The Rise of Right to Manage

At a glance:

• Right to Manage has posed a challenge for insurers and made noticeable changes to the property insurance market
• Economic recession was a catalyst that sent leaseholders looking for ways to cut costs
• Managing agents are the biggest cause for concern, with high levels of commission and a lack of regulatory focus
• Buildings are being judged on their individual risks, which is driving down premiums

Leaseholders exercising their Right to Manage their buildings is becoming more and more common, especially in blocks of flats.

2002 Commonhold and Leasehold Reform Act gives leaseholders the Right to Manage, but it only started becoming popular among leaseholders in 2009. Since then, Right to Manage has posed a considerable challenge for insurers and made significant and noticeable changes to the property insurance market.

What caused the change?

Economic recession was a catalyst that sent leaseholders looking for ways to cut costs. One way was reducing management charges for their blocks by taking over management of the buildings from the freeholders. Insurance was no small part of this in some cases and many leaseholders chose to take matters into their own hands under the law.

Successfully claiming Right to Manage

Exercising the Right to Manage isn’t quite as simple as challenging part of the costs – a tribunal must be convinced that the amount being charged is out of sync with the rest of the market. This can often be the case when a freeholder has a portfolio of buildings and has an umbrella insurance premium that can’t take individual building risks  or lack thereof – into account. This fact can be overlooked by leaseholders and end with their challenge being thrown out.

Cutting out the managing agents

Managing agents acting on behalf of the freeholder are the biggest cause for concern, with high levels of commission and a lack of regulatory focus. So Right to Move groups tend to take the full responsibility on themselves without dealing with a managing agent. However, this can lead to problems as well, especially with larger groups of leaseholders trying to make unanimous decisions among themselves. While having a managing agent isn’t always ideal for leaseholders, the processes involved are far from simple and can result in insurance charges not being paid.

Influences on the market

Rights to Manage are being taken on by leaseholders more and more, and the increase is predicted by the RSA to continue. As a result buildings are being judged on their individual risks, which is driving down premiums and making the insurance market for this area increasingly more competitive.

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Categories: Litigation,