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Quote Ref: UKIN01

What Is Right To Manage?

House estate showing the Right to Manage
02 December 2020

By UKinsuranceNET In Insurance Advice

The Right to Manage is a valuable legal freedom available to leaseholders since it allows them to assume some of the responsibilities otherwise exercised by their freeholding landlord – and may be a route into saving money into the bargain.

Managing Leasehold Properties

If you own the leasehold of the property in which you live, there are two probabilities:

  • your home is likely to be one of a number of flats in a building you share with other leaseholders; and
  • you probably pay an annual ground rent and management of administration charge to the freeholder which also covers the provision of common services – such as the upkeep of the exterior of the building, its common areas, and gardens, together with the essential building insurance.

One of the problems frequently confronted by leaseholders is discovering just how much of the annual fees that are paid to the landlord go towards any particular service – how much, for example, is the landlord paying for essential building insurance?

Although there is clearly a need for the leaseholders to enjoy the management of common areas of the property and for essential insurance to be arranged, if that responsibility is left to the landlord, there is no certainty or guarantee that the most cost-effective services are secured or that the most economical building insurance deal is found. Indeed, we have previously disclosed the case of one freeholder landlord who added as much as 50% to the insurance payment when arranging cover for the building.

The Right to Manage resolves those potential problems in a simple and straight forward manner – by giving the leaseholders a collective right to assume the erstwhile responsibilities of the landlord in maintaining the exterior of the building and its common areas and arranging building insurance.

The Right to Manage

As the Association of Residential Managing Agents (ARMA) explains, the Right to Manage is granted by legislation known as the Commonhold and Leasehold Reform Act of 2002. The law gives leaseholders of flats in many buildings the right to take over the management functions of the freeholding landlord. And, as the government website confirms, that right may be exercised even without the agreement or participation of the landlord.

The Right to Manage is granted only to certain types of development. The building must be made up of flats, for example, since leasehold houses are excluded from the scheme. A minimum of two-thirds of all the flats in the block must be leasehold (with leases that were originally granted for 21 years or longer).

In order to exercise these freedoms, a Right to Manage company must be set up – with at least half of the flat owners in the building as members – before it can take over the running and management of the premises. As with any company, a Right to Manage company has a legal obligation to file its annual accounts with Companies House.

Right To Manage Responsibilities

The precise responsibilities of the Right to Manage company are set out in its memorandum and articles of association. Typically, some of those duties are likely to include:

  • budgeting for, collecting and administering the annual service charge previously collected by the landlord;
  • maintaining the communal areas of the building – such as its stairways, lobbies, and halls;
  • maintaining the exterior of the building – including the roof;
  • dealing with complaints from other leaseholders; and
  • arranging suitable building insurance – specialist Right to Manage insurance is tailor-made for this purpose.

As already mentioned, eligible leaseholders may set up a Right to Manage company to take over the management of the block of flats even if the freeholding landlord disagrees or objects. Nevertheless, the latter may appeal any such intention on the part of the leaseholders but only on the following grounds:

  • the building itself does not qualify – it is not a collection of flats but a house, for example;
  • the Right to Manage company does not meet the legal requirements for incorporation; or
  • fewer than half of the flat-owning leaseholders are members of the proposed Right to Manage company.

The landlord has no other cause to obstruct or deny the creation of a Right to Manage company.

Right To Manage Insurance

As a leaseholder, you are probably already familiar with the landlord’s responsibility for insuring the structure and fabric of the building. This is an important responsibility that will be taken over by any Right to Manage company.

When the Right to Manage company takes over and arranged specialist Right to Manage insurance, moreover, you might also seize the opportunity of extending cover to the fittings and fixtures (fitted kitchens and bathrooms and built-in wardrobes, for example) in each individual flat.

These elements of your home are not typically included in contents insurance policies and the building insurance previously arranged by your landlord is unlikely to have provided such protection. Specialist Right to Manage insurance, therefore, is likely to offer an improvement on the nature and extent of insurance cover you presently enjoy.

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