Right to manage reforms come into force March 2025

The Right to Manage (RTM) provisions set out in the Commonhold and Leasehold Reform Act 2002 set out the terms on which leaseholders of a building containing flats may form an RTM company and take over the management of the building from the freeholder.   Whilst undoubtedly a useful tool for residential leaseholders, particularly those in buildings where the management provided by the freeholder is unsatisfactory, the current statutory requirements and costs involved in making an RTM claim are such that in many cases leaseholders will prefer to opt to acquire a share of the freehold and / or a lease extension.

This might be set to change, at least in the short term, with the publication last week of secondary legislation made pursuant to the Leasehold and Freehold Reform Act 2024 (the 2024 Act).

With effect from 3 March 2025:

• Leaseholders in buildings where there is a mix of residential and commercial uses (such as shops and offices) will be able to exercise the RTM provided that the non-residential floor-space does not exceed 50% of the building.  This marks a significant increase from the current threshold of 25% and will undoubtedly increase the number of properties where RTM may be utilised (section 49).
• Leaseholders making an RTM claim will no longer be required to cover the freeholder's legal costs when making an RTM claim (unless a RTM claim notice is withdrawn or ceases to have effect and subject to additional conditions set out in the 2024 Act) (section 50).

The RTM reforms are coming into force a little earlier than initially forecast, and, perhaps surprisingly, without any reference to the collective enfranchisement reforms set out in the 2024 Act (which include a similar increase in the non-residential element for claims from 25% to 50% and changes to the cost regime).   

This may, for now, and until any such similar changes equally apply in the context of a collective enfranchisement claim, lead to an increase in the number of RTM claims. In addition, the contrast in timing for the introduction of the respective reforms may be significant. The proposed reforms affecting collective claims are included in the subject of current proceedings brought by a number of high-profile landowners challenging the provisions contained in the 2024 Act.  It could be that the Government is wary of bringing into force two measures that will have a financial impact whilst the proceedings are ongoing.  Whether or not this is the case, the introduction of the reforms to the RTM regime undoubtedly sets a marker that the Government is committed to the reforms set out in the 2024 Act.