The Leasehold and Freehold Reform Act 2024 (Commencement No. 3) Regulations 2025 brought into force sections 49, 50, 51, 52 and 64 of the Leasehold and Freehold Reform Act 2024 (LAFRA) on 3 March 2025. This will likely result in significant changes to the recovery of costs in the Right to Manage (RTM) process, along with the scope of premises which are "qualifying premises" for the purposes of Chapter 1 of Part 2 of the Commonhold and Leasehold Reform Act 2002 (CLRA 2002).
The key amendments relate to the change in the scope of excluded premises, and the default position that the RTM company is responsible for the landlord's costs incurred as a consequence of the Claim Notice, which are discussed below.
Excluded Premises
In order for a RTM company to acquire the right to manage a premises, the premises must be a "qualifying premises" within the meaning of section 72 of CLRA 2002. Our article on Plaza Boulevard, discusses guidance given by the Upper Tribunal for consideration as to whether a part of a building is a "self-contained part".
Section 72(6) provides that Schedule 6 to CLRA 2002 sets out those premises which are excluded from being qualifying premises for the purposes of the RTM.
Under paragraph 1 of Schedule 6 to CLRA 2002, premises excluded from being qualifying are those with substantial non-residential parts; that is where the internal floor area of non-residential part or parts exceeds 25% of the total. Parts are non-residential if they are neither occupied, or intended to be occupied for residential purposes, nor comprised in any common parts. This requirement changed on 3 March 2025, by the introduction of section 49 of LAFRA, to 50%.
The consequence of this amendment could be significant; premises where the RTM has previously been sought, but the claim was opposed due to the non-residential areas being more than 25%, could now no longer be excluded from being a qualifying premises (if those areas are less than 50%). Landlords and management companies may start to find a significant spike in RTM claims for those properties which are no longer excluded from the RTM.
Costs
Previously, a RTM company was responsible for payment of the costs of the parties who were given a Claim Notice up to the point of withdrawal (or deemed withdrawal) of the Claim Notice. If an FTT application was made, the RTM company was only responsible for the landlord's (or other parties') costs if the application was unsuccessful (sections 88 and 89 of CLRA 2002).
From 3 March 2025, the position has become dramatically different, as section 50 of LAFRA is in force. The effect of this is to introduce sections 87A and 87B into CLRA 2002, which provides that save where an exception applies, the RTM company is not responsible for the costs incurred by a landlord (or other recipient of a Claim Notice) as a consequence of a Claim Notice.
As to costs exceptions, the FTT may only order the RTM company to pay costs associated with a Claim Notice if all of the following conditions are met:
- The Claim Notice is withdrawn, deemed withdrawn or otherwise ceases to have effect;
- The RTM company acts unreasonably in giving the Claim Notice or not withdrawing it, or causing it to be deemed withdrawn, or causing it to cease to have effect sooner;
- The applicant is the landlord, management company or an FTT manager;
- The costs were incurred before the Claim Notice is withdrawn, deemed withdrawn or otherwise ceases to have effect;
- The costs are incurred other than in connection with proceedings before a court or tribunal; and
- The costs are reasonably incurred.
Whilst all above must be met before the FTT would have the power to order the RTM company to pay costs, the decision to make the order is discretionary.
Conclusion
The amendments brought into force on 3 March 2025 are likely to have a significant impact on landlords who may see an increase in RTM claims due to more premises becoming qualifying premises for the purposes of an RTM claim.
The overall impact is that landlords may face losing management of more blocks, whilst being unable to recover the costs of the increasing volume of work associated with responding to those claims.
