Leaseholders gain more power with RTM changes

Leaseholders in mixed-use developments will gain greater authority over their properties under the Leasehold and Freehold Reform Act 2024 which takes effect from today (Monday 3 March).

One key change, outlined in Section 49, adjusts the non-residential threshold for Right to Manage (RTM) claims, broadening eligibility.

Previously capped at 25%, the commercial portion of a building can now reach 50% while still qualifying for RTM.

Alongside this, tenants will no longer need to foot the bill for the freeholder’s legal expenses during these claims.

Lives of leasehold homeowners improved

Housing and Planning Minister Matthew Pennycook unveiled these updates on 9 February, stating the rules would “improve the lives of leasehold homeowners across the country, allowing them to more easily and cheaply take control of the buildings they live in and clamp down on unreasonable or extortionate charges.”

The shift promises to reshape property dynamics, prompting the Association of Leasehold Enfranchisement Practitioners (ALEP) to weigh in on its effects for tenants, landlords and advisors.

Shabnam Ali-Khan, a partner at Russell-Cooke Solicitors and ALEP member, highlights tenants’ newfound prospects.

She said: “The expansion of RTM will offer more leaseholders the opportunity to take control of building management and potentially improve transparency and accountability.”

Ensuring safety compliance

However, she cautions about added burdens like funding repairs, ensuring safety compliance and securing insurance.

Ms Ali-Khan said: “Leaseholders must be aware that the removal of professional management costs does not necessarily translate to savings and that if they opt for RTM they must assume responsibility for reserve funds, insurance and emergency repairs.”

She is urging leaseholders be vigilant to avoid financial pitfalls.

Challenges in negotiating insurance

For landlords, the change signals a shift in oversight and Katherine Simpson, a partner at Edwin Coe LLP, said: “For the building owners, the newly enacted legislation means a loss of control over the management of qualifying buildings.”

While some may appreciate fewer duties, challenges loom in negotiating insurance and resolving maintenance disputes.

Ms Simpson warns that splitting ownership in historically unified properties could lead to neglect and discourage future housing projects, potentially clashing with Britain’s push for more homes.

Demand for expertise

Professional advisors, meanwhile, face heightened demand for expertise and Mark Chick, an ALEP director and a partner at Bishop & Sewell LLP, said: “Property lawyers, valuers, managing agents and surveyors each have an important role in guiding leaseholders through the RTM process and avoiding the unintended consequences.”

With broader access to RTM, he stresses the need for thorough guidance on regulations and management practices.

Mr Chick advises tenants to consult legal experts to evaluate RTM’s feasibility and liaise with insurers and agents for smooth transitions.

He adds: “For freeholders receiving the correct advice will be key to understanding their rights and obligations and in managing the process.”

Also, he notes that cost recovery limits might reduce landlords’ willingness to seek support, possibly complicating handovers.