Right to Manage and Leasehold Enfranchisement - How They Compare

'Leasehold enfranchisement' or 'collective enfranchisement' refers to a group of tenants, who own flats in the same building, collectively purchasing the freehold interest from the landlord. This is once again, a statutory action under the Leasehold Reform Act (1993). Enfranchisement enables the tenants to become their own landlord and thus have the ability to grant long leases of up to 999 years with no ground rent.

In order for a group of tenants to bring an action for leasehold enfranchisement the following conditions must be satisfied:

- There must be at least 2 flats held within the freehold.

- No more than 25% of the freehold building must be used for non-residential purposes.

- At least 2/3 of the flats must be let to qualifying leaseholders .

- As a minimum, 50% of the flat owners must want to participate in the enfranchisement.

A qualifying leaseholder is one whom holds a lease granted for 21 years or more.

Unlike a lease extension however, there is no requirement for a tenant to have at least 2 years ownership of the flat.

Again, the burden of paying for the action rests on the tenants. Enfranchisement also incurs additional costs due to the requirement of group agreements and eventual management of the building.

Right to manage

The right to manage (or RTM) is a statutory right awarded to tenants under the Commonhold & Leasehold Reform Act (2002). The right to manage does not involve purchasing the reversionary or freehold interest, instead it merely facilitates tenants with the legal capacity to manage the landlord's building in which their flat is situated. Usually the tenants will join together to create a Right to Manage company that will take decisions about the management of the building. A right to manage provides conscientious tenants the opportunity to manage their own living environment. It does not carry the pre-requisite of having an incompetent landlord.

The legal requirements for a tenant to issue a right to manage notice are the same as that of an enfranchisement action.

Although a right to manage allows tenants flexibility in making day-to-day decisions, it will not facilitate lazy tenants wishing to save money on maintenance costs through allowing the flats to deteriorate.

As a landlord you are entitled to become a member of the Right to Manage company, which will enable you to vote on issues concerning your freehold interest. Not only this but the Right to Manage company will reimburse you for any costs incurred in passing over this right.

In order for the Right to Manage company to run the building successfully the landlord becomes under a duty to provide the company with all necessary information and records. Not only this, but any money that has been collected as part of service charges will be passed over to the right to manage company.

Regardless of whether you are entering into a leasehold enfranchisement or right to manage agreement, the legal process is very technical. Make sure you instruct a solicitor who specialises in these fields to help you with the legal side.