The processes for obtaining a leasehold extension and taking over the right to manage your block are significantly different and produce totally unique benefits. It’s not correct to really describe them a similar, despite how they appear on the surface, because they are completely different and it is not really the case of having to choose one over the other.
In simple terms, you would not exercise your right to manage and set up a RTM company in the hope that doing so would permit you to extend your lease without the participation of the freeholder (for the intentions of this particular comparison); it wouldn’t and subsequently would not guarantee your tenure or the cost of your leasehold. Nor would you submit an application for a lease extension if what you truly desired the ability to take over, with your fellow leaseholders, the ability to manage your block and take on responsibility for organising maintenance and upkeep yourself.
What exercising your right to manage provides:
Alongside other lease holders in their block of apartments, a lease holder who has participated in the exercise of the right to manage and subsequently become a member of the RTM company, takes over the management function for their block. This management function is ‘a function with respect to services, repairs, maintenance, improvements, insurance and management’, as stated in the Commonhold and Leasehold Reform Act 2002. This is the legislation under which leaseholders are able to force the transfer of the management function to them from their freeholder.
But such a transfer under the Act leaves the individual leases unchanged and the ownership of the flat intact. Participants in an RTM company can only extend their lease in 2 ways; join forces with the rest of the residents and perform the collective enfranchisement process to acquire the freehold of their flats from their freeholder, or individually submit an application in the standard way under the provision of Leasehold Reform, Housing and Urban Development Act 1993 (as amended).
The presence of a RTM company does nothing to assist lease holders with extending their leases, although it’s creation may lead to an enhanced and more cost-effective maintenance of the building and it’s services. In fact, the premium owed to the freeholder by a lease holder applying to extend their lease could, potentially, even increase, as a well run cost efficient RTM company might mean lower service charges which in turn could in theory slightly increase the cost of any lease extension for individual flats. Nevertheless, the lease holder shouldn’t worry about the vague chance of a slight increase in the value their flat – as, simultaneously, their property is increasing in value and, due to the extended lease, is substantially more likely to sell.
A comparison of the application procedure:
As far as contrasting lodging an application to extend a lease to the complexity of establishing an RTM company, the latter should be carried out only by those leaseholders who are fully conscious of the substantial obligations on their shoulder, as it is significantly more complicated than the former. Despite the complexities, wishing to transfer the management function from an incapable or under performing landlord may seem worth it.
Lease holders could also feel passionately enough about having control over the maintenance and upkeep of their block that they may wish to transfer the management even thought the landlord is reasonably efficient.
Establishing an RTM company, is a challenging process that may place substantial responsibilities on it’s members. However like a lease extension, size the right to manage should also provide participating leaseholders a increased level of financial security and peace of mind. But this is perhaps the only similarity – except that both processes are best handed over to knowledgeable and professional legal, surveying, and accountancy experts.
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