Can a new freeholder sack a leaseholder management company?

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    Can a new freeholder sack a leaseholder management company?

    Our freeholder is selling the freehold for a block of seven flats. He has offered leaseholders the opportunity to create a new management company, and all are keen to go for this. However, we don't seem to be setting up a 'right to manage' company. Some leaseholders would like to buy share of freehold, others would not, and therefore, our offer may not prevent the freeholder from selling to an investment company for more money. If he does this, and a new freeholder appears on the scene, could they sack our leaseholder management company and install a new management company over our heads?

    #2
    That would depend on what your leases say.

    Comment


      #3
      They say very little about the rights of the freeholder - they are mainly not fit for purpose, but I will have a look and see what, if anything, is said on the subject. Thanks

      Comment


        #4
        Originally posted by Bangles View Post
        Our freeholder is selling the freehold for a block of seven flats."
        Yes but no. He has to offer it to the qualifying tenants before the open market or auction. He is therefore, presumably, 'proposing to dispose of the freehold"? He has therefore also served a valid notice to the qualifying tenants, no? It's all in the meaning.

        Originally posted by Bangles View Post
        He has offered leaseholders the opportunity to create a new management company, and all are keen to go for this.
        Yes but no. Freeholders are not all powerful Gods bestowing gifts. They are actors following a legal script where they have their defined parts and lines as so do the leaseholders.

        Freeholder cannot offer an "opportunity to create a new management company".

        The right of first refusal is covered by Part 1 of the Landlord and Tenant Act 1987 (as amended by the Housing Act 1996). Criminal offence if not offered correctly by the freeholder. You have right to grab the freehold from any other buyer if not offered correctly. So, freeholder 'opportunities' are far from the right mindset for the qualifying tenant leaseholders to adopt at the start.

        Originally posted by Bangles View Post
        However, we don't seem to be setting up a 'right to manage' company.
        Good grief. An RTM company cannot hold freehold. Not a legal option let alone an 'opportunity'. If this is all the freeholder has suggested/offered it is a legal horlicks and you should be getting legal advice quickly. If you only form an RTM company, you have given up the "offer" of the freehold and somebody else will buy it. [/QUOTE]

        Originally posted by Bangles View Post
        Some leaseholders would like to buy share of freehold, others would not, and therefore, our offer may not prevent the freeholder from selling to an investment company for more money.
        No thrice no. All you need is the qualifying majority to respond accepting the offer within the deadline of the notice (at least two months). You then have time to organise. My maths is poor but seven flats would need four to agree to the offer.

        Originally posted by Bangles View Post
        If he does this, and a new freeholder appears on the scene, could they sack our leaseholder management company and install a new management company over our heads?
        Well, you wouldn't have a leasehold management company. You would have an RTM company and he cannot sack it. But let's get real, the law and leaseholders are often strangers. Freeholders and agents do many things merely because leaseholders sit on their apathetic hands and let them. Knowledge is power.

        You could anyway go the collective enfranchisement route. What you describe isn't collective enfranchisement under the Leasehold Reform, Housing and Urban Development Act 1993.

        In your described situation, there is no right for the freeholder's offer price to be determined by a First-tier Tribunal (Property Chamber). You basically attempt to negotiate politely well within any time limits. It may be a good price or it may be a nonsense (but he can't sell for less later).

        Most common disposal notices will be:

        Section 5A – simple sale by contract
        Section 5B – sale by public auction

        Sounds like you have received a s5A?

        S5A: The seven leaseholders having (all but one!) each received their legal notice of intent of disposal will note that it sets a date (two months ahead) by which they must nominate a 'nominee purchaser' to buy the freehold for them.

        More than 50% of the qualifying tenants (counting one vote per flat) must serve a notice accepting the landlord’s offer within the period set out in the landlord’s notice (unless he later agrees a longer period).

        Having served their notice of acceptance, they have two months more to notify freeholder of their nominee purchaser.

        Once the landlord has been notified of the nominated person, the nominated person must be sent a contract within one month of the notification.

        The nominated person then has a period of two months to sign and return the contract and to pay the deposit (this must not be more than 10% of the price).

        The landlord has seven days from receipt of the signed contract to exchange.

        Apparently the freeholder can withdraw the offer at any time!

        There are no controls or qualifications in the legislation governing selection of the nominated person and the qualifying tenants are free to choose whoever they wish, by whatever means of selection. So as you can see the freeholder is not offering any 'opportunity' and should keep out of trying to impose a nominee person.

        The nominee, if a company, is NOT a Right To Manage company as an RTMCo cannot hold the freehold and the members must reformulate if they acquire it.

        Once the freehold has been bought, the leaseholders can decide how they want to manage the building, maybe managing themselves or appointing a manager to do so on their behalf.

        You need legal advice urgently -take nothing I say as legal advice. I just read the same stuff you can read for yourself. I may be wrong...
        Do not read my offerings, based purely on my research or experience as a lessee, as legal advice. If you need legal advice please see a solicitor.

        Comment


          #5
          Under the leasehold system, the freeholder is the legal owner of the building and land within the boundary fences. The Leaseholders are just longterm rental tenants with transferable leases and have no ownership rights to the building.

          The RTM company gives a majority of the leaseholders the right to claim the administration of the service charge account from the freeholder. So if the RTM company is used to acquire the freehold title, it loses its right to be the RTM Company and loses its legal right to administer the service charge account.

          if the freehoder is selling via public auction, the freeholder may not want an RTM in charge of the service charge account as it may reduce buying interest..

          That my understanding.

          Comment


            #6
            Originally posted by Gordon999 View Post
            Under the leasehold system, the freeholder is the legal owner of the building and land within the boundary fences. The Leaseholders are just longterm rental tenants with transferable leases and have no ownership rights to the building.

            The RTM company gives a majority of the leaseholders the right to claim the administration of the service charge account from the freeholder. So if the RTM company is used to acquire the freehold title, it loses its right to be the RTM Company and loses its legal right to administer the service charge account.

            if the freehoder is selling via public auction, the freeholder may not want an RTM in charge of the service charge account as it may reduce buying interest..

            That my understanding.
            Thank you - that is interesting. At present, having been offered the chance to purchase the freehold, while simultaneously having to set up a management company, we aren't sure what we 'are'. Some leaseholders want share of freehold, others only at a reduced price, and some don't want it and presume everything will be okay with a new, unknown freeholder because they feel protected by their legal rights. I'm concerned about the potential for trouble if we don't buy the freehold, and am trying to get my head round what the risks of not buying the freehold as a group will be. If I felt we would be in a watertight position if the freehold were sold to an outsider, I would be content to go along with those who think we should not buy the freehold, but my gut instinct is that we could all end up regretting it. And I hate regret!

            So you seem to be suggesting that an RTM company, if formed, will reduce the value of the freehold?

            Comment


              #7
              Originally posted by Bangles View Post
              So you seem to be suggesting that an RTM company, if formed, will reduce the value of the freehold?
              Hi, not sure what in my own advice in post #4 was of no use but I'll try again...

              Why are you focusing on an RTM company in the context of the freeholder 'offering' the freehold?

              An RTM company is not designed to hold freehold. It cannot do so. If you already had an RTM company you would have to effectively re-constitute it with a new name and articles to act as your 'nominee purchaser' This is because an RTM company under the 2002 CLRA Act has nothing to do with buying freehold.

              This is also why an RTM company if formed cannot reduce the value of the freehold - the freehold remains in the hands of the freeholder or whoever else buys it - not the RTM Company.

              Who among the seven suggested forming an RTM company to respond to the freehold being offered? The freeholder? You? Somebody else?

              I tried to help in post #4. The freeholder has no choice (if wanting to dispose of the freehold) but to offer it in a legal notice process to the leaseholders.

              You guys should stop thinking about an RTM company and decide whether (a) you have the numbers to accept the offer to buy the freehold and (b) crack on with forming a company that you can nominate - you have time to do this after you accept the offer as post #4 explains.

              If you don't believe me, read here where I got the stuff I posted (try never to make stuff up):

              http://www.lease-advice.org/advice-g...first-refusal/

              If you don't have the numbers to grab the freehold - which means accepting the freeholder's price etc., then the freehold can be sold to others.

              Then you could form an RTM company and take over management and this would not affect the value of the freehold.

              The huge difference is the terms of your leases.

              Today a neighbour commented to me that 'we' were idiots not to buy our freehold. We were. We were offered it years back just like you but cleverer neighbours felt it would not affect them. Then our leases reduced and we seem all to have lost 40% of our then value - far more than any graph says.

              We all now individually either pay to extend our reducing leases - far more expensive than the shared price we were offered to buy the freehold - or go the expensive collective enfranchisement route.

              Meanwhile we were fleeced by a series of agents until I finally convinced my neighbours to at least go RTM. We did. WE don't own the freehold and we can't extend our leases for ourselves and we are still subject to consent fees for anything the freeholder wants to charge. We just get to run the premises as volunteers. It is good, but nowhere near as good as owning the freehold -given that also lets you run the premises!

              The point you must balance right now is that those of you who decide to form a company to buy the freehold can - if successful - vote to give yourselves 999 year leases at any ground rent or none if you all decide.

              If you turn your back on the freehold offer, it will presumably go elsewhere, and you could then form an RTM company but your lease terms will not be changeable by you. If you have very long leases already, this won't be a factor I guess.

              In short, what you are at present is qualifying tenants entitled to respond saying yes you will buy the freehold if you have the numbers.

              You each ought to sign up to binding Participation Agreements for your share of the costs and crack on within the notice deadline. You ought to use professional help: solicitor and valuer (the latter if you fear the offer price is way out but the one option then is to say no).

              As for those who feel they will be 'protected' by their legal rights as leaseholders if they do nothing - suggest they visit this forum or failing that suggest they see a shrink.

              Even if you all have 999 year leases originally, you can't do much to your demise without written consent for which you pay handsomely. fail to pay any invoice and you can face legal action. If you had your own company you would still have leases but a hopefully friendly landlord who would not be in the business of fleecing you for consent fees to do stuff.

              One cool thing is if you all have lowering leases right now: them what sit on their wallets and don't join in buying the freehold will have to eventually come to the freehold company owned by their neighbours and pay it the market price at that time to extend their lease -they have no right to buy into the company. This money is 'profit' for the company and its members who joined forces to buy the freehold and the company can vote to dividend its members. If you stayed long enough in that scenario, the four might make their outlay back from the three - assuming you just managed four!

              Being the freeholder has its own obstacles if the leaseholders running the company are idiots, mind.

              Hope this helps.

              Edit: there's always more...

              Picking up what Gordon999 said. I'm not sure the existence of an RTM company would bother a freehold buyer at auction - they are getting a nice little investment earner and the RTM company can't stop them.

              But if the existing freeholder had this concern in mind, the time lines would, it seems to me, let him/her obstruct the RTM company acquiring RTM until he got a buyer. If the RTM company was in the process of fighting to acquire the right to manage and forced to go to a tribunal to do this, such processes can take a very long time.

              I'm guessing, but others may know, that if the freeholder changed halfway, the court application by the RTMCo would be against the wrong respondent?

              I'd set aside all talk of RTM at this point. Decide the freehold offer response first. The legal clock is presumably ticking down.

              Edit 2: There's more...

              Of course, forming an RTM company is far cheaper than buying the freehold. You aren't then buying the freehold, y'see.
              Do not read my offerings, based purely on my research or experience as a lessee, as legal advice. If you need legal advice please see a solicitor.

              Comment


                #8
                If 4 of you buy the freehold, then you 4 are the freeholder ( via a limited company set up by the 4 )
                The 4 of you can be directors, and if no one else pays towards the freehold, they just remain tenants of the freeholder in the same way you all are now.

                You 4, the freeholders run the place ( LEARN quickly your obligations -- some info is at http://ram2.hostbyet2.com/ ) the other none contributing leaseholders have no say in the running of the place, except to voice concerns, attend once a year at the Annual General Meeting.

                You will have shares in the company ( issue 4 only, one per flat to the directors )
                You don't have to issue shares to the none contributing leaseholders.
                In future, if they want to become a member of the company ( it always happens when they see the error of their ways by not financing the purchase of the freehold ) then your charge to them is the same amount you personally paid to buy the freehold. ( one quarter )
                If there were 4 of you and each paid one quarter of the freehold price, then any others that want to become members after you buy the freehold pay the same as you paid.

                The 4 directors can increase their leases to 999 years, for free.
                Those who are not members of your newly formed company ( as they did not contribute to the freehold purchase ) you can charge them for extending their lease. ( Thousands )

                If some of the leaseholders become the freeholder, you ARE the people in charge, and RTM ( Right to Manage ) does not apply, because you as the freeholder have that right to manage anyway.

                Only if all the leaseholders are members of the company ( make sure they pay ) you are then classed as an RMC ( Resident management company ).

                WORD OF WARNING.

                Keep it to 4 of you buying the freehold, 4 of you being directors, as if you make everyone directors, you will have bickering and untold misery with leaseholders who know nothing about directors obligations, and anarchy reigns with the other 3.
                A Director does not have to be a leaseholder or member of the company ( unless the lease says so.)

                Directors are chosen via their ability to do the job, and if after 2 years some directors prove useless, you can get rid of them.

                Buy the freehold between 4 of you, and forget about the others.

                Comment


                  #9
                  I can't see the existence of a RTM company affecting the value of the freehold, as the right have an RTM could be exercised in the future, anyway.

                  Also, my understanding is that the freeholder can only unseat an RTM company if they can prove to the first tier property tribunal that the RTM is failing in its duties to manage properly. For a freeholder, that is likely to mean they are letting the property get into disrepair, as they will not be concerned about service charge levels.

                  In terms of any self management or leasehold enfranchisement, I would caution you to think about whether you are going to have people who both understand the law and and are prepared to put time into the management for the long term. My experience is that leaseholders tend not to be aware of changes in the law, or even the terms of their lease, and that BTL landlords generally don't want to get involved in board meetings or management chores. I would advise using a professional managing agent, even if you have right to manage. You will be treated as business as far as many aspects of the law go, and, unlike someone maintaining their own home, expected to know about health and safety and the law.

                  Comment


                    #10
                    Just in case this whole thread is a misunderstanding of acronyms in the OP...

                    An RTM company is a Right to Manage company formed using powers under the Commonhold and leasehold Reform Act 2002. It is not designed, and cannot legally, own freehold.

                    An RMC is a Resident Management Company and one of these can be constituted to hold the freehold title.

                    It's all about the Mems and Arts.

                    If you want to buy the freehold on offer, you forms yourself an RMC and nominate it to be your purchaser (you don't have to do this before you accept the offer but you should have your legal ducks' feet tied down with a PA as above).

                    If you don't want to buy the freehold, and you just want to manage as landlord under the lease, you form an RTMCo and claim the right to manage from the freeholder. The freeholder is unaffected.

                    As said above, the freeholder cannot unseat the RTMCo except where he/she can rely on s105 of the CLRA 2002. Leaseholders can similarly unseat an RTM by seeking to appoint an alternative manager via a tribunal, or by everybody walking away.

                    Either way the advice as to competence in law is critical. If leaseholders mess up running an RMC they can see the freehold go to the Crown, and some seem not to notice this happen! If you mess up running either an RTM or RMC company you can face huge legal bills when you fail to manage and miffed folks pursue you to court, and as said the directors are treated as 'real' directors by the law even if they act as if it is all a bit of a hoot. And they do. Read this forum...

                    If you have sensible neighbours and you are sensible, it is a good thing to do in my opinion to own the freehold or failing that, exercise RTM. That's just me even after years of bruising with idiot directors.
                    Do not read my offerings, based purely on my research or experience as a lessee, as legal advice. If you need legal advice please see a solicitor.

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