Strengthening leaseholder protections over fees, charges and services: consultation

3.5 Powers to appoint a manager or replace a managing agent

i) Powers to appoint a manager

278. In cases of serious management failure by the landlord, or landlord’s managing agent, leaseholders are able to apply to the tribunal to request it appoints a manager to take over functions of the landlord (or managing agent). Leaseholders need to follow a process and prove substantive fault by the management. The landlord will usually be given time to remedy any concerns before the leaseholder may apply to the appropriate tribunal. The tribunal may make an order if it is satisfied that it is “just and convenient” to do so in all circumstances of the case.

279. Lord Best’s report highlighted concerns with the current process and called for the UK government to review the effectiveness of the existing regime.

280. The existing process has not changed for over 35 years and there are areas where it could potentially be improved, including:
     1. Simplifying the preliminary notice. Before an application can be made to the tribunal to have a manager appointed, the leaseholder is usually required to serve a preliminary notice on the landlord setting out the reasons why they intend to make the application. It is common to serve a preliminary notice, and as a result of the landlord complying with that notice, further related breaches are then discovered. A second notice for those new breaches then needs to be served if they are to be taken into account, and if so, the process starts over again. We could explore whether there is a way to ensure that further related breaches can be added to the initial notice through correspondence rather than a new notice served;
     2. Expanding the grounds for challenge under Section 24. To ensure it remains up-to-date and consistent with wider leasehold reforms. The 2024 Act already expands the grounds for challenge to include failure to belong to a redress scheme. However, there may be additional grounds for challenge in England, such as persistent non-compliance with new obligations proposed in this consultation (e.g. non-provision of reserve funds, and ongoing failure to provide information on service charges, administration and permission fees);
     3. Expanding tribunal powers to deal with less egregious matters. The threshold for the appointment of a manager is rightly high. However, there may be benefits in giving the appropriate tribunal powers to issue a new, separate order whereby the tribunal sets expectations for improvement that the landlord must report back after a period of time to show the tribunal what action they have undertaken. Failure to improve could then  allow the tribunal to give a formal order to appoint a manager. This would mean redefining the threshold before the tribunal can act; or
     4. Allowing an automatic renewal of an order in certain circumstances. For example, if the landlord has not completed their obligations to any reclaim their responsibilities, or if the appointed manager needs additional time to discharge their prescribed responsibilities. This could make the process simpler for leaseholders if they do not need to go through a full hearing to extend the order and would transfer the burden to the landlord to prove to the appropriate tribunal that they will manage the property effectively if the order ends.
281. We welcome observations on the existing arrangements and where improvements may be made.

ii) Powers to replace a managing agent

282. Where their landlord is not a Resident Management Company or Right to Manage Company, leaseholders have very limited rights in determining who should be the managing agent looking after their building, if their landlord opts to appoint one.

283. Under existing Section 30B of the 1985 Act, Recognised Tenants’ Associations (RTAs) are able to serve a notice on the landlord to require the landlord to consult them before engaging a managing agent. If the landlord wishes to hire a managing agent, the landlord has to serve notice on the RTA informing them of the name of the proposed agent, which obligations the agent will discharge, and allow a month for the RTA to make observations before the agent is hired. However, this right only applies where there is an RTA, is not open to a majority of qualifying tenants, and the landlord is not obliged to take full account of the RTA's views.

284. As set out in paragraph 278 above, when there is significant failure by the managing agent, Section 24 of the 1987 Act allows for a manager to be appointed by the appropriate tribunal. However, the threshold for the tribunal to act is very high, the remedy is also fully discretionary and so not guaranteed. We want to expand the opportunities available to leaseholders to have a say on who their agent will be. Lord Best’s report suggested two further means to consider to achieve this:
     1. Right to veto – a majority of qualifying leaseholders having the right to veto a landlord’s choice of managing agent; and
     2. Right to switch – a right permitting a majority of qualifying leaseholders to serve notice on the party responsible for performing management functions, ordering that party to change managing agents within a specified time period.
285. Neither option is the same as Right to Manage, where leaseholders take over management (via a Right to Manage Company) or where leaseholders make an application to the tribunal to request an Order to appoint a manager to carry out landlord functions. In both scenarios, the party responsible for management loses control of their management functions. Right to Manage in particular can only be applied for if the leaseholder satisfies various qualifying criteria, and so the remedy is not available to all. These new options would allow the party responsible for performing management functions to retain their rights to manage, but require them to switch to a different agent, if so required. We also propose that the qualifying criteria would be less strict, allowing more leaseholders to exercise such new rights. We would welcome views on whether we should look to bring forward these measures, and if so, how they should function so that they work effectively for landlords, leaseholders and managing agents.

a) Right to veto a managing agent

286. Giving leaseholders the right to veto a managing agent would require a landlord to notify qualifying leaseholders of their intention to appoint a new agent. A suggested process for vetoing a managing agent is as follows:
     1. The landlord must serve a notice when it intends to appoint an agent, with:
        1. the name of the proposed managing agent;
        2. the landlord’s obligations to the tenants which it is proposing the agent discharges on their behalf; and
        3. disclosure of whether there is any formal connection between the landlord and the proposed agent (for example, do they belong to the same group of companies).
     2. The landlord must give at least 28 days from the serving of the notice for leaseholders to make observations on the proposed appointment;
     3. If a certain percentage (say 50%) of leaseholders object to the agent, then the landlord must propose a new agent; and
     4. The landlord may not pass on costs to leaseholders for carrying out this process.  
287. We recognise that there are practical issues to work through, including:
     1. Impact on the process for appointing agents. Landlords would need to commence negotiations earlier than currently;
     2. Landlord right to contest the challenge. In particular we are interested in views on who would be the right body to resolve any challenge;
     3. Scope to exercise these powers. It may not be practical to apply this to all leaseholders (such as leaseholders in mixed tenure blocks with a social housing landlord).
288. We welcome thoughts on this proposal, whether and if so, how to bring it forwards effectively.

b) Right to switch managing agents

289. Like the right to veto a managing agent, we recognise that leaseholders wishing to exercise a new right to request switching of agents would need to follow a set process. Our thinking is that this should largely mirror the right to veto:
     1. Over 50% of qualifying leaseholders in the block could serve notice that they were unhappy with their managing agent, requiring the landlord to act. Leaseholders would also be able to propose their preferred agent, if applicable; 
     2. The landlord must serve a notice within a specified period when it intends to appoint an agent, setting out: 
        1. the name of a new managing agent;
        2. whether it accepts the leaseholders' nominated agent, if provided;
        3. the landlord's obligations it proposes the agent discharge on their behalf; and
        4. whether there is any formal connection between the landlords and the proposed agent (for example, do they belong to the same group of companies).
     3. The landlord must give at least 28 days from serving the notice to allow leaseholders to make observations on the proposed appointment; 
     4. If over 75% of all leaseholders in the block object to the managing agent, the landlord must propose a new agent; and
     5. the landlord cannot pass on costs to leaseholders for this process.  
290. As with the proposed right to veto a managing agent, there are some practical issues to work through with such a measure. These may include:
     1. Landlord right to challenge. In particular, we are interested in views on which body should determine any challenge;
     2. When the power could be used. Managing agent contracts normally last just under a year and early termination may entitle the agent to compensation. We welcome views on whether the landlord should only be required to switch agent at the end of the existing contract, or earlier in the process;
     3. Scope of these powers. It may not be practical to apply this to all leaseholders. For example, there would be challenges in getting this process to work in mixed tenure blocks; and
     4. Enforcing this approach. We would welcome views on how this measure can be practically enforced. Options here might include: relying on local authorities to enforce (with the power to award penalties); an application to the tribunal to issue an Order requiring a change in agent; and isolating leaseholders from any landlord costs in both taking the landlord to court and the process for appointing a new managing agent.  

291. Should these measures be brought forward, we recognise a need for limits to how frequently these rights may be exercised (e.g. annually) to avoid creating endless uncertainty for leaseholders and landlords as well as avoiding unnecessary disruption to the effective management of buildings.

292. We would welcome thoughts on the merits of this proposal and should you support them, how to bring it forward effectively.