acquire the RTM, and/or to acquire management of the non-exclusive appurtenant property.

non-exclusive appurtenant property: appurtenant property (such as gardens or carparks) the ownership or enjoyment of which is not exclusive to the occupiers of a building (or multiple buildings) included within an RTM claim.

non-participating leaseholder: a leaseholder who qualifies to participate (see qualifying tenant) in an RTM claim but does not do so.

non-residential limit: the rule that premises are completely excluded from the RTM if the non-residential parts exceed 25% of the total internal floor area. We recommend that this is raised to 50%.

notice inviting participation: the notice served by an RTM company before it makes an RTM claim, to all qualifying tenants who are not already members of the RTM company (or have not already agreed to become a member), inviting them to become a member. These notices are currently mandatory.

participating leaseholder: a leaseholder who qualifies for the RTM (see qualifying tenant), and who opts to participate in the RTM by becoming a member of the RTM company.

qualification requirement: the rule that to qualify for the RTM, qualifying tenants must hold at least two-thirds of the total number of flats in the building (or part of the building) over which the RTM is claimed,

qualifying premises: a building (or part of a building) or buildings which qualify for the RTM.

qualifying tenant: a leaseholder who holds a long lease and is eligible to participate in an RTM claim.

residential unit: (under our recommended reforms) a unit which has been constructed or adapted for the purposes of a dwelling (even where there might also be some non-residential use).

right to participate: the right, available to all qualifying tenants, to become a member of the RTM company, either before or after the RTM claim is made.

RTM: right to manage.

RTM company: the company which qualifying tenants must set up in order to make an RTM claim.

service charge: charges payable by a leaseholder to the landlord, management company or RTM company for services provided under the lease which typically relate to the building in which the leaseholder’s flat is situate and, often, appurtenant property.

shared appurtenant property: appurtenant property the ownership or enjoyment of which is shared between the occupiers of two or more buildings. It may or may not be exclusive to those buildings.

shared ownership lease: a shared ownership lease is a lease under which the leaseholder purchases a “share” of a house or flat (usually between 25% and 75%) and pays a normal rent on the remainder of the property. The lease generally permits the leaseholder to acquire additional shares in the property over time, usually up to 100%.

tenancy: see “lease”.

tenant: see “leaseholder”.

the Tribunal: the First-tier Tribunal (Property Chamber) in England and the Leasehold Valuation Tribunal in Wales.

tripartite lease: a lease made between three parties: the landlord, leaseholder and a third party. We use this term where the third party is a separate entity with obligations in the lease to manage the premises.

uncommitted service charges: service charges which have been demanded and paid by leaseholders but not yet spent or allocated to particular work or services.

unit: (under our recommendations) a separate, independent set of premises (whether or not on the same floor), which must form all or part of a building. A unit can either be a residential unit or a non-residential unit.

Valuation Report: Leasehold home ownership: buying your freehold or extending your lease: Report on options to reduce the price payable (2020) Law Com No 387, published in January 2020.

Leasehold home ownership: exercising the right to manage

To the Right Honourable Robert Buckland QC MP, Lord Chancellor and Secretary of State for Justice

INTRODUCTION

Enfranchisement is the right for people who own property on long leases (“leaseholders”) to buy the freehold or extend their lease.

The right to manage (“RTM”) is a right for leaseholders to take over the management of their building without buying the freehold.

Commonhold allows for the freehold ownership of flats, offering an alternative way of owning property which avoids the shortcomings of leasehold ownership.

HOME OWNERSHIP AFTER REFORM: A SUMMARY

Fit-for-purpose home ownership



PART A: HOW HOME OWNERSHIP CURRENTLY WORKS AND ITS PROBLEMS

Freehold and leasehold ownership

The inherent features of leasehold “provided the impetus for the development of commonhold, and remain at the heart of many criticisms of leasehold. They do not simply suggest the need for tighter regulation of developers and landlords in the interests of their leaseholders. Instead, they call into question the ability of the landlord-tenant relationship to deliver home-ownership, and provide an imperative for a radical increase in the control held by individuals over their homes. This change, which is reflected in the Law Commission’s three residential leasehold and commonhold projects, arguably marks a renewed focus on the home as a vital element in people’s financial and personal autonomy”.11

Leasehold as a valuable asset for landlords

Why are homes owned on a leasehold basis?

Flats
Houses
A source of income
Leasehold and feudalism

What is wrong with leasehold home ownership?

“too often leaseholders, particularly in new-build properties, have been treated by developers, freeholders and managing agents, not as homeowners or customers, but as a source of steady profit. The balance of power in existing leases, legislation and public policy is too heavily weighted against leaseholders, and this must change”.14 Housing, Communities and Local Government Select Committee

Criticisms based on leasehold ownership being inherently unfair
Criticisms of ways in which the leasehold market operates

been levied by landlords;

“For most consumers, buying a house or flat will be their largest purchase and investment. Because it is a relatively infrequent purchase consumers are unlikely to accumulate significant knowledge of the process or of the salient characteristics of different forms of property ownership. Further, while the value of the purchase may make the consumer cautious, the sheer magnitude of the purchase price will typically make other amounts of money involved seem insignificant by comparison”. Competition and Markets Authority18

“For landlords, property is fundamentally about money: both the capital value in the freehold and the income that is generated from ground rent payments, commissions, enfranchisement premiums and other fees. That is not to say that the profit generated cannot be used for good ends, and landlords come in many guises. ... But the fact remains that the primary value of property to many landlords is financial. And whether a particular landlord has observed better or worse practices does not alter the fact that, systematically, leaseholders still lack autonomy and control over their homes.

For homeowners, the home is also about money, but in a very different sense. It is about having a financial stake in the property in which we live; a stake we are increasingly being asked to draw upon to support us financially into retirement, as well as to support the next generation. But the more a person’s home is used as a financial asset to benefit their landlord, the less it is an investment for the individual. The more a leaseholder’s money is providing an investment for their landlord, the less their money is providing an investment for their own future, their family and their next generation.

For homeowners, however, the home is about more than money. Britain has famously been described as a nation of homeowners. Fulfilling the dream of home-ownership has long been many people’s ambition. Much of this ambition can be attributed to the non-financial, “x-factor” values that home-ownership encompasses, and which have become embedded in an ideology of home ownership. Our home is the focal point of our private and family lives; it is integral to our identity, reflecting who we are and the community we belong to. Bad law and bad practice that affect people’s experience in their home therefore have a particular impact on them. The current programme of law reform marks an opportunity to reform the law so that it can better deliver both the financial and non-financial benefits of home ownership”.20

Freehold ownership of flats: commonhold

Why has commonhold failed?

Stewardship and culture change23

PART B: LAW COMMISSION AND GOVERNMENT RECOMMENDATIONS FOR REFORM

The impact of COVID-19

Law Commission recommendations for leasehold and commonhold reform

and the right to manage are aimed at improving the existing system of leasehold ownership, to make it easier, quicker and cheaper to exercise leasehold rights.

Our starting point in these projects is the fact that leasehold ownership exists. Our recommendations are aimed at improving the law governing leasehold ownership.

you can use commonhold”. Professor Nick Hopkins, evidence to the Housing Select Committee28

Our starting point in this project is that it is not necessary for leasehold to be used as the mechanism for delivering home ownership. Rather, commonhold can be used instead, and we would go as far as to say that it should be used in preference to leasehold, because it overcomes the inherent limitations of leasehold ownership set out above. But commonhold can only replace leasehold if it is workable in practice.

“The right to manage and enfranchisement ... mitigate the systemic difficulties with leasehold. But commonhold alone removes those difficulties, delivering freehold ownership of individual flats or units, and collective freehold ownership and management of the common parts”.29

Our Terms of Reference
Improving leasehold: reform of leasehold enfranchisement
Improving leasehold: reform of the right to manage
The alternative to leasehold - re-invigorating commonhold

Government proposals for leasehold and commonhold reform

Ministry of Housing, Communities and Local Government

on an estate will contribute to (reasonable) shared costs - would be provided by the creation of “land obligations”: see paragraph 1.63(11) below.

we also want to look at ways to reinvigorate commonhold. ... This will help ensure that the market puts consumers’ needs ahead of those of developers or investors. We will also look at what more we can and should do to support commonhold to get off the ground working across the sector, including with mortgage lenders.57

Welsh Government

PART C: THE BIG PICTURE - HOW THE VARIOUS REFORM PROPOSALS FIT TOGETHER

Introduction

“The work of the Law Commission and of the Government brings onto the horizon an unprecedented level of reform of residential leasehold and commonhold. Lying at the heart of the work is an acknowledgement that leasehold home ownership has failed to deliver the benefits associated with being an owner, and that the systemic problems with leasehold mean that the tenure is ill-equipped to do so”.65

Overall aim: fit-for-purpose home ownership

Owners of future homes

We urge the Government to ensure that commonhold becomes the primary model of ownership of flats in England and Wales, as it is in many other countries. ... there is no reason why the majority of residential buildings could not be held in commonhold; free from ground rents, lease extensions, and with greater control for residents over service charges and major works. We are unconvinced that professional freeholders provide a significantly higher level of service than that which could be provided by leaseholders themselves”. Housing, Communities and Local Government Committee67

Leaseholders of existing homes
Ensuring freehold ownership itself is fit-for-purpose

Summary: reforms that lay the foundations for home ownership to be freehold

Laying the foundations for home ownership to be freehold

Existing homes

Future homes

Houses

Improved enfranchisement rights: existing leaseholders can buy the freehold

Leasehold house ban: new houses to be sold on a freehold basis

Flats

Improved enfranchisement rights: existing leaseholders can buy the freehold and convert to commonhold

Commonhold is available. Government to decide whether commonhold should be compulsory, incentivised, or optional.

leases: see paragraph 1.63(13); and

Figure 2: The big picture: how the various reform proposals fit together


Fit-for-purpose home-ownership

Leasehold and commonhold reform


Paving the way for the future: laying the foundations for homes to be able to be owned as freehold


Addressing problems for leaseholders in the present: essential reform of leasehold


Objectives



Reinvigorating (or requiring) commonhold for flats


Requiring freehold for future houses


Ensuring freehold is fit for purpose


4.3 million leaseholders of existing homes


Leasehold owners of future homes



• Leasehold house ban



• Restricting ground rents to zero




Key: Law Commission reforms Government reforms Potential further reforms


WHAT IS THE RIGHT TO MANAGE?

THE CURRENT LAW

Why claim the RTM?

PROBLEMS WITH THE CURRENT LAW

OUR PROJECT

Terms of Reference

THE CONSULTATION PAPER AND CONSULTATION PROCESS

The Consultation Paper

Consultation events

The consultation responses

Analysis of responses

Inequality of arms

THIS REPORT AND OUR RECOMMENDATIONS

Key recommendations and benefits

Notable changes from our proposals in the Consultation Paper

ISSUES BEYOND THE SCOPE OF OUR PROJECT

THE IMPACT OF REFORM

THE LAW IN WALES

NEXT STEPS

STRUCTURE OF THIS REPORT

PUBLICATIONS ACCOMPANYING THIS REPORT

ACKNOWLEDGEMENTS

THE TEAM WORKING ON THE REPORT

INTRODUCTION

(we refer to this as the “qualification requirement”).

THE RTM FOR LEASEHOLD HOUSES

Current law and problems

Consultees’ views

Discussion and recommendation

Recommendation 1.

Should leaseholders in houses have to follow the same process for claiming the RTM?

Consultees’ views
Discussion and recommendations

legal entity separate from the leaseholder(s). To deviate from this in the case of leasehold houses could require the implementation of a parallel RTM system designed solely for situations in which there is only one leaseholder.

Recommendation 2.

A NEW FOUNDATIONAL CONCEPT: RESIDENTIAL UNIT INSTEAD OF FLAT

Current law and problems

Consultees’ views

The requirement that the unit must be constructed or adapted for the purpose of a dwelling uses the definition from the 1993 Act, as opposed to designed or adapted for living in as used in the [Leasehold Reform Act 1967]. Is there a reason for preferring one to the other? Do they mean the same? There has been more guidance from the courts on the meaning of “living in”, although its exact meaning remains undecided.

Discussion and recommendations

Recommendation 3.

THE PHYSICAL SCOPE OF THE PREMISES WHICH QUALIFY FOR THE RTM

Current law and problems

Our proposals

The Consultation Paper

a structure which forms part of the land, changes the physical character of the land and has a degree of permanence.

Enfranchisement Consultation Paper

a built structure with a significant degree of permanence which can be said to change the physical character of the land.150

Consultees’ views

Proposal that any building should qualify for the RTM

[p]art of the problem is that, despite making the proposition that the emphasis should be more on management rather than physical structures, that proposition is not borne out by many of the proposals in this paper where the emphasis continues to be on buildings (however defined).

simplifying or changing the building definition is not of itself sufficient, and needs to be accompanied by a mechanism for splitting or determining management of significant shared services.

Alternative option - broad Tribunal discretion

I am rather hesitant about this answer, because it will probably lead to the First Tier Tribunal being involved more frequently, with resultant increase in cost, but, on balance, I think it is a wiser approach.

A divergent approach between the RTM and enfranchisement

RTM is a process that can be undone or changed over time, enfranchisement is a one off process that will then exist forever. RTM has limited costs involved for the participants, enfranchisement has significant costs for the participants. They are very different and can therefore have different qualifying criteria.

We consider the criteria for collective enfranchisement and for right to manage should be the same; because it is often the case that the right to manage may be a precursor to collective enfranchisement. Having different qualifying requirements may lead to confusion for both leaseholders and professionals.

Discussion and recommendations

“Building” or “part of a building”
Relaxing the “vertical division” requirement
Buildings or parts which are reasonably capable of being managed independently

Recommendation 4.

Recommendation 5.

Recommendation 6.

THE NON-RESIDENTIAL LIMIT

Current law and problems

25% of the total internal floor area (we refer to this rule as the “non-residential limit”).157

“Non-residential parts” are defined as any part of the premises that is neither comprised in common parts of the premises, nor occupied or intended to be occupied for residential purposes.158 The non-residential parts include business premises and other non-residential areas like storage rooms retained by the landlord.

Our proposals

The RTM
Enfranchisement

Consultees’ views

One particularly concerning example of the impact this exemption has, is of a leaseholder whose freehold was sold on, and the service charge increased from around £500 a year to £7,682. The homeowner could not ... [acquire the RTM] due to over 25 per cent of the building being non-residential. The result of this was that the homeowner, and other leaseholders in the building fell into service charge arrears. If a leaseholder defaults on service charges, they are at risk of the freeholder taking them to Court with the potential of losing their home under forfeiture of lease.

For the five leaseholders in our building this is the most important question in the consultation for us. We are currently prevented from converting to the RTM or collectively enfranchising because there is a shop on the ground floor that is greater than 25% of the building’s floor area.

it should not be possible for a group of flat owners to take over the management of large ... and potentially complex commercial space. If one imagines a tower block with offices and hotel in the lower half and residential units in the upper half, the flats should not be able to take over the building management of the hotel.

All occupants of our building, residential and commercial, seek to acquire RTM to escape a predatory management company. This appears to be the only option we have, but is blocked by the 25% rule.

Tenants will not realise or appropriately perform the responsibilities which come with an RTM claim and in taking over the management of a building, including in particular matters such as health and safety (cf Grenfell inquiry and Hackitt report) [sic].

If your proposals are adopted, we could potentially lose the management functions over the roof and structural parts of the buildings as well as the common parts and other areas and services common to the residential and non-residential units which fall outside a ‘flat’ or ‘other unit’. To suggest, as you do in para 2.139 [of the Consultation Paper] that ‘the RTM does not interfere with a landlord's property rights’ is incorrect.

Discussion and recommendation

If you imagine The Shard, the 30 leaseholders could take over the management of an area 300 times the size of the area they have an interest in. This is neither fair or sensible.

Recommendation 7.

ONE QUALIFYING TENANT ONLY

Current law

Our proposals

Consultees’ views

We are supportive of broadening the appeal of RTM. Accordingly, we cannot see any reason why a single residential premise should be prohibited from claiming RTM in the circumstances where there are no other residential premises or qualifying tenants.

this could result in one residential tenant taking over management against the will of one or more commercial tenants. It is a general issue, but would apply in particular if the 25% area rule is abolished.

the qualifying tenant would be able to acquire RTM [according to our single leaseholder proposal] ... This is not consistent with the approach taken [to] ... two-unit building with two qualifying tenants where, for wholly cogent reasons, it is proposed that both qualifying tenants would need to participate. Why don’t exactly the same arguments apply to a two-unit building with only one qualifying tenant? Would not the freeholder simply ensure that he grants to “himself” a lease of the other unit and thus bring himself within the “two qualifying tenants” rule?

Discussion and recommendations

Recommendation 8.

PROPORTION OF RESIDENTIAL UNITS HELD BY QUALIFYING TENANTS

Current law

Our proposals

Consultees’ views

Setting the requirement at a 'supermajority' of two thirds implies that the default -landlord / managing agent managing a property - is the safer option. In my experience this is emphatically not the case. Because the costs of landlord / managing agent failings or negligence are charged back to the leaseholders in any event, the freeholder actually has little or no incentive to do their job properly, on time or - sometimes, in our experience - at all.

Unless safeguards are introduced to protect the interests of social housing tenants, we do not agree that the requirement for at least two-thirds of the flats in the premises to be held by qualifying tenants should be reduced to 50%. We are concerned that this could ignore interests of social housing tenants. This is a particular concern because qualifying leaseholders will in many cases be nonresident. We believe there is a need to protect majority tenure.

We believe RTM should be allowed where there is a strong show of support from the leaseholders to legitimise taking away management from the landlord. We would therefore request that the current position of at least two-thirds is maintained.

Discussion and recommendation

Recommendation 9.

LEASEHOLDER PARTICIPATION IN AN RTM COMPANY

provides necessary protection for both landlords and non-participating leaseholders from the control of management rights by minority interests. In addition, it ensures a critical mass of participation in the RTM, providing the RTM company with legitimacy amongst residents within the building.182

PREMISES WITH ONLY TWO RESIDENTIAL UNITS

Current law and problems

Our proposals

Consultees’ views

we are aware of a number of leaseholders who have lived in a two-unit building where the other building is occupied by the freeholder and they have experienced huge abuses of power from the freeholder. Reform needs to ensure that this cannot continue to happen and thus we believe that the 50% rule should apply in a two-unit building.

Discussion and recommendations

Two residential units with two qualifying tenants
Two residential units with only one qualifying tenant
Comparison with recommendations in Enfranchisement Report

(in this case, the second leaseholder) to do so immediately thereafter, with the result that the freehold and management move back and forth between them - potentially repeatedly. This problem cannot arise in the RTM, as an RTM claim cannot be made over premises already being managed by an RTM company.198 Instead, the leaseholder who did not participate in the RTM claim has only two options: either join the RTM company set up by their neighbour and participate, or not.

Summary of final position

Recommendation 10.

INTRODUCTION

TYPES OF QUALIFYING TENANT

SHARED OWNERSHIP

Current law and problems

Our proposals

Consultees’ views

We support the proposal to include long leaseholders who are in a shared ownership scheme to be eligible for RTM regardless of whether they have staircased to 100% of ownership. We do not believe that RTM would interfere with the staircasing agreement in place anyway.

11

Discussion and recommendations

Recommendation 11.

TYPES OF LANDLORD

This includes where the property belongs to the Crown or where the Crown has an interest.216

RESIDENT LANDLORD

Current law

Our proposals

Consultees’ views

This exemption inhibits leaseholders from exercising rights enjoyed by other flat leaseholders and can mean that they have little protection in way of contesting decisions made by the resident freeholder... The landlord will be entitled to membership of an RTM company should it take over management. Even where the RTM is successful, the resident landlord will still have influence in voting on decisions.

In the first instance, we believe that the number of cases of resident landlords will be low as a starting point with many having sold on the lease. Where the small few remain, we believe that it would be unjust to deprive leaseholders’ access to RTM and subsequently the right to have a say in the management of the unit they own.

Resident freeholders wield too much power in the existing set up and can make life and finances extremely difficult for the leaseholder.

aware of a number of leaseholders who have lived in a two-unit building where the other building is occupied by the freeholder and they have experienced huge abuses of power from the freeholder. Reform needs to ensure that this cannot continue to happen and thus we believe that the 50% rule should apply in a two-unit building.

... an owner-occupier who remains living in their converted house may be more likely to be motivated by necessity than financial gain, unlike more commercial developers.

Consultees’ experience

The number of such cases are very small but the implications for the affected leaseholders can be considerable where the resident freeholder is acting in their own self interest as can often be the case.

Would this change deter homeowners from converting part of their property into leasehold flats?

We think this could well be the case. We do not see the need to override the right of resident freeholders to manage their own buildings.

Similarly, the Association of Residential Managing Agents commented:

Yes - although the chance for an owner to make some development income will be attractive, effectively ceding control of part of their property may deter them.

It's possible. But do people really convert houses into flats so that they can keep ownership? I'd imagine most are done for the money, which is often significant.

Discussion and recommendations

Recommendation 12.

MULTIPLE FREEHOLDERS OF THE SAME BUILDING

Removing the exclusion from the RTM

Current law and problems

Chapter 3).229

Our proposals
Consultees’ views
Consultees’ experience

I suspect that this is quite rare in practice, but it may be worth an amendment to work around any “avoidance” schemes that may otherwise be created.

Discussion and recommendations

RTM over their individual self-contained part, particularly as it may make sense for the building to be managed as one premises.

Recommendation 13.

Multiple freeholders - conflicting covenants

Current law
Our proposals
Consultees’ views

This seems an obvious area where the Tribunal is well suited to sorting out any complexities and making the scheme work in default of agreement.

Discussion and recommendations

THE NATIONAL TRUST

Current law

Our proposals

Consultees’ views

I believe that it would be extremely difficult to allow RTM on all National Trust properties due to the size of the estates involved and the complex responsibilities involved...

Similarly, a member of an RTM company said:

National Trust properties must be managed using particular knowledge and experience and should not be included.

I think the overall aims of the Trust could be preserved by giving say 40% of the votes in an RTM company so they could keep guiding the leaseholders, rather than refusing the right altogether.

Discussion and recommendations

Recommendations regarding enfranchisement
An exemption for other organisations?

BUSINESS TENANCIES

Current law and problems

Our proposals

Consultees’ views

Specifically live/work. This would massively help the residents of our block and quite a few others near by.

We should be mindful that there could be examples of people who live in their places of work and that as long as residential use is one of the permitted uses of the property, the leaseholder should not be disqualified from the RTM. This we believe would reduce another layer of bureaucracy in determining residential use.

If the lease allows for both residential and non-residential use, then the RTM right should not be allowed because commercial tenants could change use to residential to take advantage of the RTM right and then change the use back to commercial. The right should be for residential tenants where the lease allows residential use only.

Consultees’ experience

Discussion and recommendations

Recommendation 14.

INTRODUCTION

A NEW RIGHT TO ACQUIRE THE RTM IN RESPECT OF MULTIPLE BUILDINGS

Current law and problems

Our proposals

Consultees’ views

...no logical reason why a single company should not be able to acquire RTM in respect of more than one block. . Past RTM experience (prior to the Triplerose case) suggests that tenants of more than one block are content to do so. .

Discussion and recommendation

Recommendation 15.

CLAIMING THE RTM IN RESPECT OF A SINGLE BUILDING ON AN ESTATE

Current law

Our proposals

We thought that an “all or nothing approach” - where every building on an estate would need to be included in the RTM claim - was unduly restrictive. There may be difficulties in achieving the necessary levels of participation by qualifying tenants when more than one building is involved, and leaseholders may not want to have to take on the management of other buildings.

Consultees’ views

We agree that the complications associated with the exercise of an RTM over a single block on an estate do not justify depriving the tenants of the option of exercising the RTM in a way that they can under the current regime. This is especially true given that there are complications also in relation to the administration of an RTM in relation to a wider estate.

Discussion

REQUIREMENTS FOR BRINGING A MULTI-BUILDING RTM CLAIM

Qualifying and participation criteria applying to a multi-building RTM claim

Current law
Our proposals
Consultees’ views
Discussion and recommendation

Recommendation 16.

What “link” should be required between buildings in a multi-building RTM claim?

Our proposals
Consultees’ views

...the existence of appurtenant property or contribution to a common service charge does not necessarily mean that there is a ‘synergy’ between the properties that will lead to an ability to make smooth decisions as one collective property. .

Discussion and recommendation

Consultation Paper, we suggested that the buildings ought to be linked by shared appurtenant property or a common service charge. However, on further consideration, we think that there are likely to be many groups of buildings which meet one or other of these criteria, but which one would not ordinarily describe as forming an estate. Equally, there may be cases in which neither of these factors are present, but it is still desirable for qualifying tenants of the different buildings to claim the RTM together.

Recommendation 17.

JOINING AND LEAVING A MULTI-BUILDING RTM

Joining an existing RTM

Our proposals
Consultees’ views
Discussion and recommendation

Recommendation 18.

Leaving a multi-building RTM

Our proposals

RTM and acquire the RTM over their own building. The multi-building RTM company will then no longer manage that building.

Consultees’ views

Yes. It should be possible for qualifying tenants to form an RTM [company] for a property that has exercised the RTM provided they meet the criteria and follow the mandated process so that it is not an exercise that can only be completed once and remains an option for future leaseholders to exercise control over the management they receive.

...The net result of allowing them to do so would be little different in practical terms to the current position where multiple RTM companies can exist on one estate.

Discussion and recommendation

Recommendation 19.

Minimum period before leaving a multi-building RTM company

Our proposals
Consultees’ views
Discussion and recommendation

Recommendation 20.

GOVERNANCE OF MULTI-BUILDING RTM COMPANIES

Current law

Our proposals

Consultees’ views

We agree that voting rights should be uniform, to avoid unnecessary complexity and cost in the creation of different regimes. We do not consider that the benefits of the regimes considered in the Consultation Paper would justify that complexity.

...The one-size fits all requirement in relation to voting rights is already problematic in relation to complex buildings, and even some comparatively simple ones. .

Discussion and recommendation

association. The commonhold community statement would set out issues which could only be voted on by particular sections.300 It would allow distinctions to be made between residential and non-residential units or different buildings.301

Recommendation 21.

INTRODUCTION

THE RTM COMPANY STRUCTURE

Company type

Current law
Consultees’ views

All stakeholders engaged in the system such as solicitors, accountants and the tribunal service are familiar with the system in its present form and we cannot see any advantage in disrupting RTM in its current form.

Companies limited by shares ... can be exploited by unscrupulous landlords charging a lot of money for stock transfer forms and submission/replacement of share certificates.

Discussion and recommendations

Recommendation 22.

Using RTM companies as nominee purchasers

Consultees’ views

There may be times where the RTM members are willing and able to participate in the enfranchisement or conversion to commonhold and creating a new company to act as nominee purchaser would be unnecessarily burdensome.

Discussion and recommendation

Recommendation 23.

CREATION OF THE RTM COMPANY

Current law and problems

acquisition and exercise of the right to manage the premises;

Consultees’ experience of this practice

There are management companies which approach dissatisfied leaseholders enticing them to take over the management and appoint them as the managing agent- this management company forms the RTM at their own expense, the management company then appoint one of their own people as director ... and then invite leaseholders to join by promising them much cheaper service charges and better services.

Certain managing agents have identified an opportunity here, and actively promoted RTMs, recognising that the structure pretty much lets them off the hook since the

RTM company takes on all legal liability and the chances of the RTM company (and its amateur directors) then holding the managing agent to account under contractual law are very remote.

Consultees’ views

Discussion and recommendation

Recommendation 24.

ARTICLES OF ASSOCIATION

The current law

Terminology

Voting rights

Current law

company; but

Problems with the current law
Options for reform
Option 1
Option 2
Option 3
Discussion and recommendation

Recommendation 25.

General meetings

Current law and problems
Consultees’ views

We hold an AGM and directors serve four yearly terms. It is essential to keep members of the company involved and aware of ongoing issues.

Discussion and recommendation
Consequences of failing to hold a general meetinga

members to require the directors to call a general meeting. 364 If directors fail to do so, the members who request the meeting are entitled to call it at the company’s expense. 365

Recommendation 26.

COMPANY LAW REQUIREMENTS

The current law

Consultees’ views

Discussion

INTRODUCTION

EDUCATION OF RTM COMPANY DIRECTORS

The current position

Consultees’ views

If people are not prepared to give up a few hours for such basic training, they are unlikely to be the right sort of person to take on the role in the first place.

Despite different directors being in place over time; none had an understanding of the legal liabilities. They thought they were on the board of a glorified residents’ association, with no responsibility^

Discussion and recommendation

Who should undertake training?
A mechanism for incentivising director training
Topics for training

below;390

Format of training
Benefits of director training
Impact of the Regulation of Property Agents: Working Group Report

Recommendation 27.

Who should provide training?

Consultees’ views
Discussion and recommendation

Recommendation 28.

RTM COMPANIES’ USE OF PROFESSIONAL MANAGING AGENTS

The current position

Our proposals

Consultees’ views

The repeated failure of remote external management agents that met the regulatory standards to effectively manage [our property] was central to our decision to establish an RTM in the first place.

Discussion

Impact of RoPA recommendations

Some [RTM companies] will manage the properties themselves, while others will employ a managing agent in turn (who will be covered under our proposals). While some of these companies are very small bodies for whom full regulation would be disproportionate, some are substantial entities upon whom many leaseholders depend. We have raised this with the Minister of Housing and Homelessness who confirmed these companies as out of scope at this time, not least because the Law Commission, as part of its 13th Programme of Law Reform, is looking specifically at Right to Manage. Following the conclusion of this work, we expect Government will make clearer its intentions in this regard.

Specific cases where a managing agent could be mandatory

More than 25% commercial property

It is important to not only think of large commercial operations but also of smaller store owners who are involved in the communal life of their building, and thus happy to engage in communal management without the need for outside assistance, particularly in smaller blocks where the management requirements can be comparatively simple.

Premises over a certain size
Buildings with special characteristics

...many retirement villages do not have “regulatory activities” and are nothing more than housing estates with internally organised activities.

High rise residential buildings over 18 metres high
RTM company failing to comply with legal and regulatory requirements
Where an application is made to the Tribunal

INTRODUCTION

NOTIFYING LEASEHOLDERS OF A FORTHCOMING CLAIM - THE NOTICE INVITING PARTICIPATION

Current law and problems

Our proposals

Consultees’ views

Abolition of the notice inviting participation and associated costs

only if RTM is exercised by over 50% of qualifying tenants... A notice could be required to be left at each tenant’s property that is subject to the RTM... A declaration or statement of truth that this was done could be completed to which the landlord could not object.

all non-participating leaseholders have a right to know what is taking place. They need to be contacted. . In our experience the sending of NIPs usually results in more leaseholders becoming members. Many sitting on the fence get the NIP and realise the process is actually happening and this prompts them to join. They are also entitled to join at this stage without contributing to the cost, which is an added incentive.

a small group of leaseholders could decide to form an RTM, that would then claim the right to manage, and subsequently act in a manner that is not acceptable to the majority of leaseholders who are not fully informed about what is going on.

Statement in notes to claim notice as to right to participate

Discussion and recommendations

Recommendation 29.

Recommendation 30.

SIGNING THE CLAIM NOTICE

Current law

Our proposals

Consultees’ views

Should there be a requirement for a signature?

we do not consider that a signature should be obligatory as this would reduce the scope for arguments by the landlord as to the validity of the signature and by extension the validity of the notice.

Who should sign the claim notice?

Discussion and recommendations

Recommendation 31.

THE CLAIM NOTICE - WHO NEEDS TO BE SERVED?

Current law and problems

Discussion and recommendations

Recommendation 32.

Procedure if the landlord cannot be found

SERVICE OF NOTICES

Current law

Overview of our recommendations concerning service of notices

SERVICE BY EMAIL

Current law and problems

Our proposals

generally; or

Consultees’ views

Service by email to landlords

the proposal would modernise the process and make the process more efficient for all parties. We can not see any grounds for rejection.

Our concern is that addresses stated at the Land Registry often become outdated, in which case notices served at those addresses may not be received, which could result in litigation and uncertainty.

Service by email to qualifying tenants

Long overdue to give the option of electronic service. We have had [no] issue with using email for this purpose anyway and the Tribunals have upheld email service.

Discussion and recommendations

Service of notices by email generally
Service to qualifying tenants by email

Recommendation 33.

Recommendation 34.

DEEMED SERVICE OF CLAIM NOTICES

Current law and problems

Our proposals

Consultees’ views

Discussion and recommendations

Service at other addresses
Application to notices other than the claim notice

Recommendation 35.

but, in each case, only where the address has been provided within the 12 months preceding the service of the claim notice.

provided by the landlord:

but, in each case, where the address has been provided more than 12 months preceding the service of the claim notice.

STARTING A CLAIM: PRE-SERVICE CHECKS

Our proposals

Our proposals: missing landlord procedure

The purpose of the checks

passed to another, and provide for deemed service at an alternative address in such cases as follows:

Consultees’ views

there are limitations in respect of the address for service details we hold, which may make this approach less effective than you intend. Whilst HM Land Registry publish details on how to update address information and provide the option to have an email address for service detailed in the register, the onus is on landlords to inform us of any changes. In our experience this often gets overlooked, and we do not currently have a mechanism for ensuring that this is done in all cases.

A Group A address could be available but the landlord could equally have died or been made insolvent. Either applicants should do the pre-service checks in all cases, or only where a response to the claim notice is not forthcoming within a designated period and the participants wish to proceed with the RTM application.

Far too complicated and will stop RTMs being formed and claims issued. The current process is fine - add in email service and simplify identification of address to be used - either section 47/48 address or HMLR address.

Enfranchisement is taking something away - it is more serious. [The landlord] has to make sure that the lessees have an address for the service of notices if it’s out dated that's their look out. Just the same as the lessee who receives letters under the lease at their flat but has no arrangement for forwarding. Under the Lease they will have 'received' it.

The current rules are fine - there will always be an address at HMLR or Companies House or via service charge demands. The number of cases where this is not so is minimal and less than 0.0001%.

a statement of truth is to our mind an unnecessary obstacle and opens the door to potential litigation by the landlord as to the nature and extent of any checks that have been allegedly carried out.

Discussion and recommendations

Should any pre-service checks be required?
What should the specified checks be?

Recommendation 36.

Recommendation 37.

Companies House; if no such person has been appointed, the Official Receiver should be served.

Recommendation 38.

THE COUNTER-NOTICE

The counter-notice: service

Current law and problems
Consultees’ views

A new RTM registered office might not be the main address being used for the RTM claim i.e. the claim could be being handled by their lawyer or other professional advisor. It makes more sense to allow the proposed RTM to nominate an address separate from the registered office if it wishes to do so.

It adds flexibility but is not going to change things - most RTMs are registered to the company undertaking the work so the address will just be the RTM registered office address.

Given the sanctions that could arise for failure to serve a counter-notice, we believe service should be by post so that delivery can be proven.

I do not think an email address is a good idea for reasons of arguments about proof of delivery and receipt.

Discussion and recommendations

Recommendation 39.

The counter-notice: content

Current law and problems
Our proposals
Consultees’ views

might require landlords to put more work in at an early stage and to seek more thorough advice but this is an appropriately distributed burden and is preferable to the current arrangements.

An excellent idea, would stop some of the spurious objections, waste of Tribunal's time, and unnecessary expense. The response to the objections could be properly investigated and the response prepared before the Tribunal hearing.

the landlord who serves a counter-notice finds himself in a less advantageous position than one who does not. In the latter case, the Tribunal will need to be satisfied that the RTM company was entitled to make the claim and as part of its “expert role” would not be inhibited from raising any relevant issues. The Tribunal still needs to be satisfied, whether or not the landlord is represented.

if an expert tribunal can see that an RTM is not entitled for just reasons, it should still have the power to give that determination regardless of whether it is in the counternotice.

The Cadogan Group made a similar argument.

[I]f the landlord must go beyond indicating which section is relied upon for the purposes of opposing the claim, it will immediately escalate costs potentially to the tenants’ disadvantage, as the landlord will need in short order to obtain comprehensive legal advice to ensure that points are not overlooked.”

Discussion and recommendations

Recommendation 40.

and may do so subject to such directions as it considers fit, including in respect of costs.

WHERE NO COUNTER-NOTICE IS SERVED

Current law and problems

Optional Tribunal consideration of claim

Our proposals
Consultees’ views

there should always be a presumption that the landlord should be heard on any application to the Tribunal unless it is not just and equitable through his conduct that he should be heard.

it will certainly be abused by landlords, who will in our opinion, just stop serving counter-notices and force every RTM to go through the Tribunal hoops ... If a landlord subsequently finds grounds for saying the RTM Co is not entitled to manage it can serve a notice on the RTM Co requiring it to comply, hand back management or apply to the Tribunal to either terminate the RTM or appoint a manager.

as pointed out, the issue of the acquisition of management functions over nonexclusive appurtenant property will affect not just the landlord but also other leaseholders in other buildings. Should not those other leaseholders also have the right to be heard on an issue which might have a significant impact on them?

Discussion and recommendations

Landlord to apply to be heard

Our proposals
Consultees’ views

the Tribunal should be alive to the possibility of the landlord tactically and deliberately deciding not to serve a counter-notice and then when applying later for permission to participate in the proceedings give an excuse for the non-service and then set out objections to the RTM. We are concerned that as the Tribunal is dealing with new law they may be lenient initially. In deciding whether it is just and equitable to permit a landlord to participate in any proceedings the landlord’s behaviour and motives should be taken into account.

Discussion and recommendations

Recommendation 41.

appurtenant property.506

Recommendation 42.

NO RESPONSE TO COUNTER-NOTICE: ABOLITION OF DEEMED WITHDRAWAL

Current law and problems

a leaseholder’s enfranchisement claim under the 1993 Act will be deemed to have been withdrawn if one of many deadlines for the progression of the claim are not met. The effect has been to create a series of traps into which leaseholders may fall, causing their claim to be treated as having been withdrawn, and making them liable to pay the landlord’s non-litigation costs.

Consultees’ views

We agree with this proposal and consider that it is helpful that any reforms between the enfranchisement legislation and the right to manage legislation be aligned as far as possible.

The situation in RTM is different from enfranchisement. RTM does not result in a transfer of property. Many of the issues in RTM have been as a consequence of Parliament and subsequently lawyers and the judiciary seeming to think that the two processes should be the same. The issue of withdrawal should not be a problem in practice. If a claim is deemed withdrawn it is not fatal. Unlike enfranchisement the RTM company can immediately give a new claim ... Your proposal will just add more time and costs to the process, with no real benefit.

Part of the problem with the enfranchisement proposals on this is that the liberalised procedural regime . does not impose any procedural time limits on the leaseholder. In consequence, the proposal that the landlord who has served a counter-notice can apply to strike out a claim if the leaseholder has missed a procedural time limit is completely toothless. It is not clear at present whether this will also be the case for RTM.

the threat of Tribunal and the costs and time associated with it are very real to leaseholders. If this change introduces a new way of the threat of Tribunal being used as a barrier to prevent unit holders wishing to apply for RTM then that is not good.

Discussion and recommendations

Having considered the timeframes of other aspects of the RTM claim process and the potential complexity of counter-notices (particularly in large and mixed-use developments), we think that the right to apply for a declaration that the RTM claim is withdrawn should only arise after six months. In effect, this increases the period in which the RTM company may apply for a Tribunal determination following a negative counter-notice from two months to six months.

Recommendation 43.

CHALLENGES TO THE VALIDITY OF NOTICES

Current law and problems

Consultation Paper and above, the distinction between an inaccuracy and a more serious error is not always easy to draw. The omission of required information or failure to comply with the prescribed form are both errors which Tribunals have found to invalidate the claim notice.515

General law of non-compliance with statutory duties
The general approach applied to RTM legislation

Parliament has specifically considered the case in which, at least in some circumstances, a claim notice has been given to some landlords but not all of them and has decided that that does not invalidate the claim. It cannot therefore be said that giving a claim notice to everyone entitled to receive it is necessarily an essential feature of the statutory scheme.

Summary of the position of the current law

the Government may wish to consider simplifying the procedure further, or to grant the [Tribunal] a power to relieve against a failure to comply with the requirements if it is just and equitable to do so. Otherwise I fear that objections based on technical points which are of no significant consequence to the objector will continue to bedevil the acquisition of the right to manage.

Specification of errors which can lead to validity

Our proposals
Discussion and recommendations

Recommendation 44.

or

or

or

Claim notices - waiver of invalidity and amendment of defects

Our proposals
Consultees’ views

allowing anyone to get away with ... prolonging processes just due to technicalities when it's clear what was intended is time-consuming, [and] wasteful for both courts and all parties. . You cannot make a one size fits all, so it's imperative that differences are allowed for different properties and situations.

For example, if a claim notice is amended (does its validity need to be challenged first, before an amendment can be made?) would the landlord then be able to serve another counter-notice? Would copies of the amended claim notice need to be given to all the other persons who received copies of the original notice? If the claim notice is amended, does that amended notice take effect (as amended) from the original service date or from the date of amendment?

Discussion and recommendations

Recommendation 45.

Recommendation 46.

Recommendation 47.

Counter-notices - waiver of invalidity and amendment of defects

Our proposals
Consultees’ views

seems fair at first sight, but I would be concerned that some of these ‘genuine mistakes’ may result from the negligence or incompetence of the landlord or his agents... Therefore you would have to be very careful that this didn't just create a get-out or introduce delays for poor standards at the freeholder end of the process.

Discussion and recommendations

Recommendation 48.

Recommendation 49.

Recommendation 50.

How Tribunal discretion should be exercised

Recommendation 51.

THE ACQUISITION DATE

Current law and problems

Timeframes between determination date and acquisition date

Consultees’ views
Discussion and recommendations

We therefore recommend that the RTM company should be able to nominate an acquisition date in the claim notice which is earlier than the three-month minimum if the landlord has agreed to this course of action before the filing of the claim notice. There is to be no penalty or enforcement of this provision should the landlord refuse to consent: this aspect of the recommendation is designed only to streamline the process in non-acrimonious cases. We do intend for this to become yet another avenue to the Tribunal.

Recommendation 52.

Recommendation 53.

Recommendation 54.

is entitled to acquire the RTM becomes final; and

should be three months.

Recommendation 55.

Acquisition date is not specified in the claim notice

Consultees’ views

,..[W]e would prefer the right of an RTM Company to amend a defective notice and/or the requirement on the RTM Co and the landlord to use their best endeavours to agree an acquisition date and only when the efforts are exhausted should it be referred to a Tribunal. ... [Tribunals are already overloaded and don’t need to be bogged down with trivial issues.

Discussion and recommendations

this could mean that the RTM is acquired by default without the knowledge of either party. This is undesirable as both parties would be unprepared for the transfer of management responsibility.

Recommendation 56.

Tribunal power to amend the acquisition date

Consultees’ views

RTM company should write to the landlord seeking agreement to change the date. It would only go to the Tribunal if the landlord “unreasonably refused”.

Discussion and recommendations

management or unreasonably frustrate the acquisition of the RTM; or

Should we extend this right to landlords?

Recommendation 57.

Acquisition date is three months from counter-notice deadline

Counter-notice deadline is onemonth from claim notice service date and acquisition date three months after that

INTRODUCTION

RIGHTS TO INFORMATION IN ADVANCE OF AN RTM CLAIM

A new right to more extensive information before making a claim?

Current law and problems
Our proposals
Consultees’ views
A right to more extensive information in advance of the RTM claim?
Process for exercising new right to obtain information at an earlier stage

Option two is preferred so that the RTM and landlord can have a proper exchange of documents before a claim is submitted. This would ensure that both are fully informed of and can begin discussions on future liabilities.

Discussion and recommendations
Should RTM companies be entitled to more extensive information before making a claim?
Process for obtaining information in advance of an RTM claim

Recommendation 58.

RIGHTS TO INFORMATION AFTER RTM CLAIM HAS COMMENCED

A new right to obtain information to assess landlord objections to the claim notice

Recommendation 59.

Right to obtain information that is reasonably required to exercise the RTM

Current law and problems

All that was handed over was a small cardboard box with random documents in it. Our new managing agent’s accountants went through everything and basically told us to start from scratch which we did.

Our proposals
Consultees’ views

“clearly identifying relevant information” would be helpful to both parties. Jane Gregory, a leaseholder, added that:

If you want to extend this right to as many people as possible, then a form can help them get the right information into a useful form.

Discussion and recommendation

exclusive appurtenant property;

Recommendation 60.

TIMING AND ENFORCEMENT OF INFORMATION RIGHTS

Current law and problems

Our proposals

Consultees’ views

Discussions and recommendations

Recommendation 61.

Recommendation 62.

Enforcement

COPIES OF THE LEASE

Our proposals

Consultees’ views

Do RTM companies need a copy of the lease?

... as leases may have been varied, it is important to be aware that we cannot make an assumption that all leases on a development or in a block are the same.

Do RTM companies currently receive a copy of each lease?

[This has] caused many management problems that would have been avoided if we knew at the outset what the differences are.

Cost versus benefits of providing copies of the lease

Discussion

the 2002 Act.

MATERIAL CHANGES TO INFORMATION PROVIDED

Our proposals

Consultees’ views

the RTM company must be kept fully informed so that they proceed with full knowledge of the facts.

There needs to be some cut-off date. Otherwise a claim might never be made but a landlord would find himself under this obligation for an infinite time. So, the obligation could cease if a RTM claim is not made within a period of say 6 months from the date of the response notice or (in the event of a claim being made within that period) on the date that it is held to be ineffective or is withdrawn.

The acquisition date is too late. It should ideally be 28 days and in any event at least 14 days before the acquisition date...

Discussion and recommendations

Right to request information to complete the claim notice
New right to request information to decide whether to claim the RTM

landlord responding to the RTM company’s request for information, six months from the date when the landlord responded to the request.

Right to request information following a negative counter-notice
Right to request information reasonably required in connection with the exercise of the RTM
Enforcement of the landlord’s obligation

Recommendation 64.

Recommendation 65.

Recommendation 66.

Recommendation 67.

COSTS OF COMPLYING WITH INFORMATION RIGHTS

Current law and problems

Our proposals

Consultees’ views

Allocation of costs
An exception for disproportionate expense

Long Harbour and HomeGround, a landlord and an asset manager, also supported expanding the proposed exception to other managers providing information to the RTM company, such as residents’ management companies and managing agents.

Discussion and recommendations

Costs of providing information before the RTM claim is made

the cost of providing information before the RTM company has confirmed its intention to proceed by issuing the claim notice.

Costs of providing information after the RTM claim is made

Recommendation 68.

SUMMARY OF INFORMATION RIGHTS

Obligation to provide information

Up to and including claim notice

Content of request:

New pre-claim right Information reasonably required to decide whether to claim the RTM.

Section 82 right Information reasonably required to complete the claim notice.

Content of request:

New right to information about objections

If the landlord has served a counter-notice alleging RTM company not entitled to RTM, RTM company can request any information reasonably required to decide whether to apply for Tribunal determination that RTM company is so entitled.

Content of request:

Section 93 right Information reasonably required in connection with the exercise of the RTM.

Timing:

New pre-claim right

RTM company may request information before giving claim notice.

Landlord or other relevant person must respond within two months of receiving the request.

Section 82 right

Landlord or other relevant person must respond within 28 days of receiving the request.

Timing:

New right to information about objections

RTM company can make request after counternotice has been given, but before the determination date (as defined at paragraph 9.70 above). Landlord or other relevant person must respond within 28 days of receiving the request.

Timing:

Section 93 right RTM company can serve section 93 notice at any time on or after determination date. Landlord must respond within 28 days of receiving the request. Depending on when the RTM company serves the section 93 notice, this may fall after the acquisition date.

Costs:

New pre-claim right

RTM company pays the landlord or other relevant person’s reasonable costs of responding to request.

Section 82 right

RTM company pays the landlord or other relevant person’s reasonable costs of responding to the request.

Costs:

New right to information about objections Landlord or other relevant person bears their own costs of responding to the request.

Costs:

Section 93 right Landlord or other relevant person bears their own costs of responding to the request.

Obligation to notify the RTM company of material changes to information provided

Method for requesting information

Section 82 right

Date the information is provided.

Earlier of:

  • 1. The date that the RTM company serves the claim notice; or

  • 2. Six months from the date on which the landlord responds to the RTM company’s request for information.

New pre-claim right

Date the information is provided. On the acquisition date, the landlord should confirm that there are no material changes to information already provided.

Did the RTM company issue a claim notice within six months of the RTM company responding to the RTM company’s request for information?

If yes, the earlier of:

  • 1. The acquisition date;

  • 2. The negative determination date; or

  • 3. The date that the claim notice is withdrawn or deemed to be withdrawn.

If no, six months from the date when the landlord responded to the request.

New right to information about objections

Date the information is provided.

Earlier of:

  • 1. The positive determination date;

  • 2. The negative determination date; or

  • 3. The date that the claim notice is withdrawn or deemed to be withdrawn.

Section 93 right

Date information is provided.

Earlier of:

  • 1. The acquisition date;

  • 2. The negative determination date; or

  • 3. The date that the claim notice is withdrawn or deemed to be withdrawn.

IMPACT OF DATA PROTECTION LEGISLATION ON INFORMATION RIGHTS PROPOSALS

PROVISION OF INFORMATION ABOUT MANAGEMENT CONTRACTS

Current law and problems

without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. 617

Our proposals

Consultees’ views

In my situation the previous management company, [named company], failed to provide any information to our new management company which caused numerous problems. There was no system of complaint or redress. This needs to change to make it compulsory to provide information to new management companies.

The current system works very well, with all contracts deemed terminated at handover. It would be useful to have details of contracts early but the RTM company can then tell the contractors if it wants to keep them on - no need to involve the landlord in this, who will not be incentivised to do this well or possibly at all.

Discussion and recommendations

Recommendation 69.

Recommendation 70.

INTRODUCTION

MANAGEMENT FUNCTIONS - GENERAL

Current law and problems

Management functions are defined as functions with respect to services, repairs, maintenance, improvements, insurance and management.628 As we discuss in the next chapter, the RTM company also acquires functions relating to the grant of approvals under long leases of the premises.629

Our proposals

Consultees’ views

We consider that the definition could be expanded and made more detailed to provide greater clarity as to what is intended to be included within the meaning of Management Function.

Discussion and recommendations

Recommendation 71.

MANAGEMENT FUNCTIONS - REGULATED ACTIVITIES

Current law and problems

Our proposals

Consultees’ views

Should RTM companies acquire functions relating to the provision of regulated health and social care?

We believe it is unlikely that an RTM company will possess the requisite skills and competencies to manage these services, and ultimately this could put vulnerable people at risk.

The proposal as it stands would allow new operators to “cherry-pick” only those services they saw as more straightforward or more profitable. For example, they might not be willing to take on loss-making care services from the operator (which might be subsidised by the existing operator, and recouped via deferred fees).

This in turn would be likely to significantly reduce the certainty and quality of services enjoyed by residents and would be likely to undermine future investment decisions.

There is no reason why an RTM could not buy such services in, but there may be good reasons to want to make it optional whether the RTM wants to take this on or not.

Are any other changes to the current law needed?
Are there any other regulated activities which RTM companies should not acquire?

The expertise in handling resales (assignment of leases) is not a regulated activity as such but it is an area of expertise that some RTM’s struggle with as it involves giving certifications to solicitors and the Land Registry. This may be a function that some RTM’s may wish to transfer back to the landlord.

Discussion and recommendations

Recommendation 72.

MANAGEMENT FUNCTIONS - INSURANCE

RTM companies’ right to obtain information about insurance

Current law and problems
Our proposals
Consultees’ views

Insurance companies cannot accurately quote without this information, so I don’t know how getting insurance would work without it. My guess is that we will save a third off insurance when we get the RTM if we have this information.

...empower the RTM company in the insurance market place and that without the claims history the choice of insurance products would be limited.

Discussion

Ensuring RTM companies can properly exercise their insurance functions

Current law and problems
Our proposals
Consultees’ views
Clarifying that RTM companies have an insurable interest in the premises

It is important to everyone that the legal position regarding RTM and insurance is clear. Parties need to be able to establish who is entitled to insure a property and who is entitled to an indemnity under the insurance. For the benefit of consumers, third parties and insurers, reputable insurers wish to avoid disputes over which insurance operates in any particular case and avoid costly disputes.

Reinstatement policies

Underinsurance will be detrimental to all parties (landlords, RTM company and tenants) as it could mean they will not be fully covered in the event of a loss.

Giving RTM companies the duty to reinstate the building may help to reduce the risk of the sums insured being inadequate.

We have to remember that the RTM [company] has no assets and so cannot reinstate save to the extent that it receives the insurance monies. So, if it has underinsured (or decided that the property should be insured only to the limited extent required by the lease) what happens then? If you take a London Estate landlord, he will have the resources to re-instate regardless of what is recovered through the insurance policy; a RTM company has no assets.

Split insurance between [the] landlord and RTM company is likely to create litigation between insurance companies seeking to avoid liability.

Discussion and recommendations
Clarifying that RTM companies have an insurable interest in the premises
Reinstatement policies

Recommendation 73.

Landlords’ right to obtain information about insurance

Current law and problems
Our proposals
Consultees’ views
Discussion and recommendations

Recommendation 74.

Enforcing RTM companies’ compliance with insurance obligations

Current law and problems
Our proposals
Consultees’ views
Applying to the Tribunal
Remedies for under-insurance

... would represent something of an unusual power for the [tribunal] to exercise as it would amount to an order for specific performance. Further, absent some form of effective enforcement mechanism, it may be somewhat meaningless and/or force a landlord to take the matter so far that the RTM company loses the RTM (eg through insolvency).

Purchasing additional insurance

A scheme for which NHG retains the landlord interest as freeholder is managed by an RTM company that has employed agents to ensure the cost of insurance is kept to a minimum. As a result, their insurance does not provide cover for subsidence, heave and landslip or for terrorism and wet perils whilst covered are subject to very high excesses. Whilst the insurance cover obtained by the RTM company’s agent might be acceptable to the RTM, [it] is not acceptable to our lenders and so we have had to arrange contingency cover for the scheme.

The cost is greater than the actual buildings premium would have been if insured by the landlord. The 2018 premium was some £5,623. The contingency policy is not recoverable from the RTM nor any of the leaseholders within the scheme and therefore has become a non-recoverable annual expense to the landlord.

Discussion

the insurance policy to be put in place will result in fewer applications being made for existing enforcement actions in the context of insurance obligations.

Reinstatement valuations

Current law and problems
Our proposals
Consultees’ views

Bearing in mind that RTMs tend to be run by lay volunteers, would this involve penalising the RTM company if it fails to do so? If so, this would put them at a disadvantage, as compared with other landlords and management companies that are not subject to such a legal duty.

Discussion

Information on insurance obligations should be part of our recommended training provided for RTM company directors that we discuss in Chapter 7.67

MANAGEMENT FUNCTIONS - APPURTENANT PROPERTY

Current law and problems

appurtenant property irrespective of whether they have claimed it.688 Since the publication of the Consultation Paper, this issue has been appealed to the Supreme Court on the basis that Gala Unity was wrongly decided.689 We have not yet had the benefit of the Supreme Court’s views on the matter.

Our proposals

Consultees’ views

... On most multi-block estates the appurtenant property is common parts, it is shared non-exclusively. That is the norm. It is difficult to think of an estate where this is not the case. So this would in most cases eliminate appurtenant property from RTM completely.

.it does not fully achieve the overriding objective of giving tenants the right to manage their own affairs. On an estate, a significant element of the service charges is likely to relate to estate common parts. If the proposal is implemented, tenants will be unable to have any right to control this element of service charges.

Discussion and recommendations

Landlord does not object to the acquisition of the RTM
Landlord objects to the acquisition of the RTM

accordance with such directions as the Tribunal considers appropriate; or

Recommendation 75.

A POWER TO VARY LEASES

Current law and problems

Variation of leases under Part 4 of the Landlord and Tenant Act 1987

Our proposals

Discussion and recommendations

Recommendation 76.

THE SERVICE CHARGE “POT”

Current law and problems

Delays in receiving the uncommitted service charge monies
Service charge arrears

Four leaseholders exercise the RTM for their building which has four flats, each paying 25% of the service charge. At the RTM acquisition date, the service charge pot contains £750. The landlord has incurred a £50 charge for gardening in the week before the RTM company acquires management functions but has not yet paid this charge. The landlord does not need to consider which leaseholders have paid their service charges and which have not as the sum in the service charge pot is sufficient to cover the costs incurred by the landlord prior to the acquisition date. The landlord retains the £50 to cover the gardening charge, and is obliged to hand over the remaining £700 to the RTM company.

At the beginning of the service charge year, on 1 January 2021, the balance in the service charge account is £0. The landlord’s budget for the year anticipates £4,000 of expenditure.

The landlord therefore demands £1,000 from each leaseholder as service charges on account of expenditure to be incurred.705 Leaseholder 1 pays £0. Leaseholder 2 pays £300. Leaseholder 3 pays £600. Leaseholder 4 pays £1,000. The total collected by the landlord is £1,900.

The RTM company exercises the RTM. The acquisition date is 1 August 2021.

Before the acquisition date, the landlord incurs costs of cleaning, insurance and gardening totalling £1,200. Deducting the actual costs of £1,200 (including the £50 gardening which the landlord has not yet paid) from the £1,900 collected by the landlord, that leaves the £700 in the service charge pot on the acquisition date. Each leaseholder’s actual contribution towards those costs should be 25% of the £1,200, or £300. However, this is not what has actually happened. Instead, Leaseholder 1 has underpaid as against actual expenditure by £300. Leaseholder 2 has paid the exact amount required. Leaseholder 3 has effectively overpaid by £300.

Leaseholder 4 has overpaid by £700.

The landlord is only obliged to hand over the £700 in the service charge pot to the RTM company. The RTM company has no right to collect the underpayment of £300 from Leaseholder 1. The landlord has no incentive to collect it because they have already covered the actual expenditure using the funds received from Leaseholders 3 and 4, and so would have to give any money recovered from Leaseholder 1 to the RTM company. Leaseholder 3 should have a credit on their account for £300 and Leaseholder 4 should have a credit of £700 on their account (reflecting their overpayments) but the RTM company cannot show this because it has only received £700 from the landlord. Leaseholder 1 should have a debit on their account of £300

(reflecting the underpayment) but the RTM company cannot show this because they cannot recover that £300 from Leaseholder 1. Leaseholders 3 and 4 have effectively subsidised Leaseholder 1.

Our proposals

Consultees’ views

Delays in receiving uncommitted service charge monies

We feel that it is reasonable to summons the landlord to pay 50% of the estimated uncommitted service charge and the remainder in six months. We feel this would be sufficient time to ensure the amount held is the amount collected and to simultaneously ensure that landlords can respond.

Service charge arrears

It is likely to lead to disputes between the parties that will be difficult to resolve - for instance, where a landlord says it is not taking further steps to recover arrears because of perceived likely defences that it may consider unmeritorious but that commercially prevent it being worthwhile to pursue. A ‘mini-trial’ of the likely defences to establish ‘reasonable endeavours’ would be time-consuming and expensive in circumstances where residential service charge arrears are often comparatively modest.

the requirement should be to require the landlord to use “best endeavours” which would include going so far as taking steps to forfeit the lease...

The Commission should in our view consider further a mechanism for the assignment of the rights to pursue such arrears to the RTM, and the ability to bring into any such proceedings the landlord if defended on grounds in relation to which the RTM has insufficient knowledge.

...the reality is that it would be very difficult for an RTM company to pursue such arrears absent cooperation from the landlord in the event that such claims were defended, and it would be unfair to expect a landlord to commit money and other resources to such litigation given the no-fault basis inherent in the RTM regime.

They have a lacuna in their finances until they are able to issue new service charge demands. This sometimes results in demands being made outside of the legal ability to do so afforded by the lease.

Discussion

Delays in receiving uncommitted service charge monies
Service charge arrears

Recommendations

Delays in receiving uncommitted service charge monies
Uncommitted service charges monies and treatment of arrears

This example is illustrated in Figure 4, on page 302 below.

Recommendation 77.

RECOVERY OF MANAGEMENT COSTS THROUGH THE SERVICE CHARGE

Current law and problems

The liability of the tenant to the landlord in respect of service charges is to be ascertained purely by reference to the terms of the lease, and the fact that the management functions are exercisable by an RTM company does not affect the construction of the lease under these provisions.

Our proposals

Consultees’ views

At present only the leaseholders undertaking the process pay for the costs. This needs to change.

This is a major issue for us. We have only just been made aware by our solicitor that we may not be able to recover all our costs via the service charge. This came as a big shock to us, as our only source of income is the service charge. It means the RTM directors either have to pay out of our own pockets or the RTM becomes insolvent. It will also deter any potential directors from joining the board if they believe they may be personally liable in this way.

Discussion and recommendations

Recommendation 78.


Pre-exercise of the right to manage



To 1 August: Incurs costs


1 August 2021 Service charge pot: £700







INTRODUCTION

PROCESS FOR GRANTING APPROVALS

Current law and problems

Lease approvals once the RTM is acquired
Delays
Administration charges

Our proposals

Consultees’ views

Is there a practical solution?

I think that the question is difficult because the freeholder cannot be excluded from proprietary consents (particularly those outwith the scope of the lease, that the parties may in fact wish to agree). This does cause a problem in practice.

How should the identified issues be resolved?

the landlord’s reversionary interest, such as structural alterations or improvements (a form of our option two);

Time limits and costs

.an application for permission to keep a pet should certainly be dealt with within 30 days; however, an application for consent to carry out major structural alterations (such as digging out a basement) requiring advice from a structural engineer, is likely to take significantly longer.

Consultees’ experience

[t]here is almost inevitably a double layer of costs and both sides may require in a complex case legal and surveying advice. Where this has worked well some professionals (such as an architect) have provided joint liability statements and then worked for both the RTM and the Freeholder.

My experience is that delays tend to arise through ignorance of the procedure by all the parties. The leaseholder may simply make his application for consent to the landlord because that is what he has always done and he often knows better who that is. The landlord then sends it on [to] the RTM company which doesn’t know what to do with it!

Alternatively, the application may be made to the RTM company but it does not appreciate that it needs to seek the consent of the landlord before it can issue a consent itself. To be fair, there are also some less sophisticated landlords who, on receipt of an application are equally ignorant of the fact that only the RTM can issue the consent.

Discussion and recommendations

Restricting the landlord’s involvement to certain types of approval
Speeding up the approvals process
Where the landlord wishes to object to consent being granted
Enforcement of obligations

Recommendation 79.

Administration charges for lease approvals

Recommendation 80.

RETROSPECTIVE COVENANTS AND ABSOLUTE COVENANTS

Current law and problems

Our proposals

Consultees’ views

We have experience of situations where consent has been issued where it should not have been given or could not be given and have found that it creates perverse future problems for the leaseholder and landlord.

The Wellcome Trust, a charity landlord, told us that the present lack of clarity causes “confusion, delay and unnecessary costs”. One individual leaseholder told us that it ought “to be very clear to everyone in respect of what a RTM company can do”.

We do not consider that the law requires clarification in this regard. However, this is an area that ought to be included in compulsory training for prospective and current RTM directors, and equally, is an area in which many managing agents would also benefit from further training on.

Discussion and recommendations

Recommendation 81.

OBLIGATION TO FURNISH LEASEHOLDERS WITH A NAME AND ADDRESS

Current law and problems

Our proposals

Consultees’ views

It is important that leaseholders know who their landlord is, particularly where no ground rent is payable (such that the landlord is not [serving] its own demands). It is the landlord that generally retains the right to forfeit a lease; leaseholders should be able to contact that party and the RTM company is best placed to ensure that details are supplied, as required by sections 47 and 48 of the [Landlord and Tenant Act 1987].

We think that as a matter of course [the] landlord’s information should be provided on service charge demands to provide transparency for all parties involved. We respect that on some occasions leaseholders may not have the landlord’s address. However, it should be incumbent on the RTM to have accurate information of all parties.

Discussion and recommendations

Recommendation 82.

TRANSFER OF EMPLOYEES TO RTM COMPANIES

Current law

Consultees’ views

Either the caretaker, house manager or warden is transferred across and in these case[s] the licence to occupy also transfers as it is a term of their employment. Alternatively ... the onsite manager is encouraged to take a transfer to another site and the employment and the licence to occupy is therefore terminated.

Discussion

INTRODUCTION

DISPUTES ARISING FROM THE ACQUISITION OF THE RTM

Current law

Our proposals

have jurisdiction.779

Consultees’ views

Should the Tribunal have exclusive jurisdiction over disputes arising from the acquisition of the RTM?

It makes more sense for one venue to consider all applications and not for parties to litigate across more than one [forum] as it does increase costs and complicates matters considerably.

the Tribunal includes leasehold management experts and will have a far better understanding of the disputed matters than the county court.

We agree the Tribunal should have jurisdiction over all such disputes. It is unclear why it would be necessary to exclude the jurisdiction of the courts, however; flexibility would be preferable, bearing in mind complex disputes could still involve matters solely within the jurisdiction of the courts.

Would this save time and costs?
If not, over what disputes should the county court have jurisdiction?

Discussion and recommendation

Recommendation 83.

PROCEEDINGS TO ENFORCE REQUIREMENTS OF THE RTM REGIME

Current law and problems

Our proposal

Consultees’ views

We agree that conferring the exercise of enforcement powers on the Tribunal would not pose significant problems. This is already proposed in enfranchisement cases and also sits well with the judicial deployment project currently being developed in the Tribunal.

Discussion and recommendation

Recommendation 84.

OTHER DISPUTES INVOLVING RTM COMPANIES

Current law

Our proposals

Consultees’ views

Disputes between the RTM company and third parties

We agree that the forum for disputes should continue to be governed by the remedy and subject matter, rather than the fact it involves a RTM co.

Disputes between the RTM company and leaseholders

We agree that the Tribunal should not be given exclusive jurisdiction to deal with disputes between the RTM company and a third party or between the RTM company and a leaseholder. It would not be appropriate for the current arrangements in the selection of an appropriate forum for dispute resolution to be changed as part of the proposals to reform the RTM process.

If an individual leaseholder wishes to challenge a decision of the RTM board, they should, for example, be able to make use of the small claims court.

Discussion

MEDIATION AND ARBITRATION OF RTM DISPUTES

Current law and problems

Our proposals

Consultees’ views

We have found informal mediation attempts to be [a] complete waste [of] time and a huge waste of money...

...in our experience mediation and arbitration are often expensive and if not successful, the parties end up before [the] courts after delays.

Arbitration
Mediation

Discussion

NON-LITIGATION COSTS

Current law and problems

Our proposals

Consultees’ views

The RTM company should not be required to make any contribution to the landlord’s non-litigation costs because it encourages the landlord to conduct a forensic analysis of the claim to identify minor defects, knowing that the costs will be recoverable.

We do not believe RTM companies should be required to make any contribution towards [the] landlord’s non-litigation costs. We believe if this proposal was put forward then it could be a significant barrier to the formation of RTM companies especially for RTM companies occupying a larger area where costs could prove significant. We also have reservations that if the RTM company do not feel costs are reasonable, then it could produce another layer of bureaucracy in seeking a resolution from the Tribunal service which in itself will add to time delays and costs.

... this is a key deterrent to stop people going for the RTM as you basically have to write a blank cheque before starting to cover the landlord's costs.

The transfer of management functions is effectively a compulsory acquisition of property rights which if not carried out properly could expose the landlord to residual liability. It would be unjust to force the landlord to relinquish those rights and requiring it to pay the costs of that too.

A significant amount of work is required from the landlord in dealing with an RTM claim which requires it to review documentation and liaise with various parties, such as the property manager and leaseholders. The landlord will also need to understand the various legislative and contractual rights and obligations, prior to and following a successful RTM claim.

Discussion and recommendation

Non-litigation costs arising from enfranchisement claims

Recommendation 85.

Rejected option: a fixed or capped contribution to non-litigation costs

Our proposals
Consultees’ views
How should the contribution be calculated?

If fixed costs are used the RTM company will know exactly how much it needs to plan to set it up.

“would allow a degree of variation, reflecting the costs that the landlord is likely to incur in respect of different types of RTM claims”.

Should a fixed-costs regime apply to claim notices?
Discussion

Multiple or intermediate landlords and third parties

Current law and problems

This will include intermediate landlords or multiple landlords where the premises are held in split freehold ownership, as well as third party management companies who are parties to the lease.

Our proposal
Consultees’ views

The blanket exclusion of intermediate landlords' costs is unreasonable.Even in the simplest of claims, intermediate landlords will incur costs, particularly in relation to providing information which can be time consuming.

Similarly, the Law Society commented:

The Society disagrees with this provisional proposal of the Law Commission. Split reversions are often troublesome, and the parties should seek legal representation. The same principle applies to intermediate landlords, particularly in London where many difficult issues arise.

Discussion and recommendation

Costs when RTM claim ceases early

Current law and problems
Our proposal

We explained that this would align with our proposals in the enfranchisement Consultation Paper.828

Consultees’ views
Should a percentage of the landlord’s non-litigation costs be payable when a claim is withdrawn?

Having made an unsuccessful application for which the landlord has incurred costs it is only right that the RTM company should bear the landlord’s costs.

.. .this depends on whether the leaseholders making the claim are culpable and could easily have avoided ending up in this position. It's unclear whether this would apply in situations where a claim fails on a technicality, or only those where bringing the claim was almost vexatious on the part of the leaseholders (in which case it would be fair enough to pay some degree of costs).

No, 100% of the landlord’s abortive costs should be paid. RTM is a no fault claim and could be exploited by litigious lessees.

On the other hand, some leaseholders and LEASE were of the opinion that the parties should bear their own costs and there should therefore be no contribution.

Should the percentage payable vary depending on the stage the claim reaches?

Each case is different. They should pay all reasonable costs incurred up to that point.

Discussion and recommendations

Recommendation 86.

LITIGATION COSTS

Costs of Tribunal proceedings in respect of an RTM claim

Current law and problems
Our proposals
Consultees’ views

None of the residential property jurisdictions in the Tribunal have general costshifting rules. The power of the Tribunal to make orders for costs is exceptional and applies only where there has been unreasonable behaviour or wasted costs. The practice of each party bearing its own costs works well.

The current law is incredibly unfair and needs changing... If each party had to bear their own costs this would reduce legal delays as both parties would be keen to progress to a conclusion.

We believe that in ensuring that both parties are liable for the own litigation costs, then the probability of vexatious disputes will be reduced. This in turn, should speed up the overall process and result in less cases going to the Tribunal service.

.if a landlord needs to defend a case after this it seems unreasonable that costs would have to be met by landlords and potentially passed onto other residents. Overall we think the party wishing to exercise the RTM should meet the freeholder/ landlord costs.

Impact of our proposal on the number of Tribunal cases

The prospect of not being able to recover professional fees including those of senior counsel and expert witnesses such as surveyors save in exceptional circumstances should act as a deterrent to RTM companies and landlords bringing cases before the Tribunal.

In our experience, the key driver for litigation is certainty of transfer of liability and not costs. Landlords may be marginally more sensitive to litigating but given the scale of their potential risk we do not consider this will have an appreciable impact.

The Right to Manage Federation said:

We doubt this. Obstructive landlords will still fight RTM to the wire.

Discussion and recommendation

Recommendation 87.

Restraint orders to prevent vexatious claims

Recommendation 88.

Recommendation 89.

RECOVERY OF COSTS UNDER THE LEASE

Current law and problems

Our proposals

Consultees’ views

Such an expropriatory provision should not be imposed automatically. Leaseholders invariably apply for such orders and the Tribunal is well accustomed to dealing with them and granting them in the appropriate cases.

In any event, we are unconvinced that such a presumption would make a practical difference in most instances, on the assumption that the test for making an order (or, conversely, not making one) were similar to that which it is now.

Discussion and recommendation

Recommendation 90.

INTRODUCTION

CONSULTEES’ EXPERIENCES OF THE RTM TERMINATING

EXISTING GROUNDS FOR TERMINATION

Termination by agreement

Current law
Our proposal

concerned that leaseholders might be prejudiced if the RTM company and the landlord agreed that management functions should be exercised by a third party against whom leaseholders could not enforce performance of the management functions.859

Consultees’ views

The statutory scheme does not require all qualifying tenants to support the acquisition of RTM, so it is unclear why a single qualifying tenant should be able to force the need for an application for the management to revert back to the party named in the lease that that tenant originally signed up to (or acquired by assignment). Furthermore, where the RTM company does not wish to continue managing, on what proper basis could the Tribunal force it to do so at the insistence of a single/a minority of tenants?

Discussion

Termination where the RTM company is struck off

Current law
Our proposals
Consultees’ views

The fact that the RTM company had allowed itself to be struck off (even if due to a simple administrative error) is a significant cause for concern, particularly given the number of warnings that will have been ignored prior to strike out taking effect. It is not unreasonable for such a company to have to reacquire RTM in accord with the Act after an appropriate period of time...

Discussion
What happens when an RTM company is struck off the register?

Termination following an application under Part 2 of the 1987 Act

Premises to which Part 2 of the 1987 Act applies
Current law and problems
Consultees’ views
Discussion and recommendations

Recommendation 91.

Application to terminate the RTM under Part 2 of the 1987 Act
Current law and problems
Our proposals
Consultees views

The RTM company has to be given protection from landlords, for at least 2-3 years to help them get on with some work (and not be dealing with landlords’ applications to oust them at every possible opportunity).

Discussion and recommendations

Termination where company ceases to be an RTM company

Current law and problems
Our proposals
Consultees’ views

Is it proposed that the Tribunal should have the power to correct the “error” or to say that the RTM company can continue to exercise the RTM notwithstanding the error? What sort of “loss or prejudice” do you have in mind? Would it not be better to review and clarify the circumstances under which an RTM company ceases to be an RTM company?

Discussion and recommendations

Recommendation 92.

change is required so as to include or exclude the relevant premises.

NEW GROUNDS FOR TERMINATION

Termination where the RTM company no longer meets the participation requirement

Current law and problems

requirement for a short period, for example where flats are sold and the new owner has not decided whether to join the RTM company.922

Our proposals
Consultees’ views

Whether the RTM Co would still satisfy the initial criteria is only a surrogate for various other considerations which are directly relevant. Those considerations might include: whether the RTM Co is being run effectively; whether it represents the interests of the leaseholders as a whole; whether it embodies a sustainable approach to management. In an application to appoint a manager or revert to the landlord, those are examples of the considerations which should be taken into account, and the issue of whether the RTM Co would still satisfy the initial criteria does not add anything concrete to them.

...The Tribunal should be focusing on the management structure in place and whether it is functioning effectively or if there are signs of neglect etc. An RTM with a good managing agent can function well regardless of the number of RTM members.

But that said we believe low membership of the RTM is a sign that leaseholders are disinterested and it is a factor for a Tribunal to consider.

Discussion and recommendations

Recommendation 93.

Termination at request of the RTM company

Current law and problems
Our proposals
Consultees views

Whilst it is probably unlikely to be used all that often, we do consider there could be significant financial savings in some instances, for instance where a failing RTM is managing ineffectively with a consequent impact upon market values of units, or where a lack of resources is leading to more expensive repairs.

Discussion and recommendations

Recommendation 94.

Recommendation 95.

Termination where the premises become a commonhold

Recommendation 96.

RESPONSIBILITY FOR MANAGING THE PREMISES WHEN THE RTM TERMINATES

Who should become responsible for the management functions?

Current law and problems
Our proposals
Consultees’ views

service charge monies, and arrear; and

Discussion and recommendations

Before the RTM is acquired that person would be obliged to carry out the management functions and so it makes sense that they should resume management of the premises when the RTM terminates. Otherwise it would be unclear on what basis the management functions were now being performed.

Recommendation 97.

premises.

Recommendation 98.

that person no longer exists, the landlord).

Landlord application to appoint a manager after taking back management functions

Current law and problems
Our proposals
Consultees’ views

It may preclude the appointment of a manager in unusual but deserving cases - it might mean a substantial injustice to the landlord lasting over many years simply because of an oversight or poor decision within the first 30 day period.

Discussion and recommendations

Recommendation 99.

TREATMENT OF SERVICE CHARGES WHEN THE RTM TERMINATES

Service charges held by the RTM company

Current law and problems
Our proposals
Consultees’ views
Discussion and recommendations

Service charges owed to the RTM company

Current law and problems
Our proposals
Consultees views
Discussion and recommendations

Recommendation 100.

CLAIMING THE RTM AFTER IT HAS TERMINATED

Current law and problems

Our proposals

Consultees’ views

Should the four-year ban on successive RTM claims be reduced?

...We believe that a time should be upheld to prevent leaseholders from overspending on services or to obtain unsustainable credit that they cannot obligate in payment. However, under its current form, we feel that the four-year period is over zealous and incurs further costs and time delays on leaseholders who may be ready to reregister RTM companies back into existence.

The four-year period is arbitrary and to some extent is not a period that is known to the law. It tends to lead away from the ethos of the RTM process.

This period was originally reached as a compromise position to balance the interests of landlords and leaseholders, and to reflect an appropriate timeframe for leaseholder turnover. Those matters have not changed.

If the four-year ban should be reduced, what should it be reduced to?
Consultee experiences of cases where the Tribunal has disapplied the four-year ban

Discussion and recommendations

Should the four-year restriction on successive RTM companies be reduced?
What should the minimum period be reduced to?
What form should the restriction take?

Recommendation 101.

Recommendation 1.

Paragraph 3.12

Recommendation 2.

Paragraph 3.19

Recommendation 3.

Paragraph 3.37

Recommendation 4.

Paragraph 3.91

Recommendation 5.

Recommendation 7.

Paragraph 3.126

Recommendation 8.

Paragraph 3.139

Recommendation 9.

Paragraph 3.154

Recommendation 10.

Paragraph 3.183

Recommendation 11.

Paragraph 4.21

Recommendation 12.

Paragraph 4.52

Recommendation 13.

Paragraph 4.71

Recommendation 14.

Paragraph 4.130

Recommendation 15.

Paragraph 5.16

Recommendation 16.

Paragraph 5.36

Recommendation 17.

Paragraph 5.49

Recommendation 18.

Paragraph 5.60

Recommendation 19.

Paragraph 5.73

Recommendation 20.

Paragraph 5.81

Recommendation 21.

Paragraph 5.96

Recommendation 22.

14.22 We recommend that RTM companies should continue to be companies limited by

guarantee.

Paragraph 6.10

Recommendation 23.

14.23 We recommend that there should be no prohibition on using RTM companies as

nominee purchasers in collective freehold acquisitions.

Paragraph 6.20

Recommendation 24.

Paragraph 6.37

Recommendation 25.

Paragraph 6.84

Recommendation 26.

Paragraph 6.102

Recommendation 27.

Paragraph 7.39

Recommendation 28.

Paragraph 7.44

Recommendation 29.

Paragraph 8.25

Recommendation 30.

Paragraph 8.26

Recommendation 31.

Paragraph 8.41

Recommendation 32.

Paragraph 8.50

Recommendation 33.

Paragraph 8.84

Recommendation 34.

Paragraph 8.85

Recommendation 35.

but, in each case, only where the address has been provided within the 12 months preceding the service of the claim notice.

Recommendation 36.

Paragraph 8.141

Recommendation 37.

Paragraph 8.144

Recommendation 38.

Paragraph 8.145

Recommendation 39.

Paragraph 8.157

Recommendation 40.

and may do so subject to such directions as it considers fit, including in respect of costs.

Paragraph 8.171

Recommendation 41.

appurtenant property.

Paragraph 8.192

Recommendation 42.

Paragraph 8.194

Recommendation 43.

Paragraph 8.210

Recommendation 44.

or

or

or

Paragraph 8.232

Recommendation 45.

Paragraph 8.244

Recommendation 46.

Paragraph 8.245

Recommendation 47.

Paragraph 8.246

Recommendation 48.

Paragraph 8.260

Recommendation 49.

Paragraph 8.261

Recommendation 50.

Paragraph 8.262

Recommendation 51.

Paragraph 8.264

Recommendation 52.

Paragraph 8.282

Recommendation 53.

Paragraph 8.284

Recommendation 54.

is entitled to acquire the RTM becomes final; and

should be three months.

Paragraph 8.285

Recommendation 55.

Paragraph 8.286

Recommendation 56.

Paragraph 8.300

Recommendation 57.

Paragraph 8.322

Recommendation 58.

Paragraph 9.32

Recommendation 59.

Paragraph 9.35

Recommendation 60.

Paragraph 9.54

Recommendation 61.

Paragraph 9.72

Recommendation 62.

Paragraph 9.73

Recommendation 63.

Paragraph 9.74

Recommendation 64.

Paragraph 9.120

Recommendation 65.

Paragraph 9.121

Recommendation 66.

Paragraph 9.122

Recommendation 67.

Paragraph 9.123

Recommendation 68.

Paragraph 9.148

Recommendation 69.

Paragraph 9.176

Recommendation 70.

Paragraph 9.177

Recommendation 71.

Paragraph 10.21

Recommendation 72.

Paragraph 10.43

Recommendation 73.

Paragraph 10.80

Recommendation 74.

Paragraph 10.90

Recommendation 75.

Paragraph 10.145

Recommendation 76.

Paragraph 10.154

Recommendation 77.

Paragraph 10.203

Recommendation 78.

Paragraph 10.224

Recommendation 79.

Paragraph 11.53

Recommendation 80.

Paragraph 11.63

Recommendation 81.

Paragraph 11.76

Recommendation 82.

Paragraph 11.91

Recommendation 83.

Paragraph 12.23

Recommendation 84.

whether a requirement of the RTM provisions of the 2002 Act has been met.

Paragraph 12.38

Recommendation 85.

Paragraph 12.95

Recommendation 86.

Paragraph 12.145

Recommendation 87.

Paragraph 12.169

Recommendation 88.

Paragraph 12.174

Recommendation 89.

Paragraph 12.175

Recommendation 90.

Paragraph 12.188

Recommendation 91.

Paragraph 13.53

Recommendation 92.

change is required so as to include or exclude the relevant premises.

Paragraph 13.105

Recommendation 93.

Paragraph 13.118

Recommendation 94.

Paragraph 13.143

Recommendation 95.

Paragraph 13.146

Recommendation 96.

Paragraph 13.151

Recommendation 97.

premises.

Paragraph 13.172

Recommendation 98.

that person no longer exists, the landlord).

Paragraph 13.177

Recommendation 99.

Paragraph 13.194

Recommendation 100.

Paragraph 13.215

Recommendation 101.

Paragraph 13.241

(signed) Sir Nicholas Green, Chairman Professor Sarah Green Professor Nick Hopkins

Professor Penney Lewis

Nicholas Paines QC

Phil Golding, Chief Executive

26 June 2020

THE LAW COMMISSION: RESIDENTIAL LEASEHOLD LAW REFORM

TERMS OF REFERENCE

The project was announced in the Law Commission's Thirteenth Programme of Law Reform and in Government's response to its consultation Tackling unfair practices in the leasehold market.

The project will be a wide-ranging review of residential leasehold law, focussing in the first instance on reform to:

The Commission and Government are discussing other areas of residential leasehold reform that could be included in the project.

The Government has identified the following policy objectives for the Law Commission's recommended reforms:

Generally

Enfranchisement

Commonhold

Right to manage

Enfranchisement covers the statutory right of leaseholders to:

The project will consider the following issues:

Commonhold is a form of ownership of land which is designed to enable the freehold ownership of flats. There are various legal issues within the current commonhold legislation which affect market confidence and workability. The Commission will review those issues to enable commonhold to succeed.

The following legal issues will be considered:

The project will commence with the publication of a call for evidence. Other legal problems that emerge from that call for evidence will be included in the project by agreement with Government.

The Commission’s review will complement Government’s own work to remove incentives to use leasehold, and Government’s work to address non-legal issues to re-invigorate commonhold such as education, publicity and supporting developers, lenders and conveyancers. As part of its call for evidence, the Commission will invite consultees’ views on (i) whether, and if so how, commonhold should be incentivised or compelled, and (ii) the non-legal issues that must be addressed to re-invigorate commonhold, and report on the outcome of that consultation, without making recommendations.

The right to manage was introduced by the Commonhold and Leasehold Reform Act 2002. It is a right granted to leaseholders to take over the landlord’s management functions through a company set up by the leaseholders for this purpose.

The Law Commission is asked to conduct a broad review of the existing right to manage legislation with a view to improving it. In particular, the Law Commission will:

The list of consultees set out in this Appendix excludes any consultees who asked to remain anonymous, or for the response to be treated in confidence.

1 West India Quay

Associated Retirement

Carrie Rollinson

Residents’ Association

Community Operators

Catherine Williams

Adam Vine

Association of British

Insurers

Chalfont Dene Lease

Alan & Joanne Whitmore

Astrea Asset

Owners Association

Alan West

Management

Charities' Property Association

Aldford House Residents

Avril Pino

Association; Aldford

Charles Peter Thrale

House Freehold Limited (Nominee

Barbara Farmer

Cantlay

Enfranchisement

Company)

Barbara Newton

Charlotte Ann Denton

Baroness Gardner of

Chris Holohan

Alia Alkhudairi

Parkes

Chris Wylie

Alice Brown

Barry Carpenter

Christine Liptrott

Anchor Hanover

Ben See

Church & Co Chartered

Andreas Immel

Bernard Altschuler

Accountants

Andrew Boorman

Birchall Blackburn Law

Claudine Ahrens-Hillman

Andrew Ellwood

Birmingham Law Society

Colin Greenbank

Andrew Readman

Boodle Hatfield LLP

Conor Courtney

Ann Davies

BPL Solicitors Limited

Consensus Business Group

Ann Williams

Bramshott Place Village

Annie Morris

Residents Association

Damian Greenish

Anthony Harris

Brian Murphy

Daniel Allum

Anthony Mason

Bridget Murphy

Daniel Choudhury

British Property

Daniel Demmel

Anthony Molloy

Federation

Daniel Hooley

ARMA

Cadogan Group Limited

Carmen Montanel

Daniel Watney as surveyors of the Dulwich Estate

Daniel Watney on behalf of the Charity of Richard Cloudesley

Daniel Watney on behalf of Dame Alice Owen’s Foundation

David Cade

David Jarvis

David Silverman

David Whitworth

David Woolley

Deborah Hawkes

Debra Wood

Defeng Wu

Della Bramley

Denise Clark

Des Kinsella

Devan Parekh

Dr Christine Nalletamby

Druhin Banerjee

Emma Kuusela

First-tier Tribunal (Property Chamber)

Francisco Javier Caldeiro Zamora

Franciszka Mackiewicz-

Lawrence

Garness Jones Limited


Gary Gallagher

Jamie John Atkins

Gary Keogh

Jane Gregory

Geoffrey Andrews

Jane Hewland

Gillian Weymouth

Jeanette Allen

Giorgio Landon

Jennifer Studholme

Gordon Clifton

Jeremy Bragg

Grace Lee

Jill Lucas

Graham Clegg

John Dillon

Graham Dixon

John Southall

Greg Passeri

John Thomas

Han Yang Goh

John Wilkes

Harold Victor Lever Stone

Jonathan Alvin

& Naomi Stone

Helen Gibbons

Heulwen Egerton

Hilary McDonagh

Hitesh Doshi

HM Land Registry

HomeGround (joint response with Long

Jonathan Scoffin

Jonathan Yee

Joseph McGuigan

Josephine Rostron

Judith Lewin

Judith Serota OBE

Julian Parsons

Harbour)

Ian Fletcher

Igor Ribeiro

Investment Technology

Ltd t/a Canonbury

Karen Hildebrand

Karen Moss

Keith Hince

Kenneth O'Keefe

Management

Ivan Cross

J Gardner

Kenny Lee

Kingsdown Park Chalet

Owners Association

J Williams

Laura McGuinness


Law Society

LB Tower Hamlets

Lidia Trahtman

LifeCare Residences Limited

Linda Berriman

Long Harbour (joint response with Home Ground)

Lorraine Jimenez

Lucie Gutfreundova

Majella Murphy Altschuler

Malcolm Wood

Malgorzata Zymla

Man Chau Fung

Maria Ciszynska

Maria Elisabetta Fenu

Marie Gallagher

Marilyn Davis

Mark Chick

Mark Hawkins

Mark Routley

Marsha Oza

Martin Penson

Martyn Cund

Mary Dudley Seaver

Maryna Davydenko

McCarthy & Stone

Michael Byrne

Michael King

Michael Tsio

Michalis Kapsos

Michelle Goodrum

Michelle Gracie

Millstream Management

Services

Mr & Mrs Lewis

Mr & Mrs Scott

NAEA Propertymark

Nalini Burford

Naseer Khudairi

National Leasehold

Campaign

National Trust

Neil Hammond

Nina Salsotto Cassina

Notting Hill Genesis

Oakfield Court Residents' Association

Oaktree Court RTM Company Limited

Odile Bartolin

Osborne Court Right to

Manage Company

Panorama House RTM

Company Limited

Parkhurst Court RTM

Company Ltd

Pat Meyrick

Patricia Fielden

Paul Davies

Paul Gothard

Paul Hillman

Paul Keith Davies

Paul Lusby

Paul Robertson (Midway)

Pauline Field

Peabody

Peel Common Residents Association Limited

Penny Atkinson

Peter Barlow

Peter Milford

Peter Stevens

Philip Freedman

Professor Anthony J

Naldrett

Professor James Driscoll

Property Bar Association

Property Litigation

Association Law Reform Committee

Ralph Hebgen

Residential Landlords

Association

Residential Management Group Limited

Richard Powell


Richard Stratford

Sofian Lignier

Trevor Price

Richard Tydeman

Sol Unsdorfer

Urang Property

Management Limited

Rick Hewis

Sophie Whitmore

Utsav Boobna

Rizwan Malik

St George Wharf Residents Association

Victoria Bekir

Rob Sanderson

Stefania Maulucci

Wallace Partnership

Robert Lewis

Stephen Bedford

Group Limited

Roger Edwards

Stephen Desmond

Wendy Gallagher

Ron Wheeldon

Stephen Lloyd

William Imbrogno

Rosemary Bischoff

Stephen Mark Kirk

Wojciech Zymla

Rotherhithe Property

Management LLP

Steven Sai Ho Tai

Xi Yen Tan

Y&Y Management Ltd

Rothesay Life PLC

Susan Hunt

Yoke Peng Yuen

RSA

Susan M Rendell

Yvette McGreavy

Salim Khwaja

The Berkeley Group Holdings plc

Samantha Cockburn

The Church

Sanchita Doshi

Commissioners for

England

Sasha Andrews

The Compton Group

Settlers Court RTM Company Limited

The Leasehold Advisory Service (LEASE)

Shira Baram

The Portman Estate

Shira Barum

The Right to Manage

Shula Rich (Brighton Hove and District

Federation

Leaseholders Association

The Wellcome Trust

and FPRA)

Tim Madley

Simon Cox

Tony Burke

Simon Davies

Tony Hemming (A G

Simon Nicholas

Hemming)

Society of Licensed Conveyancers

Tracey Horton

All citations relate to Article 33 of the RTM Companies (Model Articles) (England) Regulations 2009 (SI 2009 No 2767) and RTM Companies (Model Articles) (Wales) Regulations 2011 (SI 2011 No 2680).

CCS 0620752694

ISBN 978-1-5286-2059-8

441

1

UK Cladding Action Group, Cladding and internal fire safety: mental health report 2020 (May 2020), p 6, at https://drive.google.com/file/d/1ezKSaJqO3bVyG9-eH58SoiT2bH4D8PjW/view.

2

In the 2010 British Social Attitudes survey, 86% of respondents expressed a preference for buying a home and 14% preferred to rent: Department for Communities and Local Government, Public attitudes to housing in England: Report based on the results from the British Social Attitudes survey (July 2011), at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/6362/193 6769.pdf.

3

Renting Homes (Wales) Act 2016. The 2016 Act was enacted following recommendations made by the Law Commission in its reports, Renting Homes (2003) Law Com No 284 and Renting Homes in Wales (2013) Law Com No 337.

4

See proposal for a Renters Reform Bill, which would remove the current right of landlords in the private rented sector to evict their tenants by giving two months’ notice to leave: The Queen’s Speech, December

5

2019, pp 46-47, at

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/853886/Q ueen_s_Speech_December_2019_-_background_briefing_notes.pdf. See also temporary measures whereby landlords will have to give all renters 3 months’ notice if they intend to seek possession of a property in the Coronavirus Act 2020, s 81 and sch 29.

Leasehold home ownership: buying your freehold or extending your lease - Report on options to reduce the price payable (2020) Law Com No 387 (“the Valuation Report”).

6

Subject to exceptions.

7

Subject to exceptions.

8

Including leasehold owners of future homes, to the extent that leases are still granted of future homes.

9

If a lease is unmortgageable, and if the leaseholder cannot afford to extend the lease, the leaseholder might be able to sell the lease to a cash-buyer who can afford to pay the landlord to extend the lease. The purchase price would be reduced by (at least) the cost of a lease extension.

10

I Cole and D Robinson, “Owners yet tenants: the position of leaseholders in flats in England and Wales” (2000) 15 Housing Studies 595.

11

N Hopkins and J Mellor, ““A Change is Gonna Come”: Reforming Residential Leasehold and Commonhold” (2019) 83(4) Conveyancer and Property Lawyer 321, 331-322 (“A Change is Gonna Come (2019)”).

12

Historically, the sale of houses on a leasehold basis became widespread practice in particular areas of the country.

13

A Change is Gonna Come (2019).

14

Housing, Communities and Local Government Committee, Leasehold Reform (2017-19) HC 1468, para 25, at https://publications.parliament.uk/pa/cm201719/cmselect/cmcomloc/1468/1468.pdf.

15

Valuation Report, para 1.71 and 3.45 onwards (on the inequality of arms), para 3.4 onwards (on inherent unfairness), and ch 3 generally on competing views about reform.

16

We summarise the wider policy debate in ch 1 of our Enfranchisement, Commonhold and Right to Manage Consultation Papers, where we refer to media coverage, the activities of campaign groups, Government announcements, the work of the All-Party Parliamentary Group on Leasehold and Commonhold, and various Parliamentary debates about leasehold.

17

The First-tier Tribunal (Property Chamber) in England and the Leasehold Valuation Tribunal in Wales.

18

Competition and Markets Authority, Leasehold housing: update report (February 2020) para 33, at https://www.gov.uk/cma-cases/leasehold.

19

Competition and Markets Authority, Leasehold housing: update report (February 2020).

20

A Change is Gonna Come (2019), 330-331.

21

Commonhold was created by the Commonhold and Leasehold Reform Act 2002. While primarily designed to enable the freehold ownership of flats, commonhold is equally capable of applying in a commercial context. It can, for example, regulate the relationship between individually owned offices within an office block.

22

L Xu, “Commonhold Developments in Practice” in W Barr (ed), Modern Studies in Property Law: Volume 8 (2015) p 332.

23

Taken from A Change is Gonna Come (2019), 328-329.

24

Housing, Communities and Local Government Committee, Leasehold Reform (2017-19) HC 1468, para 81.

25

See, for example, https://wslaw.co.uk/wp-content/uploads/2019/07/LR-December-Bulletin-2018.pdf, p 3.

26

S Bright, “Do freeholders provide a unique and valuable service?” (2019) at

https://www.law.ox.ac.uk/housing-after-grenfell/blog/2019/04/do-freeholders-provide-unique-and-valuable-service.

27

Housing, Communities and Local Government Committee, Leasehold Reform (2017-19) HC 1468, para 17.

Once we have commonhold in a way that works ... we do not need long residential leases. Commonhold solves the two underlying concerns that we hear about leases. . Once commonhold is there and it is working, if you want a system of ownership that removes those underlying concerns with leasehold,

28

Housing, Communities and Local Government Committee, Oral evidence: Leasehold reform (2017-19) HC 1468), response to Question 456, at

http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/housing-communities-and-local-government-committee/leasehold-reform/oral/95161.pdf.

29

A Change is Gonna Come (2019), 328.

30

There is an exception: leaseholders of houses can extend their lease without paying a premium but instead paying a higher annual rent: see para 2.8(2) of the Enfranchisement Report.

31

Valuation Report.

32

Our project did, however, provide an opportunity to gather evidence on these wider measures to reinvigorate commonhold, and we report on them in our Commonhold Report.

33

See: (1) Department for Communities and Local Government (“DCLG”), Tackling unfair practices in the leasehold market: A consultation paper (July 2017) (“Tackling unfair practices consultation, July 2017”);

(2) DCLG, Tackling unfair practices in the leasehold market: Summary of consultation responses and Government response (December 2017) (“Tackling unfair practices response, December 2017”);

(3) MHCLG, Implementing reforms to the leasehold system in England: A consultation (October 2018) (“Implementing reforms consultation, October 2018”);

(4) MHCLG, Implementing reforms to the leasehold system in England: Summary of consultation responses and Government response (June 2019) (“Implementing reforms response, June 2019”); and

(5) MHCLG, Government response to the Housing, Communities and Local Government Select Committee report on leasehold reform (July 2019) (“Response to Select Committee, July 2019”).

(1) and (2) are at https://www.gov.uk/government/consultations/tackling-unfair-practices-in-the-leasehold-

market; (3) and (4) are at https://www.gov.uk/government/consultations/implementing-reforms-to-the-

leasehold-system; (5) is at

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/814334/C CS0519270992-001_Gov_Response_on_Leasehold_Reform_Web_Accessible.pdf.

34

Implementing reforms response, June 2019, ch 2. The ban would apply, predominantly, to houses that are built in the future. The ban on the grant of leases of houses would, however, also prevent the grant of a new lease over an existing house. The ban would not apply to existing leases of houses.

35

Implementing reforms response, June 2019, ch 3.

36

The proposals included plans for a mandatory code of practice covering letting and managing agents and nationally recognised qualification requirements for letting and managing agents to practise. In addition, an independent regulator was proposed which would oversee both the code of practice and the delivery of the qualifications: DCLG, Protecting consumers in the letting and managing agent market: call for evidence (October 2017), and MHCLG, Protecting consumers in the letting and managing agent market: Government response (April 2018). A working group chaired by Lord Best was subsequently tasked with “considering the entire property agent sector to ensure any new framework, including any professional qualifications requirements, a Code of Practice, and a proposed independent regulator, is consistent across letting, managing and estate agents”: see: Regulation of property agents working group - final report (July 2019), at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/818244/R egulation_of_Property_Agents_final_report.pdf.

37

  Response to Select Committee, July 2019, pp 25-29.

38

  Response to Select Committee, July 2019, pp 23-24.

39

  Response to Select Committee, July 2019, p 29.

40

  Response to Select Committee, July 2019, pp 29-30. We have previously recommended that forfeiture be

abolished and replaced with a regime to enforce the terms of leases in a proportionate way: Termination of Tenancies for Tenant Default (2006) Law Com No 303.

41

Tackling unfair practices response, December 2017, Ch 4.

42

Response to Select Committee, July 2019, p 13. We explain the right of first refusal in para 1.28(1)(d) above.

43

Letter from Heather Wheeler MP, then Minister for Housing and Homelessness, to the Rt Hon Lord Justice Green, Chair of the Law Commission, 27 March 2019, at https://s3-eu-west-2.amazonaws.com/lawcom-prod-storage-11jsxou24uy7q/uploads/2017/03/Letter-from-Mrs-Heather-Wheeler-MP.pdf.

44

The Queen’s Speech 2016, p 61, at

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/524040/Q ueen_s_Speech_2016_background_notes_.pdf; Tackling unfair practices response, December 2017, para 36; and Implementing reforms consultation, October 2018, para 2.21. See also Making Land Work: Easements, Covenants and Profits A Prendre (2011) Law Com No 327.

45

MHCLG, Strengthening consumer redress in the housing market (January 2019), para 123, at https://www.gov.uk/government/consultations/strengthening-consumer-redress-in-housing.

46

Implementing reforms response, June 2019, ch 5, which sets out proposals for a cap of £200 plus VAT and a timeframe of 15 working days.

47

  Tackling unfair practices response, December 2017, ch 5; Implementing reforms response, June 2019, ch 4.

48

  Tackling unfair practices response, December 2017, para 81.

49

Implementing reforms response, July 2019, paras 2.34-2.35; Response to Select Committee, July 2019, p 13.

50

Response to Select Committee, July 2019, pp 23 to 24.

51

MHCLG, Redress for purchasers of new build homes and the New Homes Ombudsman: technical consultation (June 2019) and Government response (February 2020), at https://www.gov.uk/government/consultations/redress-for-purchasers-of-new-build-homes-and-the-new-homes-ombudsman.

52

MHCLG, Considering the case for a Housing Court - A Call for Evidence (November 2018), at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/755326/C onsidering_the_case_for_a_housing_court.pdf.

53

The Tenants’ Associations (Provisions Relating to Recognition and Provision of Information) (England) Regulations 2018 (SI 2018 No 1043). The regulations are intended to make it easier for residents’ associations to contact leaseholders, increasing the likelihood of those leaseholders becoming members of the association. This affects the chances of the association being formally recognised under s 29(1) of the Landlord and Tenant Act 1985, which improve if a higher percentage of the leaseholders are members. For background, see s 130 of the Housing and Planning Act 2016; DCLG, Recognising residents’ associations, and their power to request information about tenants (July 2017), at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/632116/s130_HPAct_consult ation.pdf.

54

MHCLG, Public pledge for leaseholders (27 June 2019), at

https://www.gov.uk/government/publications/leaseholder-pledge/public-pledge-for-leaseholders.

55

Tackling unfair practices response, December 2017, para 47; MHCLG, Leasehold axed for all new houses

in move to place fairness at heart of housing market (27 June 2019), at

https://www.gov.uk/government/news/leasehold-axed-for-all-new-houses-in-move-to-place-fairness-at-heart-of-housing-market; MHCLG, Housing Secretary clamps down on shoddy housebuilders (24 February 2020), at https://www.gov.uk/government/news/housing-secretary-clamps-down-on-shoddy-housebuilders.

56

MHCLG, Funding for new leasehold houses to end (2 July 2018), at

https://www.gov.uk/government/news/funding-for-new-leasehold-houses-to-end.

57

Tackling unfair practices response, December 2017, p 25.

58

Developers have to present genuine reasons for a house to be marketed as leasehold. In addition, starting ground rents need to be limited to a maximum of 0.1% of the property’s sale value and leasehold agreements have to have a minimum term of 125 years for flats and 250 years for houses.

59

Written Statement: Leasehold Reform in Wales (6 March 2018), at https://gov.wales/written-statement-leasehold-reform-wales.

60

Residential Leasehold Reform - A Task and Finish Group Report, pp 21-22, at

https://gov.wales/independent-review-residential-leasehold-report. See also Written Statement: Response to Report of the Task and Finish Group on Leasehold Reform (6 February 2020), at https://gov.wales/written-statement-response-report-task-and-finish-group-leasehold-reform.

61

Welsh Government, Estate charges on housing developments: call for evidence (February 2020), at https://gov.wales/sites/default/files/consultations/2020-02/estate-charges-on-housing-developments.pdf.

62

In addition, it is necessary to consider leasehold owners of future homes, to the extent that leases are still granted in the future.

63

MHCLG, Estimating the number of leasehold dwellings in England 2017-2018 (26 September 2019), at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/834057/E stimating_the_number_of_leasehold_dwellings_in_England__2017-18.pdf.

64

MHCLG, House building; new build dwellings, England: December Quarter 2019 (26 March 2020), at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/875361/H ouse_Building_Release_December_2019.pdf.

65

A Change is Gonna Come (2019), 330.

66

We refer to the sale of flats to cover (a) the sale, for the first time, of new-build flats, and (b) the sale of existing flats which are not already subject to a long lease, such as where a freehold owner splits a house into multiple flats and sells the individual flats.

67

  Housing, Communities and Local Government Committee, Leasehold Reform (2017-19) HC 1468, p 3.

68

  House of Commons Library Briefing Paper, Tackling the under-supply of housing in England (2020),

http://researchbriefings.files.parliament.uk/documents/CBP-7671/CBP-7671.pdf; Welsh Government, Delivering More Homes for Wales: Report of the Housing Supply Task Force (2014), at https://gov.wales/sites/default/files/publications/2019-04/delivering-more-homes-for-wales-recommendations.pdf.

69

Subject to exceptions.

70

Including leaseholders of any future houses that are sold on a leasehold basis.

71

Including leaseholders of any future flats that are sold on a leasehold basis.

72

The legal position is that positive obligations cannot bind future owners of the land (see para 1.20 above). However, freehold land can be subject to a requirement to pay an “estate rentcharge”, and there are various “workarounds” which can be effective to bind future freehold owners such as a “chain of covenants” protected by a restriction at HM Land Registry.

73

See Roberts v Lawton [2016] UKUT 395 (TCC), [2017] 1 P & CR 3, which featured the method of enforcing rentcharges implied by s 121(4) of the Law of Property Act 1925 whereby the holder of a rentcharge that is in arrears may grant a lease of the charged land to a trustee to raise money to discharge the outstanding debt. See MHCLG’s work on fees and charges (paras 1.63(14)(a) and (b) above) and the Welsh Government Call for Evidence (para 1.688 above).

74

See, for example, BBC News, 'Fleecehold': New homes hit by 'hidden costs' (20 March 2019), at https://www.bbc.co.uk/news/uk-england-46279048. See also MHCLG’s work on permission fees (para 1.63(14)(d) above).

75

Although we are recommending the expansion of enfranchisement rights, some leaseholders would remain unable to buy the freehold. For example, while we recommend increasing the threshold for commercial use from 25% to 50% (see para 1.12(2) above), leaseholders will not be able to buy the freehold to their block if more than 50% of the block is in commercial use.

76

See para 1.45 to 1.68 above.

77

The restriction on ground rents will not change the ground rents in existing leases, so this measure will only affect leaseholders of future homes. Removing ground rent in existing leases can be done through an enfranchisement claim: see para 1.96(1) above.

78

Indeed the restriction of ground rents to zero is one of the measures that would remove the current incentive to use leasehold, and might therefore go some way to encourage the use of commonhold.

79

We generally use the term “leaseholder” instead of “tenant” when describing those who enjoy RTM rights. We do so because “leaseholder” is typically used to denote those who own their property through a long lease, whereas “tenant” is generally used to refer to those who rent their property on a short lease (such as a one-year “assured shorthold tenancy”). However, the RTM legislation uses the word “tenant”, and, in some instances, we adopt that language when referring to the legislation - for example, when referring to a “qualifying tenant”.

80

We set these out in full in Appendix 1. We discuss the Terms of Reference in more detail from para 2.18.

81

https://www.lawcom.gov.uk/project/right-to-manage/.

82

  Commonhold and Leasehold Reform Act 2002 (“CLRA 2002”), s 96(5).

83

  Tanfield Chambers, Service Charges and Management (4th ed 2018), para 25-02.

84

  CLRA 2002, s 75.

85

  CLRA 2002, s 72.

86

CLRA 2002, sch 6, para 1.

87

The First-tier Tribunal (Property Chamber) in England or the Leasehold Valuation Tribunal in Wales.

88

Department of the Environment, Transport and the Regions, Commonhold and Leasehold Reform (August 2000), section 3, ch 1, para 10.

89

See the comments of Lewison LJ in Elim Court RTM Co Ltd v Avon Freeholds Ltd [2017] EWCA Civ 89, [2018] QB 571 at [8], approving the comments of Martin Rodger QC (Deputy President of the Upper Tribunal (Lands Chamber)) in Triplerose Ltd v Mill House RTM Co Ltd [2016] UKUT 80 (LC), [2016] Landlord and Tenant Reports 23.

90

Elim Court RTM Co Ltd v Avon Freeholds Ltd [2017] EWCA Civ 89, [2018] QB 571 at [77] by Lewison LJ.

91

13th Programme of Law Reform (2017) Law Com No 377, https://www.lawcom.gov.Uk/project/13th-programme-of-law-reform/.

92

Protocol of 29 March 2010 between the Lord Chancellor (on behalf of the Government) and the Law Commission (Law Com No 321), https://www.lawcom.gov.uk/document/protocol-between-the-lord-chancellor-on-behalf-of-the-govemment-and-the-law-commission/; Protocol of 10 July 2015 between the Welsh Ministers and the Law Commission, https://www.lawcom.gov.uk/document/protocol-rhwng-gweinidogion-cymru-a-comisiwn-y-gyfraith-protocol-between-the-welsh-ministers-and-the-law-commission/.

93

Leasehold Home Ownership: Exercising the Right to Manage (2018) Law Commission Consultation Paper No 243 (“the Consultation Paper” or “CP”).

94

  CP, Appendix 1.

95

  See Appendix 2.

96

Leasehold Home Ownership: Buying your Freehold or Extending your Lease: Report on Options to Reduce the Price Payable (2020) Law Com No 387 (the “Valuation Report”).

97

Valuation Report, paras 1.71 to 1.73.

98

Leasehold Home Ownership: Buying your Freehold or Extending Your Lease (2020) Law Com No 392 (the “Enfranchisement Report”), https://www.lawcom.gov.uk/project/leasehold-enfranchisement/.

99

Invigorating Commonhold: the Alternative to Leasehold Ownership (2020) Law Com No 394 (the “Commonhold Report”), https://www.lawcom.gov.uk/project/commonhold/.

100

Gala Unity Ltd v Ariadne Road RTM Co Ltd [2012] EWCA Civ 1372, [2013] 1 WLR 988.

101

  2002 Act, sch 6, para 4.

102

Government of Wales Act 2006, sch 7, Pt I, para 11.

103

Wales Act 2017, s 3 and sch 1 and 2 (and the new sch 7A and 7B).

104

Wales Act 2017, s 3 and sch 1 and 2 (and the new sch 7A and 7B).

105

CLRA 2002, s 74(2).

106

See Ch 1, from para 1.61 for further details of the work that Government is undertaking in respect of leasehold law.

107

Our recommendations in respect of voting rights are discussed from para 6.44.

108

https://www.lawcom.gov.uk/project/right-to-manage/.

109

The list of contributors includes those who have worked on the project full- or part-time and includes past and present members of Law Commission staff.

110

Commonhold and Leasehold Reform Act 2002 (hereafter in footnotes “CLRA 2002”), s 75(2).

111

CLRA 2002, s 76(2). Further specifications are made in the remainder of ss 76 and 77.

112

CLRA 2002, s 75(3). This excludes from the RTM any tenancy to which Pt 2 of the Landlord and Tenant Act

1954 applies - broadly business and professional tenants.

113

CLRA 2002, s 72(1).

114

   CP, para 2.6.

115

   CP, para 2.7.

116

   CP, para 2.8.

117

  In Ch 10, we recommend that RTM companies should in certain circumstances be able to acquire the RTM

in respect of appurtenant property which is used in common with occupiers of other premises; see from para 10.19.

118

CP, paras 2.13 to 2.16.

119

In Ch 5, we recommend that RTM companies should in certain circumstances be able to acquire the RTM in respect of multiple buildings through a single claim.

120

   Notting Hill Genesis.

121

  CP, para 2.13.

122

The RTM Companies (Model Articles) (England) Regulations 2009 (SI 2009 No 2767); The RTM Companies (Model Articles) (Wales) Regulations 2011 (SI 2011 No 2680). We discuss the model articles in more detail in Ch 6, from para 6.38.

123

Leasehold Home Ownership: Buying your Freehold or Extending your Lease (2018) Law Commission Consultation Paper No 238 (“Enfranchisement CP”), paras 8.37 to 8.56.

124

CP, para 2.33; see also Enfranchisement CP, para 8.46.

125

From para 3.33.

126

See Enfranchisement Report, from para 6.10.

127

Enfranchisement CP, paras 8.48 to 8.49.

128

This was the issue in KW RTM Co Ltd v Lemonland (Kings Wharf) Ltd (16 April 2007) LON/00AM/LEE/2006/0003 Leasehold Valuation Tribunal (unreported).

129

  CLRA 2002, s 72(1).

130

  1993 Act, s 3.

131

  R v Swansea City Council (ex parte Elitestone Ltd) (1993) 66 PCR 422, 429 (Mann LJ).

132

  A Radevsky and D Greenish, Hague on Leasehold enfranchisement (6th ed 2017), para 2-03.

133

Malekshad v Howard de Walden Estates Ltd [2002] UKHL 49, [2003] 1 AC 1013; Town and Country Planning Act 1990, s 119(1).

134

A Radevsky and D Greenish, Hague on Leasehold enfranchisement (6th ed 2017) para 2-03, referring to Cheshire County Council v Woodward [1962] 1 All ER 517 which discusses the definition of “building” in the context of the Town and Country Planning Act 1990, s 336.

135

R v Swansea City Council ex parte Elitestone Ltd (1993) 66 PCR 422, 429.

136

A Radevsky and D Greenish, Hague on Leasehold enfranchisement (6th ed 2017) para 2-03; referring to Malekshad v Howard de Walden Estates Ltd [2003] 1 AC 1013.

137

  CLRA 2002, s 72(2).

138

No.1 Deansgate (Residential) Ltd v No.1 Deansgate RTM Co Ltd [2013] UKUT 580 (LC) at [30].

139

  CLRA 2002, s 72(3).

140

Re Holding and Management (Solitaire) Ltd v 1-16 Finland St RTM Co Ltd [2008] 1 Estates Gazette Law Reports 107.

141

CP, paras 2.70 to 2.71.

142

Albion Residential Ltd v Albion Riverside Residents RTM Company Ltd [2014] UKUT 6 (Lands Chamber); see also the detailed discussion of the “structurally detached” requirement in CQN RTM Company Ltd v Broad Quay North Block Freehold Ltd [2018] UKUT 183 (Lands Chamber).

143

CP, paras 2.38 to 2.71.

144

  See explanation in the Enfranchisement Report, para 4.11.

145

  CP, para 2.83.

146

  CP, para 2.86.

147

  CP, para 2.88 and 2.89.

148

The First-tier Tribunal (Property Chamber) in England or the Leasehold Valuation Tribunal in Wales.

149

  Enfranchisement CP, Ch 8.

150

  Enfranchisement CP, para 8.105.

151

  Enfranchisement CP, para 8.107.

152

Malekshad v Howard de Walden Estates Ltd [2002] UKHL 49; R v Swansea City Council, ex parte Elitestone Ltd (1993) 66 PCR 422, 429-430. See also A Radevsky and D Greenish, Hague on Leasehold Enfranchisement (6th ed 2014), para 2-03.

153

See Enfranchisement Report, from para 6.187.

154

CLRA 2002, s 72(3)(a).

155

CP, paras 2.51 to 2.52; but see the stricter, clearer application of the rule by President George Bartlett QC in the Lands Tribunal case Re 1-16 Finland Street LRX/138/2006.

156

Holding and Management (Solitaire) Ltd v 1-16 Finland St RTM Co Ltd [2008] 1 Estates Gazette Law Reports 107.

157

CLRA 2002, sch 6, para 1.

158

CLRA 2002, sch 6, para 1(2).

159

CLRA 2002, s 96(6)(a).

160

In Ch 10, we recommend that the RTM company should only acquire management functions in respect of appurtenant property in certain circumstances; see from para 10.119.

161

See CP, paras 2.132 to 2.134.

162

See for example Connaught Court RTM Co Ltd v Abouzaki Holdings Ltd [2008] 3 Estates Gazette Law Reports 175, (10 November 2008) LRX/115/2007 (Lands Tribunal); 1 Palace Gate RTM Co Ltd v Winchester Park Ltd (22 October 2012) LON/OOAW/LRM/2012/0021 Leasehold Valuation Tribunal (London Rent Assessment Panel) (unreported); and Canute Castle RTM Co Ltd v Keystone Property Co Ltd (27 June 2008) CHI/00MS/LRM/2009/0002 Leasehold Valuation Tribunal (Southern Rent Assessment Panel) (unreported).

163

  CP, para 2.145.

164

  Enfranchisement CP, paras 8.110 to 8.118.

165

Compare CP, paras 2.139 to 2.141 with Enfranchisement CP, paras 8.110 to 8.118.

166

See reasons set out from para 7.54.

167

See Enfranchisement Report, paras 6.323 to 6.324.

168

See from para 7.3, and especially para 7.39.

169

This would perhaps have relied upon the definition of business tenancy used elsewhere in this Report: that is, a lease which is subject to Part II of the Landlord and Tenant Act 1954.

170

CLRA 2002, s 72(1)(b).

171

From para 10.130.

172

See the discussion preceding Recommendation 10 below.

173

CLRA 2002, s 72(1)(c).

174

Enfranchisement Report, para 6.237.

175

Enfranchisement CP, paras 8.135 to 8.142.

176

Although Tower Hamlets’ concerns are understandable, we are of the view that they are addressed sufficiently in the current legislation. Sch 6, para 4 of the 2002 Act prevents RTM claims if a local housing authority is the immediate landlord of any of the qualifying tenants of flats contained in the premises, regardless of how many long leaseholders there are.

177

See from para 6.44.

178

Under one of our two recommended models for conversion to commonhold, non-participating leaseholders could retain their leases and remain as leaseholders rather than becoming commonhold-unit owners: see Commonhold Report, from para 5.5.

179

  Commonhold Report, paras 5.33 to 5.36.

180

  CLRA 2002, s 79(5).

181

  CP, para 2.117.

182

  CP, para 2.117.

183

  CLRA 2002, s 79(4).

184

  CP, paras 2.121 to 2.124.

185

We make specific recommendations regarding resident landlords in Ch 4.

186

CLRA 2002, sch 6, para 3.

187

  1993 Act, s 10.

188

  See from para 4.26.

189

See Recommendation 8 above and comments of Damian Greenish at para 3.137.

190

  See Ch 8.

191

  See Ch 9.

192

  See from para 7.3.

193

  An AST is the most common type of agreement used by landlords to let residential properties to private

tenants on short leases. ASTs are typically given for a period of between six to 12 months.

194

The other residential unit could be occupied by a resident landlord, let on an AST, or be left vacant.

195

See from para 4.45.

196

Enfranchisement Report, paras 5.242 to 5.246.

197

CLRA 2002, s 74(1); see also The RTM Companies (Model Articles) (England) Regulations 2009 (SI 2009 No 2767); The RTM Companies (Model Articles) (Wales) Regulations 2011 (SI 2011 No 2680), art 26.

198

CLRA 2002, sch 6, para 5(1)(a).

199

The term “qualifying tenant” is explained at para 3.3 above.

200

  CLRA 2002, s 75(5).

201

  CLRA 2002, s 75(7).

202

RTM Companies (Model Articles) (England) Regulations 2009 (SI 2009 No 2767), sch 1, arts 26(4) to (5), 33(4); RTM Companies (Model Articles) (Wales) Regulations (SI 2011 No 2680), sch 1, arts 26(4) to (5), 33(4).

203

See also Glossary for definition of “intermediate landlord”.

204

CLRA 2002, s 75(6).

205

CP, paras 3.30 to 3.33; Orchard Court RTM Co Ltd v Singh (11 December 2014)

LON/00BH/LRM/2014/0023 First-tier Tribunal Property Chamber (Residential Property) (unreported) discussing mortgagees; Choumert Road RTM Co Ltd v Assethold Ltd (10 September 2012) LON/00BE/LRM/2012/0017 Leasehold Valuation Tribunal (unreported) discussing receivers.

206

   CP, from para 3.34.

207

  CLRA 2002, s 76(3).

208

See, eg, Mayor of London, City Hall Blog, ‘How to buy your first home with shared ownership’ (31 July 2018), https://www.london.gov.uk/city-hall-blog/buy-your-first-home-shared-ownership. We discuss the structure and operation of shared ownership in more detail in the Enfranchisement Report, from para 7.6.

209

In the case of a shared ownership house, the lease will usually provide that the freehold is transferred to the purchaser when they staircase to 100%.

210

A more detailed explanation of the legal structure of shared ownership leases is given in the Enfranchisement Report, para 7.6.

211

The Times has reported that fewer than 5% of leaseholders staircase every year. The Sunday Times, “The Scandal of Shared Ownership Schemes” (30 September 2018), https://www.thetimes.co.uk/article/shared-ownership-scandal-dbl3bfj8f.

212

See Housing (Right to Enfranchise) (Designated Protected Areas) (England) Order, SI 2009 No 2098.

213

CLRA 2002, s 76(2)(e).

214

CP, para 3.15. See Brick Farm Management Ltd v Richmond Housing Partnership Ltd [2005] EWHC 1650 (QB), [2005] 1 WLR 3934 at [15]; Corscombe Close Block 8 RTM Co Ltd v Roseleb Ltd [2013] UKUT 81 (LC). On the other hand, see Richardson v Midland Heart Ltd [2008] Landlord and Tenant Reports 31 at [19].

215

CP, para 3.22 and 3.25.

216

CLRA 2002, s 108(1). The Crown is treated in most respects as any other landlord; the exceptions to this are stipulated in CLRA 2002, ss 108(3) to (4).

217

CP, para 3.64; CLRA 2002, sch 6, para 4.

218

Housing Act 1985, s 27AB. The Housing (Right to Manage) (England) Regulations 2012 (SI 2012 No 1821) governs this process: see CP, para 3.64 onwards.

219

  Housing Act 1985, s 1.

220

  CLRA 2002, sch 6, para 3(1).

221

  CLRA 2002, sch 6, para 3(2)(a).

222

  CLRA 2002, sch 6, para 3(6).

223

CLRA 2002, sch 6, paras 3(2)(b) and 3(3)-3(5).

224

  CP, para 3.47.

225

  CP, para 3.53.

226

See for example Rye v Rye [1962] AC 496, 513.

227

See from para 3.140.

228

See equivalent policy discussion and recommendation in the Enfranchisement Report, paras 6.350 to 6.354.

229

CLRA 2002, sch 6, para 2.

230

See Pembroke Lodge RTM Co Ltd v Avon Ground Rents Ltd (25 October 2018) LON/00AY/LRM/2018/0018 First-tier Tribunal Property Chamber (Residential Property) (unreported) for an example of where the tribunal has held that an RTM company was entitled to acquire the RTM over the whole premises where a block of flats was in split freehold ownership.

231

Tanfield Chambers, Service Charges and Management (4th ed 2018) para 25-12.

232

  CP, para 3.57.

233

  CP, para 3.57.

234

  CP, para 3.61.

235

  CP, para 3.57.

236

See from para 5.36 below.

237

The First-tier Tribunal (Property Chamber) in England or the Leasehold Valuation Tribunal in Wales.

238

Camden LBC v Morath [2019] UKUT 193 at [16].

239

See from para 10.154.

240

  See the National Trust Act 1907, s 4(1) and the National Trust Act 1937, s 3.

241

  By s 21(1) and sch 1 of the National Trust Act 1907, certain National Trust properties are expressly stated to

be inalienable. The National Trust also has power, under s 21(2) of the 1907 Act, to determine by resolution that other land or properties which it owns are inalienable. Further, properties granted to the Trust pursuant to the National Trust Act 1939 are inalienable, by reason of s 8 of that Act. In total, around 95% of National Trust land is inalienable.

242

Leasehold Reform, Housing and Urban Development Act 1993, s 95; see also Leasehold Reform Act 1967, s 32. For the current law and our recommendations in relation to National Trust property and enfranchisement rights, see Enfranchisement Report, paras 7.94 to 7.101.

243

CP, para 3.69.

244

  See from para 3.12.

245

  CP, para 3.71.

246

  CP, paras 3.72 and 3.73.

247

  CP, para 3.71.

248

See from para 10.130.

249

Leasehold Reform, Housing and Urban Development Act 1993, s 95; Leasehold Reform Act 1967, s 32.

250

See Leasehold Home Ownership: Buying your Freehold or Extending your Lease (2018) Law Commission CP No 238 (“Enfranchisement CP”), para 9.51.

251

Subject to a “right to buy back” in favour of the National Trust; see Enfranchisement Report, paras 7.141 to 7.145.

252

Enfranchisement Report, para 7.145.

253

See National Trust Act 1907, s 4(1).

254

Enfranchisement rights shall not, generally speaking, apply to any lease of land in which there is a superior interest belonging to the Crown (i.e. the Crown Estate, the Duchy of Cornwall, the Duchy of Lancaster or a Government department). However, the Crown has given an undertaking to Parliament that, in most cases, it will act “by analogy” with the provisions of the Leasehold Reform Act 1967 Act and the Leasehold Reform, Housing and Urban Development Act 1993. The undertaking does not apply in certain cases, known as the “excepted areas”: see the Enfranchisement Report at paras 7.151 and 7.152. In these cases, the Crown is free to act as it wishes, although we understand that two of the Crown bodies named above have adopted voluntary policies in respect of properties located in these areas: see for example https://www.thecrownestate.co.uk/media/2836/excepted-areas-guide.pdf.

255

  See from para 11.36.

256

  See from para 10.130.

257

  See definition of qualifying tenant at para 3.3 above.

258

 CLRA 2002, s 74(1). Once the RTM is acquired, landlords can also become members of the RTM company.

We discuss the membership of the RTM company from para 6.21.

259

CLRA 2002, s 75(3).

260

Landlord and Tenant Act 1954, s 23(1).

261

Occupation, or the carrying on of a business, by a company in which the leaseholder has a controlling interest is treated as occupation, or the carrying on of a business, by the leaseholder: Landlord and Tenant Act 1954, s 23(1A).

262

Cheryl Investments Ltd v Saldanha [1978] 1 WLR 1329.

263

Landlord and Tenant Act 1954, s 23(4).

264

CP, paras 3.80 to 3.82.

265

  CP, para 3.81.

266

  Enfranchisement CP, paras 8.52 to 8.53.

267

  CP, para 3.83.

268

  CP, para 3.84.

269

  See Enfranchisement CP, para 8.52(1).

270

Enfranchisement Report, paras 6.54 to 6.56.

271

  Enfranchisement Report, para 6.60.

272

We recommend that the same principles apply in the context of leaseholders having enfranchisement rights; Enfranchisement Report, paras 6.61 to 6.68.

273

Of course, the lease and the premises over which the claim is made must also meet all of the other qualifying criteria which we recommend in this chapter and in Ch 3. For example, the premises as a whole might be exempt from the RTM if the floorspace containing the non-residential parts exceeded the non-residential limit. We note that “permitting” residential use would include a landlord giving consent, waiving a covenant against other use, or waiving/acquiescing in a breach of a user covenant.

274

[2015] EWCA Civ 282, [2016] 1 WLR 275.

We discussed the problems with multiple RTM companies on a single estate in further detail in the CP, paras 4.19 to 4.23.

275

See also Enfranchisement Report, from para 5.73.

276

The examples given by two consultees (Damian Greenish, a solicitor and The Portman Estate, a landlord) were modern housing estates where houses have been sold on a leasehold basis and the freehold sold to institutional ground rent investors, and estates comprising multiple blocks of flats using common facilities.

277

In Ch 13, we discuss the existing restriction on new RTM claims within four years of a previous RTM terminating (CLRA 2002, sch 6, para 5(1)(b)). We recommend that this should be reduced to two years and take the form of a defence rather than a ban. However, we recommend that the restriction should not apply where the RTM has terminated in respect of a single building, but it is proposed that that building should be included in a new multi-building claim less than two year after the termination. See from para 13.217, and in particular para 13.239.

278

CP, paras 4.7 and 4.8.

279

See from para 10.119.

280

CP, para 4.49.

281

We acknowledged a similar point at CP, para 4.8.

282

See from para 10.119.

283

See Ch 3 for our recommendations on the qualification and participation criteria which should apply in relation to premises.

284

CP, para 4.67.

285

CP, para 4.72.

286

See from para 13.217.

287

This will require consequential amendment to CLRA 2002, sch 6, para 5(1)(a) which exempts premises that are currently being managed by an RTM company.

288

First-tier Tribunal (Property Chamber) in England or the Leasehold Valuation Tribunal in Wales.

289

  See from para 10.130.

290

  See from para 10.187.

291

  See from para 13.140.

292

Under the current law, there is a four-year moratorium on a further RTM claim being made in respect of the same property after the RTM has ceased: CLRA 2002, sch 6, para 5(1)(b); see CP, from para 11.75. We recommend that this should be replaced with a defence to an RTM claim which is made within two years of a previous RTM being terminated: see from para 13.217.

293

See from para 13.217.

294

See from para 6.8.

295

CLRA 2002, s 74(2) to (6); RTM Companies (Model Articles) (England) Regulations 2009 (SI 2009 No 2767), reg 2; RTM Companies (Model Articles) (Wales) Regulations 2011 (SI 2011 No 2680), reg 2 (together, the “model articles”).

296

  Model articles, sch 1, art 33.

297

  Model articles, sch 1, art 22.

298

  Model articles, sch 1, art 9.

299

See Commonhold Report, Ch 8.

300

Commonhold CP, paras 5.39 to 5.41.

301

There would be certain qualifying conditions that would have to be met in order to set up a “section”. The Commonhold CP proposed that separate classes of vote could be given to: (i) residential and non-residential units; (ii) non-residential units which use their units for significantly different purposes; (iii) different types of residential units (such as flats and terraced houses); (iv) separate buildings in the same development; and (v) other premises within the commonhold which, in the interests of practicality and fairness, the Tribunal decides should form a separate section.

302

  Discussed above from para 5.50.

303

  See from para 13.43.

304

In Ch 6, we set out the current voting rights regime and make recommendations for its reform.

305

   CLRA 2002, s 73(2)(a).

306

   CP, paras 5.6 to 5.10.

307

  Companies Act 2006, s 770.

308

  Companies Act 2006, s 772.

309

  Companies Act 2006, s 771(1).

310

  Companies Act 2006, s 776(1)(a).

311

Financial Conduct Authority, Finalised Guidance 15/12: Guidance on the FCA’s Registration Function Under the Co-operative and Community Benefit Societies Act 2014, https://www.fca.org.uk/publication/finalised-guidance/fg15-12.pdf, para 6.2.

312

We discuss the voting rights regime that applies to RTM companies, and our recommendations for change, from para 6.80 below.

313

Office of the Regulator of Community Interest Companies, Frequently Asked Questions for Funding Organisations, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/605431/1 3-782-community-interest-companies-frequently-asked-questions-for-funding-organisations.pdf.

314

  See Enfranchisement Report, from para 5.6.

315

  See Enfranchisement Report, from para 5.47.

316

It is permitted by implication. The RTM company ceases to be an RTM company if the freehold is transferred to it: CLRA 2002, s 73(5).

317

Whether or not the continuation of the RTM (and RTM company) in this situation is desirable or appropriate will depend on the circumstances. See Ch 13 for details on how an RTM can be brought to an end.

318

CLRA 2002, s 73(5) and s 105(5). This is necessary, as freehold ownership is not compliant with the RTM company’s model articles.

319

See the user-friendly guide provided by Companies House: https://www.gov.uk/limited-company-formation/register-your-company.

320

Companies Act 2006, ss 7(1) and 154(1).

321

CLRA 2002, s 74(1); RTM Companies (Model Articles) (England) Regulations 2009 (SI 2009 No 2767), sch

1, art 26; RTM Companies (Model Articles) (Wales) Regulations 2011 (SI 2011 No 2680), sch 1, art 26.

322

RTM Companies (Model Articles) (England) Regulations 2009 (SI 2009 No 2767), sch 1, art 27(1); RTM Companies (Model Articles) (Wales) Regulations 2011 (SI 2011 No 2680), sch 1, art 27(2).

323

Triplerose Ltd v Mill House RTM Co Ltd [2016] UKUT 80 (LC), [2016] Landlord and Tenant Reports 23 at [53].

324

CLRA 2002, ss 73(2) to (4).

325

Danescroft RTM Co Ltd v Inspired Holdings Ltd & Eagil Trust Company Ltd (29 April 2013)

LON/00AC/LRM/2012/0032 First-tier Tribunal Property Chamber (Residential Property) (unreported), para 26.

326

First-tier Tribunal (Property Chamber) in England or the Leasehold Valuation Tribunal in Wales.

327

CLRA 2002, ss 79(4) to (5). At least one-half of the qualifying tenants of flats in the premises must be members of the RTM company. In Ch 3, we recommend the retention of this requirement.

328

Companies Act 2006, s 20; Companies (Model Articles) Regulations 2008 (SI 2008 No 3229).

329

RTM Companies (Model Articles) (England) Regulations 2009 (SI 2009 No 2767), sch 1; RTM Companies (Model Articles) (Wales) Regulations 2011 (SI 2011 No 2680), sch 1 (together, the “model articles”).

330

CLRA 2002, s 74(7).

331

The RTM Companies (Model Articles) (England) Regulations 2009 (SI 2009 No 2767), reg 2(2); RTM Companies (Model Articles) (Wales) Regulations 2011 (SI 2011 No 2680), reg 2(2); Fairhold Mercury Ltd v HQ (Block 1) Action Management Co Ltd [2013] UKUT 487 (LC), [2014] Landlord and Tenant Reports 5.

332

  Model articles, art 22.

333

  Model articles, arts 1, 22.

334

  Model articles, art 23.

335

   Model articles, art 26.

336

  Model articles, arts 12 to 13, 17 to 18.

337

  Model articles, arts 16, 28, 9, 33, 35, 29.

338

  Model articles, art 33.

339

Palmer’s Company Law (2018) vol 2 para 8.3703.

340

  CP, para 5.49.

341

From para 3.12; Recommendation 1.

342

See from para 6.60 below.

343

  Model articles, art 33(2).

344

  Model articles, art 33(3)(a).

345

   Model articles, art 33(c)(e).

346

  Model articles, art 33(3)(c).

347

  Model articles, art 33(3)(b).

348

  Model articles, art 33(3)(d).

349

  Model articles, art 33(3)(f).

350

  See from para 3.94.

351

  See from para 3.140.

352

See para 3.126.

353

Model articles, art 33(3)(b).

354

As discussed from para 3.148, we now recommend the retention of this rule.

355

See Commonhold CP, para 9.4.

356

Companies Act 2006, s 336; Commonhold (Amendment) Regulations 2009 (SI 2009 No 2363), sch, art 10.

357

Palmer’s Company Law (2018) vol 2 ch 7.502.

358

Companies Act 2006, ss 303(2)(b), 303(4)(a).

359

Model articles, art 29.

360

See para 10.223 below.

361

Notice may be given in hard copy, electronically, or by means of a website: Companies Act 2006, s 308. If given on the website, the notice should be available on the website throughout the notice period, state that it concerns a notice of a company meeting, and specify the place, date and time of the meeting: Companies Act 2006, s 309. If given electronically or in hard copy, the notice must state the time, date and place of the meeting, and the general nature of the business to be dealt with at the meeting: Companies Act 2006, s 311. Notice must be sent to every member of the company and every director: Companies Act 2006, s 310. At least 14 days’ notice must be given: Companies Act 2006, s 307(1).

362

  Companies Act 1985, ss 366(3) and (4).

363

  Companies Act 2006, s 33(1).

364

  Companies Act 2006, s 303.

365

  Companies Act 2006, s 305(1) and (6).

366

  Companies Act 2006, ss 7(1), 154(1).

367

  Companies Act 2006, ss 168(1), 312(3), 338.

368

  Companies Act 2006, ss 171 to 177.

369

  Companies Act 2006, ss 167, 451, 1121.

370

  Companies Act 2006, s 1157.

371

  Companies Act 2006, s 233.

372

Small companies have an annual turnover of less than £10.2 million: Companies Act 2006, s 382. Most RTM companies are likely to meet this description.

373

  Companies Act 2006, ss 386 to 388, 1135.

374

  Companies Act 2006, ss 790M, 113, 162, 165, 167.

375

  Companies Act 2006, ss 396(1), 444(1)(a), 451, 853A, 853L.

376

Now an annual confirmation statement.

377

  Companies Act 2006, ss 381 to 384, 444 to 444A.

378

 Companies Act 2006, s 414B.

379

 Companies Act 2006, s 415A.

380

  Companies Act 2006, s 477 to 479.

381

CP, from para 5.112.

382

https://companieshouse.gomocentral.com/content/e6356b9e-e184-469d-be97-0642d3063f0e/web.

383

CP, para 5.123.

384

The First-tier Tribunal (Property Chamber) in England or the Leasehold Valuation Tribunal in Wales.

385

As modified by the CLRA 2002, sch 7, para 8.

386

We set out the fault-based grounds in full at para 13.43.

387

CLRA 2002, s 105(4).

388

For example, appointing and removing directors; how directors make decisions; how to organise general meetings; how votes should be conducted at general meetings; accounting and finance; directors’ duties and the personal liability of directors.

389

Including complying with the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006 No 246), catering for on-site caretakers, forming a multi-building RTM (such as the possible consequences of fracturing management, procedure for adding or removing buildings).

390

For more detail, see Ch 10.

391

Including the trust law obligations associated with service charges.

392

  Including the prohibition on retrospective consents and consents in respect of absolute covenants.

393

  The Companies Act 2006 imposes criminal penalties on directors where an enactment is contravened, and

the director authorised, permitted, participated in or failed to take reasonable steps to prevent the contravention (Companies Act 2006, s 1121). Offences include failing to file accounts and reports (Companies Act 2006, s 451) and failing to notify the registrar of changes to the directorship of the company (Companies Act 2006, s 167).

394

A company director will be guilty of a health and safety offence if it was committed with their consent or connivance, or is attributable to their neglect: Health and Safety at Work etc Act 1974, s 37(1).

395

See Ch 5 above.

396

Ministry of Housing, Communities and Local Government, Regulation of Property Agents: Working Group Report (July 2019), https://www.gov.uk/government/publications/regulation-of-property-agents-working-group-report.

397

  Above, para 36.

398

  Above, para 94.

399

  See from para 7.18.

400

  CP, para 5.127.

401

  https://www.lease-advice.org/advice.

402

Ministry of Housing, Communities and Local Government, Regulation of Property Agents: Working Group Final Report (July 2019), para 36.

403

CP, paras 5.135 to 5.140.

404

See from para 7.63.

405

Ministry of Housing, Communities and Local Government, Regulation of Property Agents: Working Group Final Report (July 2019), para 35.

406

Above, para 36.

407

CP, para 2.145.

408

  See from para 10.38.

409

  See from para 10.19. Ministry of Housing, Communities and Local Government, A Reformed Building Safety

Regulatory System: Government Response to the ‘Building A Safer Future’ Consultation (April 2020), p 21.

410

CLRA 2002, s 79. We discuss this in more detail below from para 8.27.

411

CLRA 2002, ss 79(6)(a) and 79(8). It must also be served on any third party to the lease, and to any manager appointed under Part 2 of the Landlord and Tenant Act 1987 (ss 79(6)(b) and (c)).

412

CLRA 2002, s 80; The Right to Manage (Prescribed Particulars and Forms) (England) Regulations 2010 (SI 2010 No 825), reg 4 and sch 2; The Right to Manage (Prescribed Particulars and Forms) (Wales) Regulations 2011 (SI 2011 No 2684), reg 4 and sch 2.

413

CLRA 2002, s 79(5). As discussed in Ch 3, the 2002 Act currently provides that if there are only two qualifying tenants of flats contained in the premises then both must be members of the RTM company. We have recommended the removal of this requirement; see from para 3.183.

414

  CLRA 2002, s 78(1).

415

   CLRA 2002, s 78(7). Those particulars are prescribed by ss 78(2) to (5), and the Right to Manage

(Prescribed Particulars and Forms) (England) Regulations 2010 (SI 2010 No 825), reg 3 and sch 1, and the Right to Manage (Prescribed Particulars and Forms) (Wales) Regulations 2011 (SI 2011 No 2684) reg 3 and sch 1.

416

R v Soneji [2006] 1 AC 340; Osman v Natt [2014] EWCA Civ 1520; Elim Court RTM Co Ltd v Avon Freeholds Ltd [2017] EWCA Civ 89.

417

Assethold Ltd v 15 Yonge Park RTM [2011] UKUT 379 (LC); Assethold Ltd v 14 Stansfield Road RTM Co Ltd [2012] UKUT 262 (LC).

418

Assethold Ltd v 13-24 Romside Place RTM Co Ltd [2013] UKUT 603 (LC).

419

Elim Court RTM Co Ltd v Avon Freeholds Ltd [2017] EWCA Civ 89, [2018] QB 571.

420

Triplerose Ltd v Mill House RTM Co Ltd [2016] UKUT 80 (LC).

421

  See from para 3.155.

422

  See from para 8.41.

423

Landlord and Tenant Act 1987, s 47, as modified by CLRA 2002, sch 7, para 12. In Ch 11, we recommend that only the RTM company’s details should be included in service charge demands: see from para 11 .91.

424

CLRA 2002, ss 79(1) and 79(6).

425

CLRA 2002, s 79(8).

426

  CLRA 2002, ss 80(1) to (7).

427

  CLRA 2002, ss 80(1), (8) and (9); Right to Manage (Prescribed Particulars and Forms) (England)

Regulations 2010 (SI 2010 No 825), reg 4 and sch 2; Right to Manage (Prescribed Particulars and Forms) (Wales) Regulations 2011 (SI 2011 No 2864), reg 4 and sch 2.

428

 Elim Court RTM Co Ltd v Avon Freeholds Ltd [2017] EWCA Civ 89 at [44].

429

 Elim Court RTM Co Ltd v Avon Freeholds Ltd [2017] EWCA Civ 89 at [68].

430

Electronic Execution of Documents (2019) Law Commission Report No 386, pp 2 to 3.

431

UKI (Kingsway) Ltd v Westminster City Council [2018] UKSC 67.

432

  See Enfranchisement Report, paras 8.139 to 8.141, and 8.145.

433

  CLRA 2002, s 79(6).

434

  CLRA 2002, s 79(9). “Tribunal” means the First-tier Tribunal (Property Chamber) in England or the

Leasehold Valuation Tribunal in Wales.

435

CLRA 2002, s 79(7). Discussed below from para 8.51.

436

  CLRA 2002, s 79(8).

437

CLRA 2002, ss 112(2) and (3).

438

 [2017] EWCA Civ 89.

439

In Ch 10 we explain that the RTM company only acquires management functions insofar as they are contained in the leases of whole or part of the premises; CLRA 2002, s 96.

440

Enfranchisement Report, paras 8.156 to 8.160.

441

  See para 4.71.

442

  CLRA 2002, s 79(7) and s 85.

443

  CLRA 2002, s 85(2).

444

  CLRA 2002, s 85(3).

445

  CLRA 2002, s 85(4).

446

  CLRA 2002, s 85(5). The person must have been found after the application was made but before the

making of the order.

447

  CLRA 2002, s 85(6)(a).

448

  CLRA 2002, s 90(6).

449

  CLRA 2002, s 111(1)(a).

450

  CLRA 2002, s 111(1)(b).

451

Interpretation Act 1978, s 7. This presumption may be displaced if the relevant statute displays the contrary intention. However, in Moskovitz and others v 75 Worple Road RTM Co Ltd [2011] 1 EGLR 95, the Upper Tribunal proceeded on the basis that Interpretation Act 1978, s 7 does apply.

452

Interpretation Act 1978, s 7. The burden of proof is on the intended recipient to prove that a notice sent by post was not in fact delivered to them within that time (either by showing that it was delivered later or, in practice, by showing that it has not been delivered at all): Calledine-Smith v Saveorder Ltd [2011] 3 EGLR 55. See also Services Charges and Management (4th edition), Tanfield Chambers, para 26-21.

453

CLRA 2002, s 111(3)(a).

454

  CLRA 2002, s 111(3)(b).

455

  CLRA 2002, s 111(3)(b).

456

  CLRA 2002, s 111(5).

457

Avon Freeholds Ltd v Regent Court RTM Co Ltd [2013] UKUT 0213 (LC), [2013] Landlord and Tenant Reports 23.

458

See a general discussion of the effect of provisions which set out an optional method of service: UKI (Kingsway) Ltd v Westminster City Council [2019] 1 WLR 104 at [15] and [16]. See UKI (Kingsway) Ltd v Westminster City Council [2019] 1 WLR 104 at [15] and [16] on the effect of such provisions more generally.

459

Gateway Property Holdings Ltd v Ross Wharf RTM Company Ltd [2016] UKUT 97 (LC) at [21].

460

CLRA 2002, s 79(6) and (9).

461

Interpretation Act 1978, sch 1.

462

Electronic Execution of Documents (2019) Law Commission Report No 386, paras 2.15 to 2.17.

463

Cowthorpe Road 1-1A Freehold Ltd v Wahedally (16 February 2016) Central London County Court (unreported) at [52].

464

In our Report on Electronic Execution of Documents, we noted that this decision was “unfortunate” because the relevant provision about service by post was permissive rather than mandatory: Electronic Execution of Documents (2019) Law Commission Report No 386, para 3.68.

465

Assethold Ltd v 110 Boulevard RTM Co Ltd [2017] UKUT 316 (LC) at [13].

466

Interpretation At 1978, s 7.

467

Email service is in fact an acceptable form of service, albeit with some caveats - see for recent Supreme Court discussion Barton v Wright Hassall LLP [2018] UKSC 12.

468

CLRA 2002, s 111(3).

469

UKI (Kingsway) Ltd v Westminster City Council [2019] 1 WLR 104, [2018] UKSC 67 at [16] per Lord Carnwath, endorsing the reasoning of Slade LJ in Galinski v McHugh (1988) 57 P&CR 359.

470

  CLRA 2002, s 111(4).

471

  CLRA 2002, s 111(3).

472

  CP, from para 6.119.

473

  Enfranchisement CP, paras 11.69 to 11.70.

474

If the landlord or other related third party is a company, this will be its registered company address.

475

CP, para 6.123. Note that we did not ask a specific question about the additional requirement to serve the notice at the address held at HM Land Registry in the case of Group B addresses.

476

See Enfranchisement Report, from para 8.206.

477

Enfranchisement Report, paras 8.222 and 8.234.

478

CP, para 6.124.

479

CLRA 2002, s 79(6). See above from para 8.42.

480

  Elim Court RTM Co Ltd v Avon Freeholds Ltd [2017] EWCA Civ 89.

481

  CLRA 2002, s 79(7) and s 85. See above from para 8.51.

482

This would be relevant where the RTM company serves the claim notice on the landlord who does not serve a counter-notice, and the RTM company makes a (voluntary) application to the Tribunal for a determination that it was entitled to acquire the RTM.

483

This example highlights the benefits of applying to the Tribunal for a declaration that the RTM has been acquired if the landlord does not serve a counter-notice. If the RTM company in fact served the wrong landlord, and received no counter-notice, the members of the RTM company might think they have acquired the RTM on the date set out in the claim notice. However, this could be challenged at any subsequent point on the basis that the RTM company did not serve a valid claim notice in the first place. See our discussion and recommendations from para 8.212 below.

484

See from para 8.51 for details.

485

CLRA 2002, s 85(4).

486

Summarised in the Enfranchisement Report, paras 8.213 to 8.217.

487

See from para 8.193.

488

CLRA 2002, s 84.

489

  CLRA 2002, s 84(1).

490

  CLRA 2002, s 80(6).

491

  CLRA 2002, s 84(2); Right to Manage (Prescribed Particulars and Forms) (England) Regulations 2010 (SI

2010 No 825); Right to Manage (Prescribed Particulars and Forms) (Wales) Regulations (SI 2011 No 2684).

492

  CLRA 2002, s 84(2).

493

  CLRA 2002, s 84(4).

494

  CLRA 2002, s 84(3). The relevant time is the date on which the claim notice was given to the landlord or

relevant third party.

495

  CLRA 2002, s 84(1).

496

  CLRA 2002, s 80(5).

497

Fairhold (Yorkshire) Ltd v Trinity Wharf (SE16) RTM Co Ltd [2013] UKUT 502 (LC), [2014] Landlord and Tenant Reports 6; Albion Residential Ltd v Albion Riverside Residents RTM Co Ltd [2014] UKUT 6 (LC); Triplerose Ltd v Mill House RTM Co Ltd [2016] UKUT 80 (LC), [2016] Landlord and Tenant Reports 23.

498

  CLRA 2002, s 84(1).

499

CLRA 2002, ss 90(2) to (3).

500

  CLRA 2002, s 90(2).

501

Leasehold Reform, Housing and Urban Development Act 1993, ss 25 and 49. If the applicant shows that they are entitled to enfranchise, and have served the claim notice properly, the freehold or lease extension will be acquired on the terms set out in the claim notice: see Enfranchisement CP, paras 10.103 and 10.154.

502

For a recent example, see Avon Ground Rents Ltd v Hayes Point RTM Co Ltd (11 July 2017) D30CF139 High Court, Cardiff District Registry (unreported).

503

Where an Act of Parliament confers a right on a specified class of persons, those persons cannot enlarge that right by requiring a court to proceed as if an Act applied where, on the facts, it does not: Errington v Errington & Woods [1952] 1 KB 260; Rogers v Hyde [1951] 2 KB 923.

504

In Ch 10, we recommend that the RTM company should only acquire management functions in respect of non-exclusive appurtenant property if the landlord does not oppose this or where the Tribunal agrees. In either case, it will be necessary for either the parties or the Tribunal to set out how such management should be performed. See from para 10.119.

505

CLRA 2002, ss 90(2) and 90(3).

506

In Ch 10, we recommend that the RTM company should only acquire management functions in respect of non-exclusive appurtenant property if the landlord does not oppose this or where the Tribunal agrees. In either case, it will be necessary for either the parties or the Tribunal to set out how such management should be performed. See from para 10.119.

507

  The list of circumstances which imply a deemed withdrawal are listed in CLRA 2002, s 87.

508

  Leasehold Reform, Housing and Urban Development Act 1993, ss 48(1) and 53(1)(a).

509

Enfranchisement CP, para 11.148.

510

Enfranchisement CP, para 11.151. There is no set period either to set a deadline by which a step should have been taken by the leaseholders or which must have expired before a letter warning of an application to strike out can be made.

511

CLRA 2002, s 87(1).

512

CP, footnote 499.

513

Enfranchisement Report, para 9.177.

514

CLRA 2002, ss 81(1) and 81(2).

515

Above, para 8.7 and CP, paras 6.14 to 6.15 and 6.37. In Wales, the use of a form “to the like effect” for a notice is permitted under regulation 8 of the Right to Manage (Prescribed Particulars and Forms) (Wales) Regulations 2011 (SI 2011 No 2684). No equivalent provision is made in the Right to Manage (Prescribed Particulars and Forms) (England) Regulations 2010 (SI 2010 No 825).

516

Elim Court RTM Co Ltd v Avon Freeholds Ltd [2018] QB 571.

517

 [2014] EWCA Civ 1520.

518

R v Soneji [2006] 1 AC 340.

519

 Osman v Natt [2014] EWCA Civ 1520 at [24] and [25] (Etherton C).

520

 Osman at [24] and [25].

521

 Osman at [35].

522

 Osman at [34].

523

 Elim Court at [46].

524

 See para 8.29.

525

 Elim Court at [60] to [67].

526

 Elim Court at [69] to [75].

527

 Elim Court at [68].

528

 Elim Court at [64].

529

 Elim Court at [66].

530

  Elim Court at [68].

531

Elim Court at [68] (Lewison J).

532

 CP, para 6.86; Enfranchisement CP, paras 11.9(6) to (7) and 11.116 to 11.119.

533

 See our recommendations regarding service of the counter-notice, which give the RTM company greater

scope to specify this address, from para 8.157.

534

See from para 8.41.

535

Enfranchisement CP, paras 9.44 to 9.47.

536

CP, para 6.97.

537

Elim Court RTM Co Ltd v Avon Freeholds Ltd [2017] EWCA Civ 89, [2018] QB 571 at [77] (Lewison LJ).

538

On behalf of Dame Alice Owen's Foundation, the Charity of Richard Cloudesley and the Dulwich Estate (charity landlords).

539

 Enfranchisement Report, paras 9.63 to 9.69.

540

 Enfranchisement Report, paras 9.58 and 9.60.

541

 CLRA 2002, s 90.

542

 CLRA 2002, s 90(2).

543

 CLRA 2002, s 80(6).

544

 Windermere Court Kenley Road RTM Co Ltd v Sinclair Gardens Investments (Kensington) Limited [2014]

UKUT 420 (LC).

545

CLRA 2002, s 80(7). The RTM company can specify an acquisition date which is more than three months after the counter-notice date. It may be convenient, for example, to set a later date in order to coincide with a service charge payment date.

546

 CLRA 2002, s 84(3).

547

 CLRA 2002, s 90(4).

548

 CLRA 2002, s 91(5).

549

 See 3 Kings Road Westcliff Essex RTM Co Ltd v Westleigh Properties Ltd (27 May 2005)

CAM/00KF/LRM/2005/0001 Leasehold Valuation Tribunal (unreported); Eton House Residents Ltd v Longmint Ltd (17 June 2011) CAM/00MD/LRM/2011/0001 Leasehold Valuation Tribunal (unreported).

550

 CP, para 7.13.

551

 CP, para 7.19.

552

In Ch 9, we explain RTM companies’ rights to request information from landlords or other relevant parties to assist with the acquisition or management of the RTM.

553

From para 10.203, we discuss our recommendations as to the transfer of existing service charge monies to the RTM company at the acquisition date. However, in some cases there will be little or nothing to transfer.

554

See from para 8.232.

555

See Services Charges and Management (4th edition), Tanfield Chambers at para 26-46, citing 3 Kings Road Westcliff Essex RTM Co Ltd v Westleigh Properties Ltd CAM/00KF/LRM/2005/0001 LVT (unreported). Note though that this Leasehold Valuation Tribunal decision preceded the decision of the Court of Appeal in Elim Court.

556

CP, para 7.20.

557

CP, para 7.18.

558

   CLRA 2002, s 82. Section 80 of the CLRA 2002 sets out the particulars that must be included in the claim

notice. See discussion from para 8.28.

559

  CLRA 2002, s 82(2).

560

  CLRA 2002, s 82(3).

561

  Landlord and Tenant Act 1985, s 30A.

562

  Landlord and Tenant Act 1985, s 21.

563

   CP, para 7.49.

564

   CP, para 7.50.

565

   CP, para 7.67.

566

   CP, para 7.80.

567

We consider the period for responding from para 9.55 below.

568

CP, para 7.84.

569

This distinction is explained above at paras 3.42 and 3.80.

570

CP, para 7.80.

571

CLRA 2002, s 84(2)(b). In Ch 10, we also recommend that landlords should be entitled to give a counternotice objecting to the RTM company acquiring management functions in respect of appurtenant property which is used in common with occupiers of other premises; see from para 10.119.

572

  The First-tier Tribunal (Property Chamber) in England or the Leasehold Valuation Tribunal in Wales.

573

  See discussion of the non-residential limit from para 3.94.

574

  CLRA 2002, s 93(1).

575

  CP, para 7.55.

576

https://www.lawsociety.org.uk/support-services/advice/articles/leasehold-forms/.

577

We consider information about insurance in more detail from para 10.44.

578

  See para 9.148 below.

579

CLRA 2002, ss 82(3) and 93(4).

580

  CLRA 2002, s 93(3).

581

CLRA 2002, s 107. In Ch 12, we recommend that jurisdiction for making orders under section 107 should transfer to the Tribunal: see para 12.38.

582

CLRA 2002, s 91(5).

583

The Ministry of Justice Criminal Offences Gateway Guidance notes that: A wide range of civil sanctions might be employed to create a proportionate and targeted hierarchy of enforcement mechanisms, for example improvement or compliance notices served to secure compliance with particular obligations, voluntary undertakings or civil monetary penalties. See Ministry of Justice, Criminal Offences Gateway Guidance, https://www.justice.gov.uk/downloads/legislation/criminal-offences-gateway-guidance.pdf.

584

In Ch 12, we recommend that the Tribunal be given jurisdiction to enforce requirements of the RTM provisions of the CLRA 2002; see from para 12.38.

585

We make a similar recommendation in the Enfranchisement Report, para 8.89.

586

Willow Court Management Company v Alexander [2016] UKUT 0290.

587

See from para 9.148.

588

CP, para 7.114. We did not make a provisional proposal on this matter.

589

Morrell v Stewart [2015] EWHC 962 (Ch), [2015] 2 WLUK 805.

590

As under s 84(7) and (8) of the CLRA 2002, or following an application by a landlord to strike out the claim in accordance with our recommendations in Ch 8; see from para 8.232.

591

 CLRA 2002, s 86.

592

  CLRA 2002, s 87. See from para 8.211 above.

593

  CLRA 2002, s 91(5).

594

  As under ss 84(7) and (8) of the CLRA 2002, or following an application by a landlord to strike out the claim

in accordance with our recommendations in Ch 8; see from para 8.232.

595

 CLRA 2002, s 86.

596

 CLRA 2002, s 87.

597

As under s 84(7) and (8) of the CLRA 2002, or following an application by a landlord to strike out the claim in accordance with our recommendations in Ch 8.

598

  CLRA 2002, s 86.

599

 CLRA 2002, s 87.

600

  CLRA 2002, s 82(2)(b).

601

 CLRA 2002, s 88.

602

  CP, para 7.97.

603

  See para 6.37.

604

  See para 9.49.

605

General Data Protection Regulation 2016/679 EU, art 1(1).

606

General Data Protection Regulation 2016/679 EU, art 5.

607

General Data Protection Regulation 2016/679 EU, art 6(1)(c).

608

See the discussion in the CP, para 7.113.

609

CLRA 2002, ss 91 and 92.

610

CLRA 2002, s 92(3).

611

  CLRA 2002, s 92(7)(b).

612

  CLRA 2002, s 92(3)(e).

613

  CLRA 2002, s 91(5).

614

  CLRA 2002, s 92(2).

615

  CP, para 7.131.

616

  CP, para 7.135.

617

Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 at 729.

618

CP, para 7.143.

619

CLRA 2002, s 107. Before making such an application the RTM company must give notice to the landlord requiring that the information be provided. In Ch 12 we recommend that the county court’s jurisdiction in relation to such proceedings should transfer the Tribunal.

620

  See para 9.76 above.

621

  CP, paras 7.135 to 7.143.

622

Canary Wharf (BP4) T1 Ltd v European Medicines Agency [2019] EWHC 335 (Ch), [2019] Landlord and Tenant Reports 14 at [170].

623

CLRA 2002, s 96(2).

624

Walton Harvey Ltd v Walker and Homfrays Ltd [1931] 1 Ch 274; E. Johnson & Co (Barbados) Ltd v NSR Ltd [1997] AC 400.

625

Walton Harvey Ltd v Walker and Homfrays Ltd [1931] 1 Ch 274.

626

The First-tier Tribunal (Property Chamber) in England or the Leasehold Valuation Tribunal in Wales.

627

CLRA 2002, s 96(1) to (3).

628

  CLRA 2002, s 96(5).

629

CLRA 2002, s 98. See also from para 11.3 below.

630

  CLRA Act 2002, s 96(6).

631

  CLRA 2002, s 97(2).

632

   CP, para 8.19 to 8.23.

633

   CP, para 8.17.

634

   CP, para 8.32.

635

  CP, para 5.130.

636

  See from para 7.3.

637

See Ch 9.

638

Ministry of Housing, Communities and Local Government, A reformed building safety regulatory system: Government response to the ‘Building a Safer Future’ consultation (April 2020), p 21.

639

See from para 7.26.

640

  CLRA 2002, s 96(5).

641

  CLRA 2002, s 96(2) and (3).

642

  https://www.cqc.org.uk/.

643

The definition of regulated activities is broad. In England, see: Health and Social Care Act 2008, ss 8 and 9; Health and Social Care Act 2008 (Regulated Activities) Regulations 2014 (SI 2014 No 2936), sch 1. In Wales, see: Regulation and Inspection of Social Care (Wales) Act 2016, s 165; Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act 2017, s 8; Education (Wales) Act 2014 s 8. It should be noted that the legislation for England refers to “regulated activities” and legislation for Wales refers to “regulated services”. We have used “regulated activities” to refer to the regulated functions in question under both sets of legislation to avoid ambiguity with the “services” aspect of the definition of management functions.

644

Health and Social Care Act 2008, s 10; Regulation and Inspection of Social Care (Wales) Act 2016, ss 5, 6, 44 and 51.

645

CP, para 8.40.

646

See above at para 10.31.

647

Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001 No 544), art 10. See also FCA Handbook, PERG The Perimeter Guidance Manual, PERG 5, https://www.handbook.fca.org.uk/handbook/PERG/.

648

CLRA 2002, ss 96(2) and (5).

649

  CLRA 2002, s 97(3).

650

  CLRA 2002, s 82. See also our recommendations on information notices in Ch 9.

651

  CLRA 2002, s 93(3). See discussion of the current law from para 9.35.

652

  CP, para 8.73.

653

See para 9.32.

654

  See para 9.35.

655

  CP, para 8.63.

656

See, for example, Lucena v Craufurd (1806) 2 Bosanquet & Puller’s New Reports, Common Pleas 269; Macaura v Northern Assurance Co Ltd [1925] AC 619. See also Insurance Contract Law: Post Contract Duties and Other Issues (2011) Law Commission Consultation Paper No 201; Scottish Law Commission Discussion Paper No 152, para 10.1. https://s3-eu-west-2.amazonaws.com/lawcom-prod-storage-11jsxou24uy7q/uploads/2015/03/cp201 ICL post contract duties.pdf.

657

Colinvaux’s Law of Insurance (12th ed 2019) para 4-027. See also Insurable Interest (2008), Law Commission Issues Paper 4, para 5.18(3).

658

Insurance Contract Law: Post Contract Duties and Other Issues (2011), Law Commission Consultation Paper No 201; Scottish Law Commission Discussion Paper No 152, para 11.68.

659

  Above, para 11.95.

660

  CP, from para 8.62.

661

Lurcott v Wakeley & Wheeler [1911] 1 KB 905.

662

  CLRA 2002, s 97(3).

663

  CP, para 8.86.

664

  CP, paras 8.80 to 8.85.

665

  CP, para 8.87.

666

Prof J Birds, S Milnes, B Lynch, MacGillivray on Insurance Law (14th ed 2018) para 1-153; Prof R M Merkin, Colinvaux’s Law of Insurance (11th ed with supplement 2018) para 20-028.

667

See Ch 9, particularly from para 9.22, and from para 10.44 on insurance information.

668

CLRA 2002, s 103. The circumstances in which a landlord must make such a contribution are set out in that provision.

669

  Landlord and Tenant Act 1985, s 30A and sch, as modified by CLRA 2002, sch 7 para 5.

670

  Landlord and Tenant Act 1985, sch, para 3, as modified by CLRA 2002, sch 7 para 5.

671

  Landlord and Tenant Act 1985, sch, paras 3(5) and (6).

672

  Landlord and Tenant Act 1985, sch, para 5.

673

  CLRA 2002, s 97(3).

674

  CP, para 8.57.

675

  See paras 10.56 to 10.180 above.

676

  See paras 10.56 to 10.180 above.

677

  As a result of the operation of CLRA 2002, ss 96(2) and (3) and ss 97(1) and (2).

678

  In Ch 12, we recommend that the Tribunal should have jurisdiction for hearing such applications.

679

CLRA 2002, s 97(1) provides that any obligation owed by the RTM company to a leaseholder under a lease is also owed to a landlord under that lease.

680

Landlord and Tenant Act 1987, s 24(2)(a) as modified by CLRA 2002, sch 7, para 8.

681

A reinstatement valuation estimates the cost of reinstating a building on a particular date following total loss or such substantial damage that the entire structure requires demolition and rebuilding. It is used to determine the value of the property insurance required for a particular building.

682

See for example Royal Institution of Chartered Surveyors, Service Charge Residential Management Code (3rd ed 2016) para 12.4.

683

  CP, para 8.99.

684

See for example Royal Institution of Chartered Surveyors, Service Charge Residential Management Code (3rd ed 2016) para 12.4, which encourages reinstatement valuations to be undertaken regularly.

685

  See from para 10.204 onwards.

686

  See from para 10.208.

687

Landlord and Tenant Act 1985, s 19.

688

Pineview Limited v 83 Crampton Street RTM Co Ltd [2013] UKUT 0598 (LC) at [59]; Campbell Park (Columbia Place) RTM Co Ltd v Sinclair Gardens Investments (Kensington) Ltd (05 December 2013) CAM/00MG/LRM/2013/0023 & 0024 First-tier Tribunal Property Chamber (unreported) at [25].

689

An appeal on Firstport Property Services Ltd v Settlers Court RTM Co Ltd [2019] UKUT 0243 (LC).

690

  CP, paras 6.75 and 6.76.

691

Landlord and Tenant Act 1987, s 35.

692

The landlord could also have made such an application but may have decided, for example, that it would just make up the additional funds if it was only 1 or 2%. The RTM company would not be in a position to do this and it may therefore become a priority to rectify the leases.

693

Camden LBC v Morath [2019] UKUT 193 at [16].

694

  CP, para 4.113.

695

  CP, para 11.8.

696

CLRA Act 2002, s 94(1). Throughout the remainder of this section on costs incurred before the acquisition date, we use “landlord” to refer to the landlord or the relevant third party, unless otherwise stated.

697

CLRA 2002, s 94(2). This includes any investments which represent those sums (and any interest which has accrued on them).

698

CLRA 2002, s 94(2). “Relevant costs” are costs in respect of matters for which the service charges were payable.

699

  CLRA 2002, s 94(3).

700

  CLRA 2002, s 94(4).

701

In Ch 8 we make recommendations which are aimed at giving RTM companies greater flexibility to acquire the RTM on a date which better aligns with the service charge cycle under the leases of the premises. This will help to avoid a situation where, for example, service charges are demanded in January and July in each year and the RTM company acquires the RTM in February, meaning it cannot demand further sums by way of service charge until July of that year.

702

  CLRA 2002, s 94(1).

703

 CLRA 2002, s 97(5); OM Ltd v New River Head RTM Co Ltd [2010] UKUT 394 (LC), [2011] 1 Estates

Gazette Law Report 97.

704

Which might occur either because the landlord has not demanded the appropriate level of service charge, or because some leaseholders may not have paid what has been demanded of them.

705

For the purposes of this example we have assumed that the service charge accounting year runs from 1 January to 31 December. In practice, leases might provide for different dates. We have also assumed that the leases permit the landlord to make just one demand for the payment of service charges in advance per year, on 1 January. In practice, leases differ as to the numbers of demands which can be made and the dates on which the demands can require payment from leaseholders. Often leases will provide for advance service charges to be paid in two equal half-yearly instalments.

706

CP, para 8.114.

707

See para 10.203 below, where we recommend a revision to this definition.

708

At stages 1 and 2 the landlord looks at expenditure for that year. At stage 3, in calculating the amount actually paid by each leaseholder, credit will be given for any credit on the account from previous years, and deductions made for any arrears from previous years.

709

Calculated as 25% (the share required by the lease) of £1,200 (the actual expenditure).

710

  Calculated as 25% of the RTM company’s total actual expenditure of £800.

711

  Alternatively, if the lease did permit service charges to be demanded in two half-yearly sums, and the

acquisition date pre-dated the second payment date, the RTM company could give the credit to Leaseholders 3 and 4 by reducing the mid-year on-account demand for those leaseholders. The reconciliation does not necessarily have to wait until the end of the year. We have made recommendations in Ch 8 to make it easier for leaseholders to align the acquisition date with the payment dates specified in the lease.

712

CLRA 2002, s 97(4).

713

 [2010] UKUT 342 (LC) at [15].

714

Wilson v Lesley Place (RTM) Co Ltd [2010] UKUT 342 (LC) at [15].

715

CP, from para 5.156

716

Daniel Watney, surveyor, on behalf of Dame Alice Owen's Foundation, the Charity of Richard Cloudesley and the Dulwich Estate (landlords).

717

Jeremy Bragg.

718

The definition of which refers to an amount payable by a leaseholder for the landlord’s costs of management.

719

Landlord and Tenant Act 1985, s 19.

720

CLRA 2002, s 158, sch 11, para 2.

721

Landlord and Tenant Act 1927, s 19(1).

722

Landlord and Tenant Act 1988, s 1(3).

723

Landlord and Tenant Act 1927, s 19(2).

724

  CLRA 2002, s 98(4).

725

  CLRA 2002, s 98(4).

726

  CLRA 2002, s 99(4).

727

  CLRA 2002, s 99(2)

728

The First-tier Tribunal (Property Chamber) in England or the Leasehold Valuation Tribunal in Wales.

729

  CLRA 2002, s 99(1).

730

Reiner v Triplark Ltd [2018] EWCA Civ 2151, [2019] 1 Weekly Law Reports 2003.

731

Ministry of Housing, Communities and Local Government (MHCLG), Protecting consumers in the letting and managing agent market: Government response, April 2018, para 125.

732

  Regulation of Property Agents Working Group - Final Report, July 2019, Annex 1, para 49.

733

  Leasehold Reform, HC 1468, Twelfth Report of 2017-19, 19 March 2019, para 137.

734

  CP, para 9.30.

735

  CP, paras 9.32 to 9.36.

736

  CP, paras 9.37 and 9.38.

737

  CP, para 9.39.

738

  CP, para 9.41.

739

  CP, para 9.42.

740

CLRA 2002, s 98(4)(a).

741

CLRA 2002, s 101.

742

See paras 12.32 to 12.38.

743

CLRA 2002, s 176C. See also Tribunal, Courts and Enforcement Act 2007, s 27(1).

744

  See from para 11.10.

745

CLRA 2002, s 98(2). Functions are any matter set out in a lease.

746

  CLRA 2002, s 98(3).

747

  CLRA 2002, s 98(6).

748

  CP, para 9.29.

749

CLRA 2002, s 158, sch 7, para 16 and sch 11, para 2. Also, in accordance with section 19(1)(a) of the Landlord and Tenant Act 1927 where a covenant in a lease is conditional upon the landlord giving his consent, such consent not to be unreasonably withheld, it is reasonable to require the leaseholder to pay the professional fees associated with obtaining consent: see Holding & Management (Solitaire) Limited v Norton [2012] UKUT 1 (LC), [2012] Landlord and Tenant Reports 15.

750

  See from para 11.43.

751

  See paras 11.53 to 11.54.

752

  See footnote 30.

753

  CLRA 2002, s 98(1).

754

Tanfield Chambers, Service Charges and Management (4th ed 2018) para 29-023.

755

  CP, para 9.46

756

  CP, para 9.47.

757

CP, para 9.44.

758

Duval v 11-13 Randolph Crescent Ltd [2020] UKSC 18, [2020] 2 WLR 1167.

759

  Landlord and Tenant Act 1987, s 47.

760

  Landlord and Tenant Act 1987, s 47, as modified by CLRA 2002, sch 7, para 12(2).

761

CP, paras 9.66 to 9.67.

762

CP, para 9.69.

763

  Landlord and Tenant Act 1985, s 21B, as modified by the CLRA 2002, sch 7, para 4.

764

  Pendra Loweth Management Ltd v North [2015] UKUT 91 (LC), [2015] Landlord and Tenant Reports 30.

765

  Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006 No 246).

766

  Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006 No 246), reg 4(2)(a).

767

Scheme managers are responsible for managing sheltered or retirement housing schemes.

768

Transfer of Undertakings (Protection of Employment) Regulations SI 2006 (SI 2006 No 246), reg 4(7) and (8).

769

See our recommendations on director training in Ch 7, from para 7.3.

770

The First-tier Tribunal (Property Chamber) in England or the Leasehold Valuation Tribunal in Wales.

771

  CLRA 2002, s 84(3).

772

  CLRA 2002, s 94(3).

773

  CLRA 2002, sch 6, para 5.

774

  CLRA 2002, s 88(4).

775

  CLRA 2002, s 99(1).

776

  CLRA 2002, s 85(2).

777

  CP, paras 10.23 and 10.24.

778

   CP, para 10.26.

779

  CP, para 10.27.

780

For example, proceedings brought by an RTM company to give up the RTM: see from para 13.143.

781

CLRA 2002, s 107.

782

  CP, para 10.31.

783

  See para 12.21 above.

784

  CP, para 10.30.

785

Tribunal, Courts and Enforcement Act 2007, s 27(1).

786

 CLRA 2002, s 176C.

787

Civil Procedure Rules, r 70.5; Practice Direction 70, para 4.

788

Hayes Point RTM Co Ltd v Avon Freeholds Ltd (11 July 2017) D90CF004 High Court, Cardiff District Registry (unreported).

789

Judge Siobhan McGrath, “Report on Property Chamber Deployment Project for Civil Justice Council Meeting 26 October 2018” https://www.judiciary.uk/wp-content/uploads/2018/11/property-chamber-deployment-project-report-oct2018.pdf.

790

See speech of Sir Geoffrey Vos (Chancellor of the High Court), “Professionalism in Property Conference 2018”, para 24; Ministry of Housing Communities and Local Government, Considering the case for a Housing Court: A Call for Evidence (November 2018) p 6; and Updating the Land Registration Act 2002 (2018) Law Com No 380, para 21.72.

791

CLRA 2002, ss 96 and 97.

792

  Landlord and Tenant Act 1985, s 27A.

793

  CLRA 2002, sch 11, as modified by s 102 of, and para 16 of sch 7 to that Act.

794

  CP, para 10.34.

795

  CP, para 10.35.

796

CP, para 10.33.

797

https://civilmediation.org/mediator-search/.

798

Civil Procedure Rules 1998, r 1.4(e); Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 (SI 2013 No 1169), r 4(1).

799

Golder v United Kingdom [1975] 1 EHRR 524 at 38.

800

Ashingdane v United Kingdom [1985] 7 EHRR 528 at 57.

801

Tribunals, Courts and Enforcement Act 2007, s 24.

802

Leasehold and Commonhold Reform Act 2002, s 88(1).

803

  Appointed under the Landlord and Tenant Act 1987, s 24.

804

  The costs liability of a leaseholder does not apply where the leaseholder has, at the time the claim notice

has been withdrawn, assigned their lease and the new leaseholder has become a member of the company: CLRA 2002, ss 89(4) and (5).

805

 CLRA 2002, s 89.

806

Columbia House Properties (No 3) Ltd v Imperial Hall RTM Co Ltd [2014] UKUT 30 (LC).

807

  CP, para 10.73.

808

  CLRA 2002, s 88(4).

809

  CP, para 10.74.

810

  CP, para 10.75.

811

  See Ch 9.

812

  CP, para 10.75.

813

  See from para 12.96 onwards.

814

For example, in Ch 3 we recommend that the RTM should extend to leasehold houses and in Ch 4 we recommend that an RTM company should be able to claim the RTM over multiple premises in a single RTM claim.

815

  See from para 12.127.

816

  See from para 9.148.

817

  Enfranchisement Report, para 12.56.

818

This distinction is relevant to the compatibility of legislative measures with Article 1 of the First Protocol to the European Convention of Human Rights. See for example Iatridis v Greece (2000) 30 EHRR 97 at para 55; Paulet v UK (2015) 61 EHRR 39 at para 63.

819

Enfranchisement Report, paras 12.37 to 12.40, citing advice from Catherine Callaghan QC on the compatibility of enfranchisement recommendations with Article 1 of the First Protocol to the European Convention of Human Rights.

820

  See from para 12.87.

821

  See from para 12.72.

822

  CLRA 2002, s 88(1).

823

  CP, para 10.103(1).

824

  CP, para 10.95.

825

  CP, para 10.103(2).

826

  CLRA 2002, ss 89(2) and (3).

827

  CP, para 10.107.

828

  CP, para 10.104.

829

  CP, para 10.108.

830

See from para 9.148.

831

The Tribunal, Courts and Enforcement Act 2007, s 29; The Tribunal Procedure (First-tier tribunal) (Property Chamber) Rules 2013/1169, r 13.

832

CLRA 2002, s 88(3). Alternatively, if the RTM company withdraws its claim, leading to a dismissal: R (O Twelve Baytree Ltd) v Leasehold Valuation Tribunal [2014] EWHC 1229 (Admin), [2015] 1 WLR 276; Post Box Ground Rents Ltd v Post Box RTM Co Ltd [2015] UKUT 230 (LC).

833

A successful appeal to the Upper Tribunal (Lands Chamber) results in the landlord recovering its costs of both the First-tier and Upper Tribunal: Albion Residential Ltd v Albion Riverside Residents RTM Co Ltd [2014] UKUT 6 (LC).

834

  See from para 8.51.

835

  See from para 8.186.

836

The Tribunal Procedure (First-tier tribunal) (Property Chamber) Rules 2013, SI 2013 No 1169, r 13.

837

  CP, para 10.115.

838

  Enfranchisement CP, para 13.109.

839

  CP, para 10.115.

840

  See paras 8.184 to 8.185.

841

Enfranchisement Report, para 12.154.

842

See analogous recommendation in Enfranchisement Report, from para 12.163.

843

Landlord and Tenant Act 1985, s 20C; CLRA 2002, sch 11, para 5A.

844

  CP, para 10.65.

845

  CP, para 10.117.

846

Housing, Communities and Local Government Committee, Report on Leasehold Reform (2017-19) HC 1468, para 179.

847

   CLRA 2002, s 105(2).

848

  CLRA 2002, s 105(3)(a).

849

  CLRA 2002, s 105(3)(b).

850

  CLRA 2002, s 105(3)(c).

851

  CLRA 2002, s 105(3)(d).

852

The First-tier Tribunal (Property Chamber) in England or the Leasehold Valuation Tribunal in Wales.

853

  CLRA 2002, s 105(4).

854

  CLRA 2002, s 105(5).

855

  CLRA 2002, s 105(2).

856

RTM Companies (Model Articles) (England) Regulations 2009 (SI 2009 No 2767), sch 1, art 5(m) and 8; RTM Companies (Model Articles) (Wales) Regulations 2011 (SI 2011 No 2680), sch 1, arts 5(m) and 8.

857

RTM Companies (Model Articles) (England) Regulations 2009 (SI 2009 No 2767), sch 1, art 9; RTM Companies (Model Articles) (Wales) Regulations 2011 (SI 2011 No 2680), sch 1, art 9. A special resolution would need to be supported by at least 75% of the total number of votes within the RTM company (Companies Act 2006, s 283).

858

CP, para 11.87.

859

  CP, para 11.88.

860

  CP, para 11.89.

861

  CP, para 11.91.

862

See from para 13.152.

863

Landlord and Tenant Act 1987, Pt 4.

864

Companies Act 2006, ss 1000(6), 1001(4) and 1003(5); CLRA 2002, s 105(3)(d).

865

  Companies Act 2006, s 1000.

866

  Companies Act 2006, s 1001.

867

  Companies Act 2006, s 1003.

868

 Companies Act 2006, s 1024 and 1029.

869

  Companies Act 2006, s 1024(4) and 1030.

870

  Companies Act 2006, s 1028(1) and 1032(1).

871

  Companies Act 2006, s 1028(3) and 1032(3).

872

AB&R RTM Company Limited v Rovergrange Limited (12 April 2017) LON/00AM/LRM/2017/0005 First-tier Tribunal Property Chamber (Residential Property) (unreported).

873

AB&R RTM Company Limited v Rovergrange Limited (12 April 2017) LON/00AM/LRM/2017/0005 First-tier Tribunal Property Chamber (Residential Property) (unreported) at [21].

874

  CP, para 11.95.

875

  CP, paras 11.98 to 11.100.

876

  Companies Act 2006, ss 1028 (1) and 1032 (1).

877

  Companies Act 2006, ss 1028 (3) and 1032 (3).

878

 Beauchamp Pizza Ltd v Coventry City Council [2010] EWHC 926, [2010] 5 WLUK 9.

879

  Beauchamp Pizza Ltd v Coventry City Council [2010] EWHC 926, [2010] 5 WLUK 9 at [27].

880

AB&R RTM Company Limited v Rovergrange Limited (12 April 2017) LON/00AM/LRM/2017/0005 First-tier Tribunal Property Chamber (Residential Property) (unreported) at [21], and see above at para 13.23.

881

Under the Companies Act 2006, the RTM company would not have to have applied within 30 days to be restored to the register and, after being restored, it would be deemed to have never been struck off with all the associated consequences, rather than having to apply to the Tribunal to have the RTM reinstated.

882

See from para 13.178.

883

Bridgehouse (Bradford No 2) v BAE Systems plc [2019] EWHC 17668.

884

Companies Act 2006, ss 1028(3) and 1032(3).

885

  See from para 9.157.

886

  Companies Act 2006, s 1029.

887

As modified by CLRA 2002, sch 7, para 8.

888

  Landlord and Tenant Act 1987, s 24(2)(a) as modified by the CLRA 2002, sch 7, para 8(5).

889

  Landlord and Tenant Act 1987, ss 24(2)(ab) and (aba).

890

  Landlord and Tenant Act 1987, s 24(2)(ac). In relation to England, the code of practice approved by the

Secretary of State is: Royal Institution of Chartered Surveyors, Service Charge Residential Management Code (ISBN 978 1 84219 168 2).

891

Landlord and Tenant Act 1987, s 24(2)(b).

892

CLRA 2002, sch 7, para 8(6).

893

See from para 7.3, and in particular from para 7.23.

894

Landlord and Tenant Act 1987, s 24(1).

895

CLRA 2002, sch 7, para 8(7).

896

Landlord and Tenant Act 1987, s 21(2).

897

See from para 7.3 on director training generally, and in particular from para 7.22.

898

CLRA 2002, sch 7, para 8(4).

899

Landlord and Tenant Act 1987, s 21(3) and s 58(1)(g). CLRA 2002, sch 7, para 8(4).

900

Landlord and Tenant Act 1987, s 24, as modified by the CLRA 2002, sch 7, para 8(7).

901

See from para 13.152.

902

Landlord and Tenant Act 1987, s 35(2)(a).

903

CLRA 2002, s 105(3)(a) and (d).

904

  CLRA 2002, s 73(1).

905

  CLRA 2002, s 73(2)(a). In Ch 6, we recommend that RTM companies should continue to be required to take

the form of a company limited by guarantee.

906

  Companies Act 2006, s 90.

907

  Companies Act 2006, s 102.

908

CLRA 2002, s 74; RTM Companies (Model Articles) (England) Regulations 2009 (SI 2009 No 2767); RTM Companies (Model Articles) (Wales) Regulations 2011 (SI 2011 No 2680); Companies Act 2006, s 90(3) (reregistration of private company as public) and s 102(3) (re-registration of private company as unlimited).

909

  CLRA 2002, s 74(5).

910

  CLRA 2002, s 73(2)(b).

911

RTM Companies (Model Articles) (England) Regulations 2009 (SI 2009 No 2767), sch 1, art 4; RTM Companies (Model Articles) (Wales) Regulations 2011 (SI 2011 No 2680), sch 1, art 4.

912

  CP, para 11.36.

913

  CLRA 2002, s 73(4).

914

  See above, from para 6.21.

915

  CLRA 2002, s 73(3).

916

The name and articles of a commonhold association are prescribed bv the CLRA 2002, sch 11; Commonhold Regulations 2004 (SI 2004 No 1829), r 12 and 14 and sch 2.

917

CLRA 2002, s 73(5).

918

See from para 6.11. As discussed in Ch 6, the current law allows leaseholders to use an RTM company as a nominee purchaser in a collective enfranchisement claim. Although we considered a change to this in the Consultation Paper, we do not now make any recommendation for reform in this regard.

919

  See from para 5.50.

920

  From para 3.155.

921

  CP, para 11.69.

922

  CP, para 11.70.

923

  CP, para 11.73.

924

Landlord and Tenant Act 1987, s 24(2)(b).

925

  CP, para 11.64.

926

  CP, para 11.112.

927

  CP, para 11.116.

928

  CP, para 11.118.

929

See from para 13.178 below.

930

Landlord and Tenant Act 1987, s 24, as modified by the CLRA 2002, sch 7, para 8(6).

931

CLRA 2002, s 105(2).

932

  Under the Landlord and Tenant Act 1987, s 24, as modified by the CLRA 2002, sch 7, para 8(6).

933

  Landlord and Tenant Act 1987, s 24(1).

934

  Landlord and Tenant Act 1987, s 24, as modified by the CLRA 2002, sch 7, para 8(7).

935

  Landlord and Tenant Act 1987, s 24(4) to (6).

936

 See Commonhold Report, Ch 4.

937

  See from para 6.16.

938

CLRA 2002, s 95. See Ch 10 and 11 generally.

939

Unless termination arises as a consequence of a manager being appointed under Pt 2 of the 1987 Act, in which case the management functions will be exercised by that manager in accordance with the Tribunal’s order. See from para 13.43 above.

940

This would however be subject to the minimum period which must elapse before a successive RTM claim can be made which can only be disapplied by obtaining an order from the Tribunal. We discuss this below from para 13.217 onwards.

941

  CP, para 11.81.

942

  CP, para 11.83.

943

  CP, para 11.84.

944

See our recommendations in Ch 9.

945

  CLRA 2002, s 105(2).

946

 CLRA 2002, s 105(3)(a) and (c).

947

 CLRA 2002, s 105(3)(b).

948

 CLRA 2002, s 105(3)(d).

949

 CLRA 2002, s 105(5).

950

 See from para 13.178.

951

 See from para 13.135.

952

 CP, paras 11.81 to 11.84.

953

 See from para 13.152.

954

 CP, para 11.126.

955

CP, para 11.122.

956

 Landlord and Tenant Act 1987, s 24.

957

 We envisage that this would be similar to the powers given to the Tribunal under s 24(4) of Landlord and

Tenant Act 1987.

958

Landlord and Tenant Act 1987, s 42.

959

 CLRA 2002, s 94.

960

Landlord and Tenant Act 1987, s 42, as modified by CLRA 2002, sch 7, para 11.

961

 CP, para 11.128.

962

CP, para 11.130.

963

CP, para 8.114. See the discussion of our recommendations as to uncommitted service charges from para 10.155.

964

Landlord and Tenant Act 1987, s 42.

965

See Lewin on Trusts (20th ed 2020) from para 27-018.

966

CLRA Act 2002, s 94(1). See from para 10.155.

967

See para 10.187 onwards.

968

We explain “uncommitted service charges” above, in para 10.190.

969

 CLRA 2002, sch 6, para 5(1)(b).

970

 CLRA 2002, sch 6, para 5(3).

971

CP, para 11.80.

972

 CP, para 11.142.

973

 CP, para 11.143.

974

Enfranchisement Report, from para 5.206.


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