RTM: implementing a lower threshold

It could be done in a one-clause bill:

• omit subsections (3) (4) and (5) of section 79 of the Commonhold and Leasehold Reform Act 2002, and the cross-reference to those subsections made in section 85

This would remove the minimum participation threshold, which stands at 2 or 50%, whichever is higher. Without the threshold, the minimum participation defaults to the provisions of the Companies Act, which has for decades requires a minimum of just one company member/shareholder.

The problem with this is that it requires a criminal prosecution to rein in rogue directors of companies, and this means a director, e.g., a rogue leaseholder or a rogue managing agent, could set up an RTM company and then not let other leaseholders join, in contravention of section 74(1) which says which leaseholders are entitled to be RTM company members.

There is an enforcement power in section 107 of the CLRA 2002. It could be used to provide a statutory civil penalty for excluding leaseholders from RTM company membership. If it's insufficient, then it can be achieved with one more clause. The cost of private prosectuion is about £8000, which is largely not recoverable, so the civil penalty should be high enough to be a genuine deterrent, e.g., £5000.

Alternatives

One could also weaken the consent requirements for RTM company membership, by implying agreement into leases.

• Removing the membership consent restriction

Note that in the identically-named but totally separate "Right To Manage" scheme for council tenants, the threshold is 20%.

• The Housing (Right to Manage) (England) Regulations 2012, reg 10

Back links

• Original gemlog post
• Other RTM articles
• Housing section

• Permalink

Removing another restriction on Right To Manage

In England there is a no-fault collective right for the owners of flats in a block to have the management of the block transferred to a company they control, called a Right To Manage company or RTMco. It is one of the more effective remedies to the problems of long leases on flats.

To claim the right, an RTMco must comprise at least half of the qualifying flat owners. They must be the company's members. Company membership is defined by the Companies Act, and requires two things:

• consent to become a member of the company

• the recording of the member's name in the company's statutory membership register

These are both provisions of section 112 of the Companies Act 2006. And in practice, it has to be this way: the whole system would be impractical and unjust without consent, because:

• It relies on having the member's address.

• It potentially imposes burdens on those company members, particularly to pay up their shares.

• It would also likely contravene the ECHR Article 11 guarantee of freedom of association.

But flat owners' membership of Residents Management Companies is generally compulsory. The section 112 consent is obtained as a condition for owning the flat: by accepting the lease, you accept the lease's terms, and one of those terms can be an obligation to join the Residents Management Company. Similarly, commonhold associations are companies with a requirement that flat owners join, but in this case, the deemed consent is statutory.

So why not make a statutory rule that qualifying leaseholders of flats have consented to join the block's RTM company, if any? This does not stop them resigning, nor does it dispense with the requirement that the RTM company's directors obtain the flat owners' service addresses. But the address registered at the Land Registry could be deemed always to be a valid service address. This would reduce the cost of signing up the requisite majority of RTM company members to the price of looking them up on the Land Registry, an absolute game changer.

This could be achieved by adding a section to Part 2 of the Commonhold and Leasehold Reform Act 2022:

It is an implied term of any lease by virtue of which a tenant is a qualifying tenant for the purposes of section 75 of this Act, that the tenant under that lease consents to join any Right To Manage company established or to be established in respect of the premises and covenants with that company to provide the directors of that company such details as must be registered in the company's register of members.

Of course leaseholders would still be able to resign from an RTM company that they'd unwittingly been signed up to. The wording above might need to be tweaked to stop the directors re-registering someone had resigned like that.

It may also be necessary to insert something like the following into the section 1141 of the Companies Act 2006:

In the case of a company which is a Right to Manage company within the meaning of Part 2 of the Commonhold and Leasehold Reform Act 2002, a "service address" in relation to a member of the company who is a member by virtue of being a qualifying tenant includes the address registered for the time being at the Land Registry in the relation to the interest by virtue of which the member is a qualifying tenant of the company.

• Original gemlog post
• Other RTM pages
• Section index

• Permalink

Dispatches from FUN Ocaml 2025

I have just got my sleep pattern restored after a superb two days at the FUN OCaml conference in Warsaw. OCaml is an unusual computer programming language reputed to be a bit of a productivity boost and agreeable to use to boot.

• https://fun-ocaml.com/#schedule

The conference comprised a series of fine talks and workshops, interspersed liberally with breaks for discussion.

The talks

My motivation for attending was to take the temperature of the OCaml ecosystem. I have worked for three companies where I used OCaml, but only one of them was a significant industrial user. And that was all some years in the past, before OCaml 5.0 and before the packaging and build system had settled down.

I am a bit of a broken record on the topic of "on ramps" to learning OCaml. In the long-term, new people need to be able to pick the language up, so beginner documentation matters just as much as "how to use the thing you already understand" manuals. The incentives are lacking for the business of keeping up to date the onboarding/beginner docs on critical things like the build process. I appreciate the onboarding documentation issue is generally not at the top of most people's minds.

Secondarily, I worry about churn, and that new features might not get widely used, or might impose transition costs. The talks and the Q&A afterwards reassured me this wasn't the problem in OCaml that it might be in other languages. There must be at least some unglamorous users for whom the razzle-dazzle of algebraic effects and modular implicits holds no great temptation.

The talks represented both industrial and non-commercial, ludic uses of OCaml. The latter is a good health signal: if people are going to the effort of using OCaml to further their hobbies, that's actually a very good sign, and the non-commercial talks were both from people evidencing serious technical chops.

The commercial talks covered domains like orchestration and formal language processing (e.g. managing IT infrastructure and looking for security bugs in other people's source code) and were exactly what I had been hoping for.

It was also nice to see people I'd met at the Marrakech retreats, and meet new folks, including those who maintain things I use, like the Emacs support.

Compiler hacking workshop

Due to being taken unwell, I was only able to attend one of the workshops on the second day. This was presented by Nicolás Ojeda Bär of LexiFi, and confronted a source of great fear even among battle-hardened programmers: editing the compiler. I well remember the weird sinking feeling many years ago when the very idea that there could exist bugs in a compiler occurred to me. And now here we were, potentially introducing new bugs.

I have limited familiarity with how compilers work internally; I am vaguely aware that a compiler frontend might have successive phases, turning concrete syntax into abstractions, annotating those with types, doing type checking, and, in the case of OCaml, famously compiling those down to lambda calculus. It follows that one part of the compiler can insert material at one phase for consumption in another, and this material need only be valid insofar as it will be subject to checking at subsequent phases. Thus one may develop and add a language feature by modifying the compiler to plumb new data through the phases.

The workshop took us through how LexiFi uses this to allow the slightly heretical affordance of pretty-printing values at runtime without knowing their types (which in standard OCaml have been erased at runtime). Material was added at an early phase of the compiler, and the speaker took us through adding plumbing at each phase to achieve the desired effect. I was very instructive to see the errors this kind of modification throws off when it's only half finished. In the end, we'd implemented a sort of type reflection that could be used in the REPL.

The Q&A after the workshop was particularly strong, but of course in such a situation people are also interrupting to ask questions as you go along. I suspect almost everyone was able to keep up. The whole thing was well pitched.

Conference logistics

The conference was too far from town for anyone to "know this great little place nearby" for dinner or drinks, so the attendees, rather than sundering into lots of little groups, remained perforce together once the day's formal proceedings had concluded. That's actually a very positive outcome, though it did lead to karaoke, and wistful singing of ballads about a simpler bygone age when the drugs were cheap, the rallies unstructured, and the types were all unsigned 32 bit integers.

I stand accused of organising more than my fair share of big face-to-face meetings, in divers pubs, hotels, colleges, stately homes, church halls and the like, so I take more than a passing interest in the logistics of such matters when done by others.

For FUN OCaml, the venue was (as noted) a few miles outside central Warsaw. The conference seemed to have the whole premises to itself, the WiFi and tables and electrity were very good, everything well set up for serendipitous encounters with folks one only knows from Twitter or Github or whom one is meeting for the first time. Food was generous and brawnily competitive with my hotel's buffet. Particularly appreciated was the amount of sliced lemon in the drinking water provided, bounteous enough to placate the severest urologist.

Getting good recordings of conference is something of an art; it's a courtesy to the speakers to get it right. The venue really shone through on this front, with a multi-camera setup, which meant that audience questions were well-covered too.

Then there's the practical matter of getting to and from the venue. If, like me, you cannot really use moble data, then unfamiliar public transport networks always impart a foreboding terror of missing the evening's last train and freezing to death under a motorway underpass like some benighted Pascal programmer. Fortunately, some local attendees apprised me of jakdojade.pl, purveyor of the most happening public transit routes, and I proceeded into the night, nonchalantly choosing buses at random and making it back to the hotel before sparrowfart.

The stash was pretty good, including a good-quality T-shirt; the chap handing these out very diplomatically estimated what size I needed, and it turned out he was right!

OCaml fun

As a sober and pragmatic language with a clear focus on its ecological niche, OCaml lacks the natural emergent drama of other functional programming communities. But we did feel the presence of the Institute for Type Safe Mimetics Research. It is an open secret that the Institute is merely a front for a secretive cult who gather, berobed in white lab coats, to pronounce ritual curses upon Larry Wall, C++ templates, and languages where everything is an unsigned 32 bit integer.

Personally I got a lot of value out of the whole event; I hope everyone else, and the sponsors, did too! Many thanks to all involved!

• Gemlog index
• Site index

• Permalink

Extensibility and weekend projects

tl;dr: There is a binary choice between a protocol being inextensible, or that protocol ending up controlled by a small number of Big Tech organisations.

In the early days of Gemini, much was made of the notion that an implementation could be completed in a weekend. A statement to this effect still stands in the FAQ on the geminiprotocol.net capsule. There was also at the time a lot of controversy, some of it confected, about the extensibility of Gemini.

• The Gemini FAQ

What I hadn't spotted at the time was how the two issues were linked. I was more concerned to work out a good counter-argument to the reasonable point "why not just use a subset of the WWW?". But it is only recently that I spotted the importance of the relationship of extensibility with keeping Gemini within the scope of what could be done in a weekend.

Essentially it is this:

• obviously, the bigger the protocol, the greater the effort to implement it
• there is some size of protocol or spec beyond which it is not possible for one individual to accomplish an implementation in a weekend
• tacitly, extensible protocols likely lack effective constraints to their growth over time
• therefore any extensible protocol will likely expand beyond being implementable within a person-weekend

Of course the tacit bit isn't always true: it won't always be the case that if a protocol allows extension it will necessarily experience the hypertrophy characteristic of the web or email. But there could well be strong forces propelling a putative future protocol in that direction, and it is no comfort that it has taken 35 years for the web to deteriorate to its current condition of unseemliness.

Implications

There's nothing special about the "person-weekend" benchmark as far as this argument is concerned: over time, any extensible protocol will expand to the point where only a handful of well-resourced tech organisations can create an implementation. This is what has happened to the web, indeed, it's not even clear that any organisation can create a new web browser de novo any more.

There is a binary choice: either a protocol is not extensible, or it will end up being controlled by a small number of Big Tech organisations.

Anyone pushing to jemmy a bit of extensibility into Gemini or any other smolnet project is basically saying that the little people shouldn't be writing their own protocols and should leave it to the oligarchy.

Addenda

(I use protocol above as shorthand for a thing like Gemini, WWW, Email, IRC, SSH and so on, some of which are more than merely protocols).

• Why use Gemini rather than SafeWeb

• Permalink

The Commonhold White Paper is good news for leasehold reform.

(this post will be revised in a few days)

In particular, it signals that the government is going to be hard-headed about driving through reform. You can't make an omelette without cracking some eggs, as the saying goes, and that is what is implied by today's white paper.

There are some areas where they are also watering commonhold down to make it easier to get it adopted. There's also a fudge on the key financial questions of how the conversion to commonhold is to be paid for, and the role of veto-holders is largely unaddressed.

On the other hand, this annoucement is the death knell for the idea that commonhold will lead to leasehold abolition: the Government has accepted the Law Commission's proposal to water down commonhold by allowing long leases within commonhold blocks, initially to bail out Shared Ownership.

Existing sites

See, for background, my earlier article re existing blocks

• Why commonhold can't be mandated on existing blocks

The announcement does not really do much for existing sites, though it does increase the incentives for private collective action to take control of existing blocks and sites.

There are two key problems with converting existing sites:

• not everyone can afford to
• some sites are complex, with a single entity covering a block of flats as well as shared property on a wider estate

These both relate to who can veto conversion to commonhold, which is currently:

• the freeholder of a block of flats, which is generally irrelevant because the leaseholders have bought the freehold amongst themselves
• all the leaseholders
• their mortgage lenders
• any other party empowered by the Secretary of State

Now since commonhold hasn't been adopted widely, we haven't seen that last clause bite, but it allows the government to grant a veto to an estate's Resident Management Company, e.g. under a tripartite lease. The provision is under the Commonhold (etc) Act 2002 s3(1)(d).

Conversion to commonhold extinguishes the leases in a block, which may extinguish individual flat owners' obligations to pay towards the wider estate. It does not however cancel membership of any management company linked to the dwelling, though it may cancel the requirement for the next owner of the flat to join such a company. You can easily imagine these companies protesting and getting granted their veto under s3(1)(d).

As an example of where this is relevant: a development with a block of flats and some houses may have a shared car park, where a management company controlled by the unit holders of the flats and houses manages all the shared areas, inside the block of flats and on the wider estate. The company's constitution may be set up to reflect the differing interests (houses using shared car park, flats using shared car park, houses with their own car park).

Do we really expect to be able to convert to commonhold in such circumstances? That is, all the shared land, rather than just the block of flats? Does it make sense to give the owners of houses a veto on getting included in a commonhold that only manages a few strips of land, merely because other houses and flats may have car parks the house owners have never seen?

See also the stats on how many RMCs are really resident controlled:

• Survey of Residents Management Companies

Forced conversion and forced loans

One of the options for conversion is mandatory equity loans on converting very short leases. Obviously there are Many Such Cases of people who've knowingly or unknowingly taken a lease whose extension is unaffordable, e.g. due to Marriage Value.

If this isn't fixed, then under the White Paper's proposals a 50% majority of flats could force an unaffordable equity loan on a non-consenting flat owner. Ironically, it would then be the leaseholder asserting A1P1 rights.

The white paper is not forthcoming on which option to use, but if they go for Option 2, and impose forced loans capped at what the ground rent would have been, it could work.

Sections

A key weakness of the 2002 Act's commonhold system was the absence of "sections" that allowed costs and voting power to be allocated to subsets of the members, as is possible under share-of-freehold and estate RMCs.

Alarmingly, the courts have recently imposed their own "sections" system on Right To Manage(!), but the government has said it will roll out sections in a reformed commonhold, which likely eliminates a key blocker.

Watering down commonhold

There are two principal areas where commonhold is being watered down:

• initial management control
• continuation of leasehold within commonhold

The first of these is a sop to developers, who will receive expanded rights to override the decisions of unit owners during the initial phases of development. On my development, the developers' appointees have controlled the management thirteen years after the first flat was sold, and six years after the last flat in my estate was sold.

Widespread roll-out of commonhold threatens exposing the fake market for managing agents to genuine competition; the sector has tried to head this off by pushing for a regulator for themselves, which would likely impede new pro-flat-owner market entrannts. The development rights clawback allows this problem to be postponed for a few years.

The second is a sop to the Housing Associations, who will get to continue shifting discredited Shared Ownership product via leasehold, rather than using statutory shared ownership trusts. It is unlikely that an exemption to the ban on long leases over commonhold units will be expandable beyond shared ownership, but watch out for a sort of "LAFRA Schedule 1" ever-expanding list of categories of exemption from commonhold ownership. How are developers to build flats on land that they have already taken out a 900 year lease on?

Signal on Marriage Value

Although the white paper fudges the key financial issues of conversion to commonhold, it's implied that the government will not be totally walking away from the previous government's attempt to reallocate marriage value to enfranchising leaseholders. This is a positive signal given the ongoing litigation.

Building safety

There doesn't seem to be any proposed change to the general rule in the Building Safety Act that enfranchised blocks lose the so-called "leaseholder protections".

• Permalink

What did Labour actually promise on leasehold?

There's this weird idea about, that the UK Labour party promised to end "leasehold". That's not what they've actually been saying, and is not logically compatible with what they stated in their manifesto before they won this year's election.

Labour didn't say they'd end leasehold; they said they'd end the "leasehold system", which can't be the same thing. Their manifesto proposed making commonhold the default tenure, not the sole tenure, for flats. This necessarily implyies that leasehold would remain as an alternative to this default.

When I pointed this out on Twitter, some had the temerity to object that Labour had "pledged" well before the election to abolish leasehold, and then walked it back before their manifesto was even published. I really think we need to take those claims with a pinch of salt, though beneath it all is a disagreement about how to characterise the "small print" in political rhetoric.

• https://x.com/jcreedy/status/1862187174566711315

It's not really been possible to stand up this "pledge"; it has three possible referents I've been able to track down:

• Lisa Nandy said on Sky News (23 May 2023) that Labour would ban leasehold, but that this meant banning it on new builds, and reform commonhold for existing flats (rather than mandate it)
• On Question Time on 27 April that year she had said the government should ban leasehold, and that the next government would do "something" about it
• There is also a third broadcast piece I've never been able to find again where she's much more explicit about banning leasehold for "private" flats (i.e., retain it for social housing, council housing and shared ownership)

None of this adds up to a promise to ban leasehold. We should also be cautious about unscripted remarks on the telly, rather than what is written. The best guides to party policy on leasehold is actually the formal ministerial statements read into the record of Parliament; there have been two recent ones, on behalf of Robert Jenrick and Matthew Pennycook (former and current Cabinet ministers with responsibility for leasehold).

• Jenrick's statement of 11 January 2021
• Pennycook's statement of 21 November 2024

I've done some analysis of the more recent statement from the new Labour minister insofar as it relates to the recently enacted legislation, which I'll summarise on Gemini shortly. But it's available on Google Docs here:

• Commencing the Leasehold & Freehold Reform Act

• Permalink

The Right To Manage allows the owners of flats to appoint the manager for their apartment block. RTM was introduced in England and Wales in 2002, since when a few thousand blocks have taken it up. As there is no effective legal right to inspect invoices behind the service charges for flats, the power to replace the manager is generally the only available means of preventing unvouched or fraudulent charges.

But: who should be allowed to prevent RTM? That is, which people should collectively or individually be empowered by law to compel others to suffer being defrauded, exploited or overcharged?

Minimum participation rate

RTM works by transferring a block of flats' management rights and obligations to a leaseholder-controlled company, the "RTMco", the leaseholders being the owners of the flats. All UK-registered companies must have at least one member, and so at least one of the flat owners must opt-in to being a member. These members, however many there turn out to be, elect directors, who appoint a manager. Despite the simplicity and clarity of this arrangement, attempts to muddy the waters about it are so frequent that they practically constitute a minor literary genre in their own right (see the link below about the "Agency Canard").

So the minimum number of flat owners who must be members of the RTM company is one. And membership is not particularly burdensome. However, for the RTMco to claim the management rights in the first place requires it to have had no less than half the flats represented in its membership on the day that it made its claim. Consider the following worked example: for a building with sixty flats, an RTMco would start with two or three leaseholders as founding members. They would then recruit at least half of the flat owners, i.e., thirty members, and get them formally signed up as members of the RTMco. The RTMco could then make its claim to manage the building. That takes a few months to kick in, but it will still occur even if most of the RTMco members subsequently resign.

To recap:

• incorporating an RTMco takes just one flat owner
• claiming the management of the building requires half the flat owners
• but retaining the management long-term requires again just one flat owner.

Why should there be a "half the flat owners" hurdle in the middle of the process? If the other flat owners are dissatisfied with the RTMco, they should join it and sack its directors. After all, all the flat owners have a statutory right to be members of the company; I've never come across a case where the directors of the RTMco have refused a valid request for membership. If they did, they open themselves up to being sued. If this is a genuine problem, which is unlikely, then refusal of a valid membership application should simply be criminalised on the same lines as almost all other breaches of company directors' duties are: a strict liability offence punishable by a daily fine.

The only parties who benefit from this fifty percent hurdle are the outgoing managers. The only effective remedy for bad managers under UK leasehold law is replacing those managers. The harder it is to replace them, the easier it is for them to overcharge. Therefore the hurdle should be minimised: reduce the participation threshold from "not fewer than half the flats" to "one". To do otherwise is to incentivise mismanagement.

Analogy: jury duty

Nothing about being in an RTM company really imposes a "duty" as opposed to a right. The dishonest conflation of the right to manage with the obligation to participate in management is the core of "Agency Canard" detailed in the link at the bottom. We don't say "if you get the power to choose who your electrician is, that means you have to train as an electrician and do the work yourself". But that's basically what people try to say about managing blocks of flats: the power to choose who your managing agent is somehow the obligation to do that work yourself. It's piffle.

Nevertheless, someone has to serve as a director of the RTM company. It doesn't have to be a flat owner, though that is probably the norm. It definitely doesn't have to be any specific flat owner, though.

Where this leaves us is with a nebulous and largely spurious sense of obligation hanging in the air when it is contemplated to obtain control over the management of a block of flats.

But fundamentally this is a collective governance issue. No-one seriously claims that people have a right not to serve on juries, or that because some people aren't willing to be members of Parliament or local councils, that no-one else should be allowed to. But that's very similar to arguments made against RTM, and in practice, the fifty percent hurdle is just a disguised restriction on RTM: the less one likes RTM, the higher one wants the hurdle to be. Effectively, one's saying "I don't want to serve on a jury so even people who would be happy to do so shouldn't be allowed to either."

Links

• The "Agency Canard"

• Permalink

For common ownership of blocks of flats in England and Wales, there are only two viable solutions: share-of-freehold, and reformed commonhold.

The two leasehold models

In England and Wales there are two primary patterns of ownership for blocks of flats which occur when each flat is owned by a different person:

• conventional leasehold (never mutual)
• share-of-freehold (potentially fully mutual)

Conventional leasehold involves each flat being held on a long lease by its owner, and someone else owning the freehold of the flats and the common parts of the building such as corridors and the roof. This accounts for most of the so-called "private" housing stock.

"Share-of-freehold" involves some or all of the flat leaseholders, and possibly other parties, jointly owning the freehold over the flats and the building's common parts. Where all the leaseholders have a stake in the ownership, and no-one else does, it can be termed a "fully mutual" arrangement. Although the flats are still leasehold flats, most of the pathologies attendant upon leasehold are absent, because the interests of the owners are broadly aligned.

Fully mutual share-of-freehold arragements operatee, in practice, so differently from non-mutual arrangements that it's often misleading to generalise between conventional leasehold and fully mutual share-of-freehold. The incentive structures are barely comparable.

Alternatives to leasehold

There are three "viable" alternatives to leasehold for blocks of flats:

• commonhold
• strata title
• company title

None of them is currently viable in the UK: commonhold requires secondary legislation or unusual private arrangements to make it viable even on the dozen or so sites which currently use it.

Company title is effectively the predecessor of strata title in Australia. The owners of the building form a company to own the freehold of the building, and each share in the company comes with the right to occupy one of the flats, and there is no lease in addition to the terms of membership of the company; all matters concerning the respective rights of each flat "owner" vis-a-vis each other and vis-a-vis the group are determined on the basis of the company's internal rules.

But look at it another way: company title is basically share-of-freehold without actual leases on the flats. The rules that would appear in an English lease instead feature as provisions of the company's articles of association or of regulations made by the company. With one crucial difference: leases are by definition time-limited, whereas there is no time limit on owning shares. So a share in a company title block of flats is not a wasting asset, but a share in a conventional English share-of-freehold company is.

However, while you could set up a company like that today in England, it would likely be difficult to get a mortgage against a share certificate rather than against a property title. The arrangement is simply unfamiliar in the UK and mortgage lenders would likely decide it was in their interests to turn up their nose at it. So company title, while possible in the UK, is likely even rarer than commonhold.

Why not strata title for the UK?

Strata title, which is the norm in Australia and elsewhere, however, is simply not available in the UK. Commonhold and strata title are very similar: they provide for freehold ownership of individual flats when those flats are vertically one on top of the other, and a fully mutual corporate body for owning and managing the common parts.

So what's the difference between strata title and commonhold?

Strata title and commonhold principally differ according to the type of legal body that comprises the owners' corporation. Under commonhold, this corporation operates under the general company law used by hundreds of thousands of non-profit and millions of for-profit enterprises; it is no different in this respect from share-of-freehold or indeed company title. Strata title on the other hand has a specific type of corporate body that operates under laws that only relate to managing blocks of flats.

This gives rise to a much bigger practical difference in administration, in particular, what government bodies must be dealt with, and whether other economic groups share any of the administrative and dispute resolution facilities.

Commonhold fundamentally involves using a UK registered company as the owners' association for the block of flats. As a company, it has to be registered with Companies House and annually confirmed by its directors. In my opinion, this is better than strata title, because for the small cost of complying with company law, the owners of the flats get all the benefits of being first class corporate citizens in the UK: all the facilities for ensuring democratic governance, finding out the identities of other members, decision-making, audits, accounts, electing and sacking directors, and so on, is shared with five million other UK businesses. Companies House, the company registrar, even provides a very swish API that enables people to manage their company data using third party software, to cover situations that Companies House itself can't or won't support.

There are alternate schemes in the UK legal system which allow groups of individuals to manage their affairs collectively: partnerships, registered societies (think Nationwide Building Society, credit unions and housing associations), trusts, associations, etc. None of these bodies of law is kept up-to-date by Parliament the way company law is. When the pandemic hit, all UK companies were already able to conduct valid shareholder and board meetings electronically, due to legislation passed twenty years ago. Associations and trusts that hadn't foreseen this found themselves hamstrung. Commonhold makes the best trade-off available. Having a bespoke set of laws for the management of owners' corporations for blocks of flats guarantees that they'll become second class corporate citizens, and fall out of the slipstream of big business and small business that currently keeps their governing law up to date.

So commonhold and strata title are very similar in practical outcomes from the perspective of the relationships that flat owners have with each other and with third parties. But they're not the same, and people who say that commonhold exists outside the UK, equating it with strata title or similar, are really muddying the waters. This leads to unfortunate confusions, such as how internal governance works. Many strata jurisdictions require that there be an annual general meeting, but this requirement was disposed of in the UK to help small businesses; the UK model is much more that company members elect (and if necessary sack) directors to run their companies, but the thresholds for requisitioning general meetings to overrule the board unfortunately do not work for companies with more than 20 members where a single member is aggrieved. This could be trivially fixed via secondary legislation.

Summary

The most important factor for the welfare of owners of flats is whether the block is owned on a fully mutual basis. Otherwise there is significant risk of conflicting interests.

In England & Wales, the only realistic means of having blocks of flats owned on a fully mutual basis are share-of-freehold and commonhold. There is no chance of strata title being introduced in the UK because commonhold is so similar, and no chance of company title taking off because it's so weird and runs up against a century of land registration and mortgage-lending practice.

• Permalink

Who would be upset by abolishing leasehold? Actually, some leaseholders who can't afford their share of their freeholds would. And people shouldn't be compelled to pay what they can't afford, so it follows that commonhold should not be made mandatory on existing blocks without some mitigation of this issue.

This blog post is partly an answer to James Creedy's tweet.

Some leaseholders cannot afford to buy their share of the freehold of their block of flats, even if that resulted in permanent ownership and zero ground rent.

Online discourse about long residential leasehold in England and Wales often alights upon abolishing leasehold entirely.

There are unresolved issues with outright, all-at-once abolition, or at least I've never seen any plan which resolves even the issues I'm aware of. So I avoid saying "abolish leasehold". I would go for the much less snappy wording: "phase out the vast majority of residential leasehold". So what do people mean by "abolish leasehold"?

Roughly, what is meant by it, is that all residential long leases should be replaced by freehold ownership of the same space, and that any common parts of buildings or land shared between multiple flats should be owned on a mutual basis by the owners of the flats. The complications of having multiple financially interdependent freeholds vertically stacked on top of each other would be addressed by schemes such as "commonhold" and "strata title".

Now under the existing law, freeholders must be compensated for their legitimate property interests when their leaseholders compulsorily purchase the building's freehold. To the extent that freeholders or managing agents can extract additional income illicitly, above and beyond their legitimate property interests, then indeed those freeholders and agents would be upset by the abolition of leasehold.

But the other group that might be upset comprises some of the existing leaseholders.

Let us suppose that every residential building were eligible for enfranchisement. Under the existing law, not all such buildings qualify, but suppose those restrictions were removed. All leaseholders could then choose to buy the buildings in line with the procedures in the current law: at a time convenient to them, and a price they would agree with the freeholder, appealable to a tribunal.

There are three main components to this price:

• the future value of each flat
• the future ground rent
• any value in the remaining land that's not part of any lease

If the leases are very long, e.g., hundreds of years, then the future value of the flats will be tiny today. If a newly-leased flat is worth £300000 today, but the lease is 250 years long, then the freeholder doesn't get to sell another £300000 lease until the year 2273. So if you bought about £1.50 of government bonds today and cashed them in in 2273, you'd be able to buy that flat. But the longer the lease is, the more ground rent may be due, so to compensate the freeholder for 250 years of £100 ground rent, you might need to pay £4999 on top of the £1.50. The outgoing freeholder could then stick that money in bonds and get an income stream equivalent to what would have arisen from owning the building.

What you'd get for your £5000.50 is a freehold flat (likely a "commonhold unit"), which would have zero ground rent forever. In practical terms it would be £100 cheaper per year, and you could use that £100 saved to gradually pay off the loan you may have needed in order to finance the transaction.

If you were forced by law to accept a swap, of your lease with its £100 a year ground rent, for a debt that cost up to £100 a year to service plus permanent ownership of your flat, you wouldn't have much cause for complaint.

But consider the case where the lease doesn't have very long left to run, e.g. only 50 years. There are fewer years of ground rent to pay, but since the reversion of the flat to the freeholder is closer in the future, much more money must be invested in order to pay for it. To buy a £300000 flat in 2273 might cost only £1.50 today, but you'd have to invest about £26000 today to buy such a flat in 2073. (There is also currently marriage value to be paid on short leases, though this is irrelevant to the wider point).

There's no way that a reduction in ground rent will always offset realistic repayments on a debt of tens of thousands of pounts; after all, the ground rent might well be zero! So some leaseholders in this position would be bankrupt if forced by law to accept a swap of their lease for a ground-rent free commonhold unit plus a loan for the cost of enfranchising it.

Is anyone serious proposing something like this?

The Law Commission discusses it in some detail, from paragraph 5.136 of their report on Commonhold, and it forms part of their Recommendation 12. The report sets out two main models for reform, one of which is the antithesis of abolishing leasehold. It is "Option 1", and entails watering down commonhold to allow long leases and ground rents, avoiding the problem I've outlined above. Option 2 entails compelling flat owners to accept the swap if enough of the other owners in the building want to convert to commonhold.

The assumption in all this is that most but not all of the flat owners are banding together to convert to commonhold at a time of their own choosing, rather than the government making them convert against their will.

In practice, the options are:

• retain the requirement for unanimity in converting leasehold units to commonhold units (the status quo)
• abolish the unanimity requirement (Law Commission's "Option 2")
• abolish the unanimity requirement except in genuine cases of unaffordability (my own preferred option)
• abolish the requirement for consent entirely ("leasehold abolition" tout court )
• don't abolish leasehold after all, but instead allow it to persist within a watered-down commonhold regime (the Law Commission's "Option 1")

The first of these options is effectively the position of the Labour Party. To be fair to the Labour Party, they are publicly committed to abolishing leasehold outside the social and affordable housing sectors. I'm not sure what the Conservatives' position is, but philosophically the party has generally been for gradual change, tempered by occasional drastic shock therapy, which may provide some hope.

I think it's important for commonhold not to get associated with compulsion. Nevertheless, realistically, in the generality of cases, it will be in the financial interests of all leaseholders in a block to convert to commonhold, so so long as it's not genuinely financially detrimental, removing veto players from that scenario would probably be justifiable.

All feedback gratefully welcomed.

• Permalink

I recently surveyed the UK's resident management companies (RMCs). There is a proper paper write-up here.

You can do this by querying data provided by Companies House, plus a lot of spadework. The code for doing this is currently here.

Roughly speaking, there are about 50,000 RMCs. I took a random sample of 100 of these and manually read through all of their articles of association. It took many hours of unbelievable tedium.

What is an RMC?

RMC stands for one of the following:

• resident management company
• residents management company
• residents' management company

Note that the first option worrying includes the implication that the company might be used to manage the residents, rather than to manage property on behalf of residents.

Anyway, regardless of what the acronym RMC stands for, there's no official definition of the concept, but there is a generally accepted usage of the term, which is that an RMC:

• is restricted in its activities to the ownership or management of collective residential property in a particular location
• is restricted in its membership generally to those who own the property so managed

In practice, RMCs tend to be used for one or a combination of the following purposes:

• owning the freehold of a block of flats jointly between some or all of the leaseholders
• separating out the management responsibilities for a block of flats into a distinct legal entity, with or without involvement by the owners of the flats
• doing the same in relation to some combination of blocks of flats and freehold houses on a private estate (often called "fleecehold")

Effectively, an RMC will have some or all of the responsibilities of the freeholder of the relevant premises.

De facto, RMCs are private local government bodies.

Distinguishing RMCs from MAs

On larger sites, in practice, these activities may be outsourced to a managing agent, and some people conflate this body with the management company. Managing agents are normal commercial businesses, that have no self-imposed restriction in their constitution limiting participation or operations to particular sites. Managing agents will typically have dozens of buildings that they manage up and down the country, and have websites and PR departments and so on. RMCs will generally not have their own websites or staff. The bills from an RMC will often come on the letterhead of its Managing Agent, leading to more confusion.

RMCs may be embedded in the property ownership arrangements for a site. For example, an RMC might be a party to a lease of a flat, noted as the owner of a rentcharge in the transfer deed (TP1) of a house. These arrangements can be nearly impossible to change, so it's important that any company so embedded be an RMC specific to that site, and not a general commercial company.

How the RMCs may be found

The code used for finding the identities of the UK's RMCs used a bunch of heuristics: name, SIC codes, legal form, and so on.

This is of course subject to false positives (things that look like RMCs but which aren't) and false negatives, which are much harder to find.

There are only three types of entity that should be used as RMCs:

• private companies limited by guarantee
• private limited companies (i.e., companies limited by shares)
• private unlimited companies

And the latter case, unlimited companies, is fairly rare and somewhat risky. Buying a flat in a converted terrace house in Tooting Bec should not put you on the hook for when the bloke upstairs hires his incompetent mates to fix the roof. There are about as many unlimited RMCs as there are commonhold associations, almost exactly.

I don't think that the two main sorts of company (shares vs guarantee) makes much of a difference to outcomes in practice, though happy to be proven wrong.

What's in the data?

The spreadsheet includes columns with the following data, in no particular order:

• valid RMC?
• presence of a PSC?
• whether the RMC was originally captive
• the company number

I haven't provided links to the companies' records on Companies House, but you can type in the company number into the form here and get that.

The key information is about whether the companies in the sample are/were captive RMCs, and whether they have a PSC.

Companies House bulk data gives us information about which companies have got a "PSC", or "Person with Significant Control". Any company with fewer than four members will have one, so some smaller blocks of flats will have an RMC with a PSC simply because they're tiny. But in other cases, the presence of a PSC generally indicates that the RMC has been captured by a small group of the flat owners, or by the original developer or the managing agent.

Note that some PSCs cannot legally be registered on Companies House in the PSC register, because they are exempt. This generally includes housing associations, which disguises the fact that some RMCs for market-rate property are under the thumb of institutions in the social/affordable space.

Valid RMCs

In practice, the heuristics I used for finding the RMCs can be a bit off. For each of the 100 companies in the sample in the spreadsheet, I checked the articles of association to see if it really was an RMC, i.e., that it had members who were supposed to own flats, and was only set up for the purposes of collective property ownership or management.

Nine of the 100 companies weren't really RMCs. It's therefore likely therefore that about 9% of the 55000 companies I detected aren't really RMCs. It's harder to estimate the false positive rate, so I shan't attempt to.

There were also about 10 companies that hadn't got valid articles of association on Companies Houses, for various spectacular reasons. These should probably be disregarded, so the false positive rate is a notch higher. Anyway, around 90% isn't too bad.

So what does one do to work out if a company is validly an RMC?

One reads the company's most recent articles of association, and sees if there's some provision restricting the company's membership to owners of flats or similar (e.g., a definitions section containing a definition for "dwellingholder" or "unitholder", etc) and a restriction on the scope of the company's activities to limit it to a particular set of premises (often "the Property" or "the Premises" or "the Development"). Then one checks if these definitions are actually correctly used in the articles.

The notion of a company that is just for managing a block of flats is one that shows up in the tax system, and it is telling that HMRC similarly looks to the connection between the company, the property and the management.

All the companies marked as "True" in the "Valid RMC" column in the spreadsheet passed the test above.

Control

Many companies, including practically all RMCs, have a sort of "startup" phase, when a different group of people are members, e.g., the accountants or lawyers or administrators of the firm setting up the company. The articles of the company will provide for the intended individuals to become members after some event, for the company to be "handed over" to them, e.g., by transferring shares, or by admitting new individuals as members.

These legitimate mechanisms can be abused to provide for long-term control by the successors of the founding members. This might be by giving the founding members three votes for every vote that the other members have, or by giving them initial control of the appointment of directors, and so on. I have seen about a dozen different schemes, including, crucially, ones whose presence need not be publicly acknowledged on Companies House, which doubtless compromises DLUHC's plans for RMC governance.

Often, these schemes to create a "captive" RMC are so successful that they give rise to the existence of a declarable PSC for the company. So that is an additional heuristic for detecting captive RMCs, but the primary consideration is the company's articles. As an aside: if you see the words "three votes" appear in company articles, it's likely a company that is both an RMC, and an RMC with these captive provisions.

I've marked the presence of captive RMC arrangements in the "Originally captive" column of the spreadsheet. Naturally, some of these lapse over time, but often the state of affairs cannot be unilaterally ended by leaseholders. It seems to be the case that Members of Parliament can persuade the controllers of the company (e.g., the company's own managing agent) to hand over control of the company to leaseholders or fleeceholders. If this is widespread, it would suggest that managing agents are more worried about across-the-board legislation against this business practice than they are about retaining any individual captive RMC.

Summary

Of the 100 companies in the random sample of potential RMCs, 9 aren't actually RMCs at all, and 9 more are of unknown status. That leaves 82 RMCs.

Of these 82 RMCs, 17 are both designed as captive RMCs and still have a PSC, 2 of those would have a PSC anyway due to their small size. 37 of the valid RMCs, 45%, were designed as captive RMCs, thus about 54% of those RMCs designed as captives have since transitioned to resident/leaseholder control.

Within the still-captive RMC subset are Residents Management Companies controlled by Barratts (2), Encore, Redrow (2), Persimmon and Bellway. Some of those companies are quite old.

Of the RMCs that were never supposed to be captive, there are still quite a few that have a PSC, though about half of them have PSCs due to being very small, and several others exhibit share allotment irregularities that may be confounding results too.

• Permalink