RTM: Acquisition Date (s90)
After completing the steps that were relevant to us as a result of having an absent freeholder, under s90 of the Commonhold and Leasehold Reform Act 2002 (acquisition date) the RTM Company Directors (and myself) took control of the management functions that should have been directly exercised by the former freeholder.
Note: Under s96 of the Act (management functions under leases) those functions are described as ‘functions with respect to services, repairs, maintenance, improvements, insurance and management.’
The RTM company will need the landlord to provide whatever it ‘reasonably requires in connection with the exercise of the right to manage’ under s93. This is a different provision from the request for information because that requires information for the purpose of serving the Notice of Claim. This right is for information necessary for the management of the building and to effect a smooth transition of management, this notice should be served at least 28 days before acquisition date to allow the landlord enough time to supply any and all information that will help the RTM company from that date onwards. Whilst the company will need to be very clear on what it requires such as sight and inspection (or copies) of accounts, service charges, maintenance schedules and whether there are any future building works planned etc, and although providing information is statutory on the part of the landlord, he doesn’t have to volunteer it!.
The closer to acquisition date the notice is served the less likely it will be that a smooth handover will be effected because of the 28 day timeframe so if, for example the notice was served 15 days before acquisition date, the landlord would have still have 13 days over the date to respond. He could also, perfectly legally, delay information provision until 28 days after the company takes over. This would obviously have a negative impact on the ability of the new company to manage effectively until they received all the information. The delay could then go on for even longer if he fails to comply after the 28 days has expired. This would then necessitate in the situation having to go to court for enforcement.
ENFORCING LEASEHOLD COVENANTS
A major element of the 2002 Act is the need for the RTM company to make sure all leasehold covenants are being adhered to under s101 (tenant covenants: monitoring and reporting). No one appears to have thought of how to police this need when the majority of flats are sublet and there is no freeholder as was the case with our block. Even though we had the right of access into the flats for compliance or enforcement of covenants, there were the legal issues surrounding the accessing of rented flats.
Additionally there is also a statutory duty to take steps requiring the remedy of any breaches. Whilst we could sue for debts or seek injunctions for breaches of covenant, (such as repairs or nuisance) we could not use the final sanction of forfeiture (taking the lease before its natural expiry) as this remedy was not available to us without a freeholder.
UNALLOCATED SERVICE CHARGES
If the landlord has collected service charges in advance, with the unspent sums being held in an investment trust account, under s94 he is under an obligation to hand over these monies as well as any interest paid to the company after he has deducted proper expenses he has accrued up to the acquisition date. Unspent sums will also include any reserve account or sinking fund. The RTM doesn’t have to serve a notice for these monies because legislation requires the landlord to act and to make to payment to the RTM company on the acquisition date ‘or as soon after that date as is reasonably practical. It is important that these unspent funds are obtained as soon as possible because the RTM company is not required to have any capital.
Whilst some landlords are happy to rely on the LVT to fix the sum, others only pay what they consider appropriate which is often disputed and taken to the Lands Tribunal for them to resolve. This is where an independent audit could prove valuable both in the pursuit of fairness as well as being time saving.
Note: Monies due to the landlord before acquisition date but not yet paid, remain payable to and collectible by the landlord, not the RTM company.
NON QUALIFYING UNITS
Although the RTM company’s management does not include non-residential and commercial units, their overall management of the building will have some impact on the general operation of these other parts. Therefore the landlord will also be able to exercise votes in respect of these units with allocation being proportional to the relative internal floor areas of both the residential and non-residential parts of the building but excluding the common parts. It is calculated by taking the total votes allocated to the residential parts and multiplying that number by the formula A/B. A is the total floor area of the non-residential parts and B is the total area of the residential parts (calculated in square meters with fractions of less than half a square meter being ignored).
A six-storey block of flats has five residential floors comprised of 20 flats with 1 landlord. The ground floor of the building is non-residential, a mix of shops and storage areas. Working on the assumption that the internal area of each floor is 1,000 square meters (or 950 square meters when the staircase, corridors, entrance hall and other parts are excluded), the non residential internal floor area is 950 meters and the total residential floor area is 5 x 950 = 4,740 square meters.
The landlords’ votes for the non-residential parts will be the total votes allocated to the residential flats multiplied by the relative floor area.
Assuming that the 20 flats each have 1 vote then the calculation is:
20 x 950 = 4750 = 4 votes = 20 for the leaseholders and 4 for the landlord.
If there is a dispute on the measurement of the floor area the prescribed Articles of Association provide for this to be referred to an independent chartered surveyor who will act as an expert, not an arbitrator. He should be selected by agreement between the parties is possible and if not, by the President of the RICS. His fees will be payable by the RTM company but the surveyor has the discretion to direct that some (or all) of his fees be reimbursed by the individual member(s) of the RTM company that raised the initial question.
His decision, based on his own measurement will be final and binding upon the RTM company.