Freeholder Voting Rights and Rejected Claims
Something to consider for those seeking to secure RTM and who do have a freeholder is that because it is not fault based it can be exercised even when there is a competent landlord in place. So because it was felt that there was no justification for landlords to suffer any financial loss from the process (apart from the loss of management fees) the freeholder is entitled to become a company member with full voting rights if he wishes to do so!
How many votes he has is determined by the number of flats or non-residential areas owned. If none are owned then he has just one vote as the freeholder. Voting rights are not just limited to the immediate landlord either but includes any other intermediate landlords under the terms of the lease, such as head lessees of split freeholds, and any other owners!
This somewhat curious anomaly was actually noticed by Lord Richard when the Bill was brought to the House of Lords in 2001. Whilst acknowledging that the basic problem of leaseholders owning most of the equity in the building but having little or no say in how it was run or repaired was dealt with by providing the statutory right of RTM, surely it should only be necessary to grant the freeholder membership of the company if he was a good one? Especially if the right had simply been established to give leaseholders more say on how things were done?
Nevertheless this still remains the case and the following examples have been sourced from the LEASE website.
In a block of 20 flats, 16 of them are leasehold and 4 of them are held by the freeholder and let on short-hold tenancies. In this scenario the 16 leaseholders are members of the RTM company with 1 vote each and the landlord has 1 vote per number of flats owned – in this case 4, giving him 4 in total.
In this scenario, again with a block of 20 flats, there is not only a freehold owner with 4 flats but also a head lessees who owns 4 flats. This means that there are 2 landlords entitled to membership.
The votes would then be weighted to reflect the 2 landlords, with 2 votes being allocated to each of the flats they own. This means that because the leaseholders all own 1 flat each this is doubled to 16 x 2 = 32 votes.
The freeholder has no direct control of any of the units in the building so has the default position of 1 vote as landlord, plus the head lessee also has 2 votes in respect of each of his retained flats.
Therefore the total votes of both landlords are 1 + 8.
There are a number of reasons why an RTM claim can end up being rejected by the freeholder and they are mainly because they fall foul of the legal requirements. For example:
- Less than two thirds of the flats are held by qualifying tenants;
- Less than 50% of leasehold owners are members of the RTM Company;
- The member register has not been correctly updated at the correct location;
- There is insufficient documentation that prove members are qualifying tenants;
- The RTM Company formation is incorrect because the company has not been set up as limited by guarantee;
- The Memorandum and Articles of Association are incorrect;
- There is no certificate of incorporation;
- If there is more than 25% of commercial space in the building, anything close to this number is likely to be disputed and require detailed measurements from a surveyor);
- The date for a Counter Notice being insufficiently long;
- Non-participants not being served the correctly worded invitation to join in the RTM process (Notice of Participation);
- Non-participants not being given enough time to respond;
- No proof of RTM members receiving copies of the RTM Claim.