Leasehold Reform

Overview

Overview

Earlier this year, Ramsey MHK Lawrie Hooper was granted permission by the House of Keys to introduce a Private Members’ Bill with two distinct aims:

• First, to reform the law around how long leaseholders of flats are able to acquire a ‘Management Order’ which would allow them to collectively take over management of their block of flats; and,
• second, to reform the law around how long leaseholders of flats are able to cooperatively acquire freehold ownership of a block of flats.

In the UK, these rights are known as ‘Right To Manage (RTM)’ and ‘Right To Enfranchisement (RTE)’, they are set out in Part 2 of the Commonhold and Leasehold Reform Act 2002 and Chapter 1 of the Leasehold Reform, Housing and Urban Development Act 1993.

Unfortunately, largely due to the COVID-19 pandemic, the time available to work on this Bill has been significantly impacted, which has resulted in focussing the draft Bill on the first of these two important reforms. The second element is included in this consultation, and should the feedback warrant it, could either be included in the Bill before it is presented to the House of Keys, or be presented via a separate Private Members’ Bill. 

The current situation - ‘Right To Manage’ (RTM)

Most modern developments consisting of flats are set up in such a way that the leaseholders of those flats already each have a share in the management company, and are able to have a role in managing their block of flats. Unfortunately, this is not always the case, and there are a number of places in the Island where leaseholders don't have any formal say in how their block of flats is managed.

Often, this doesn't cause problems: people can be generally content with arrangements, but sometimes issues may  arise, and the current law doesn't make it easy for leaseholders to assume management rights over a building their leasehold property forms a part of.

Currently, long leaseholders of flats here already have rights similar to ‘Right To Manage (RTM)’ in specific circumstances.

A long leaseholder is described in law as a ‘Qualifying Tenant’ holding a 'long lease' over a flat, which is set out below:

‘“long lease” means a lease granted for a term exceeding 21 years, whether or not it is (or may become) terminable before the end of that term by notice given by the tenant or by re-entry or forfeiture;’

(Part 1 of the Housing (Miscellaneous Provisions) Act 2011)

This provision does not apply to people who simply rent their flat. There is no intention here for this to change.

In order for ‘tenants’ to collectively acquire the ‘Right To Manage’ their block of flats, they have to apply to the Isle of Man Rent and Rating Appeal Commissioners for a ‘Management Order’.

The circumstances in which a ‘Management Order’ may be granted are laid out in the same Act, as can be seen below:

‘(3) The Commissioners may make a management order only if satisfied it is just and convenient to do so in all the circumstances of the case and that—

(a) any relevant person either is in breach of any obligation owed by that person to the tenant under the tenancy and relating to the management of the relevant premises or any part of them or (in the case of an obligation dependent on notice) would be in breach of any such obligation but for the fact that it has not been reasonably practicable for the tenant to give the relevant person the appropriate notice;

(b) unreasonable service charges have been made, or are proposed or likely to be made;

(c) no service charges have been made, or are proposed or likely to be made, in circumstances where it would be reasonable to expect such charges to be made;

(d) there has been a failure to comply with a duty imposed by or by virtue of section 11 of the Property Service Charges Act 1989 (tenants’ contributions to be held in trust); or

(e) the state of repair of the relevant premises (or a part of them) or their management is likely to improve significantly if a management order were made.’

(Part 4, s.20 (3) of the Housing (Miscellaneous Provisions) Act 2011)

This route means that a ‘tenant’ has to demonstrate some breach of responsibility by the management company or landlord in order for them to obtain the ‘Right To Manage’.

However,  in the UK, you’ll find that long leaseholders of flats have the right to collectively acquire ‘Right to Manage’ without having to prove any such breach. The UK does this through a structure called a ‘Right To Manage Company’ (an ‘RTM Company’), which must be collectively owned by the leaseholder(s) and freeholder(s) with a joint interest in ensuring good management of the building.

The Proposal – ‘Right To Manage’

This Bill seeks to bring the Island in line with the UK by adopting UK provisions adapted to a Manx context.

As the Isle of Man already has a process laid down in law for how a ‘Management Order’ can be granted, it is not proposed to make changes to this process, the Bill will simply seek to mirror this process through the creation of an ‘RTM company’ route for applying to the Rent and Rates Commissioners for a ‘Management Order’. The ‘Management Order’ will only be granted to an ‘RTM Company’.

Every leasehold property in a block of flats will be entitled to a share in the ‘RTM Company’, and the freeholder will also be entitled to a share. The ‘RTM Company’ can then take responsibility for managing the property itself, or appoint an agent to manage the property on its behalf.

The current situation - The ‘Right To Enfranchisement’ (RTE)

On Island, long leaseholders of flats presently have the collective ‘Right To Enfranchisement’ (RTE) in specific circumstances, as set out in Part 5 of the Housing (Miscellaneous Provisions) Act 2011.

Long leaseholders are described as ‘Qualifying Tenants’ holding a 'long lease' over a flat, set out in the law as follows: 

“long lease” means a lease granted for a term exceeding 21 years, whether or not it is (or may become) terminable before the end of that term by notice given by the tenant or by re-entry or forfeiture;

(Part 1 of the Housing (Miscellaneous Provisions) Act 2011)

This provision does not apply to people who simply rent their flat, so again, there is no intention for this to change.

In order for ‘Qualifying Tenants’ to collectively acquire the right to purchase their block of flats, they first have to apply to the Isle of Man Rent and Rating Appeal Commissioners for a ‘Management Order’ (as above).If a ‘Management Order’ is granted, the ‘Qualifying Tenants’ can then make a further application to the High Court for compulsory purchase of the freehold, provided that the following condition is met:

‘(2) The condition is that the Court is satisfied —

(a) that the landlord —

(i) is in breach of any obligation owed to the applicants under their leases and relating to the management of the premises in question, or any part of them, or

(ii) where the obligation is dependent on notice, would be in breach of any such obligation but for the fact that it has not been reasonably practicable for the tenant to give the landlord the appropriate notice; and

(b) that the circumstances in which the landlord is (or would be) in breach of any such obligation are likely to continue.’

(Part 5, s. 28 (2) of the Housing (Miscellaneous Provisions) Act 2011)

This route means that a ‘Qualifying Tenant’ has to demonstrate breach of responsibility by the landlord, as set out above, and prove that the breach is likely to continue in order for them to obtain ‘Right To Enfranchisement’. If this is demonstrated, the Court can grant an ‘Acquisition Order’ – meaning the freehold is transferred to a nominated representative of the applicants. They cannot acquire the freehold individually.

It contrasts with the UK position, where long leaseholders of flats have the right to collectively acquire the ‘Right to Enfranchisement’ without having to prove any such breach. The UK does this through a ‘Right To Enfranchisement’ Company (an "RTE Company") structure, which must be collectively owned by the leaseholder(s).

In the Isle of Man, where no purchase price can be agreed between the parties, the value may be determined by the High Court.

The Proposal – ‘Right To Enfranchisement’

This Bill, or a later Bill, could seek to rectify current provisions, and bring the Island in line with the UK by adopting provisions adapted to the Manx context.

As the Isle of Man already has a process laid down in law for how ‘Right to Enfranchisement’ might be granted, it is not proposed that any changes be made to this process.

This Bill could seek to adopt UK provisions around requiring applications to the Court for an ‘Acquisition Order’ through the creation of an ‘RTE company’, ensuring certain qualifying criteria are met, and leaseholders are able to participate.

As set out in the ‘Overview’ section, these provisions are not currently included in the Bill, but could be included following this consultation if deemed necessary.