The Government is progressing with an initiative to reform a leasehold ownership system as it is currently considered to be unfairly weighted in landlords’ favour.
Earlier this month, an open consultation was released named “Strengthening leaseholder protections over charges and services”. The consultation is seeking views on the Government’s proposals to implement further provisions to the Leasehold and Freehold Reform Act 2024 (“LFRA 2024”) and to bring in further measures to protect tenants from disproportionate financial burdens.
One of the main aims of LFRA 2004 was to “standardise and increase the transparency” of service charges. The Government considers that the current service charge system “does not work for anyone”, particularly when dealing with major works. The Government is therefore looking to implement several measures, including the following:
- Annual Report Landlords will be required to provide an annual report to tenants setting out what is being paid for via the service charge along with key information for the year ahead, including advanced notice of major works.
- Service Charge Demand Form A standardised service charge demand form will have a minimum level of detail that must be provided to tenants including: an annual budget (divided into heads of expenditure such as insurance costs, maintenance and health and safety), details of the amount payable by the tenant and any deadlines for payment.
- Request for Information The LFRA 2024 lists information that landlords must make available, within 28 days of request, for tenants to inspect, which includes: surveys, reports that details the safety and plans for maintenance of the building, information evidencing the financial management of the building, the service charge and the buildings insurance. The Government are keen to limit the types of information which landlords don’t have to provide to: (i) commercially sensitive information and (ii) vexatious requests on the part of the tenant.
- Insurance Policy Insurance policy charges should not be inflated due to commissions paid to brokers and/or passed to landlords which relate to the placing of insurance. LFRA 2024 requires landlords to proactively provide information regarding their insurance policy to leaseholders. The Financial Conduct Authority has also issued some regulatory changes to brokers and insurers which establish a minimum level of information that must be provided.
- Legal Fees The Government has concerns that the existing costs regime (landlords recovering their legal costs from tenants via service charge) deters tenants from bringing claims as they may be concerned at the level of the landlord’s costs that they could be ordered to pay. The Government intends to address the imbalance and enable tenants to recover their costs from the landlord by applying to court.
- Reserve funds The Government is considering making the use of a reserve fund mandatory to cover the cost of major works planned in the future. A balance would need to be struck between the benefit of having a reserve fund to avoid tenants receiving huge bills for items of infrastructure and the fact that contributing to a reserve fund will increase tenants’ upfront service charge costs. Legislative changes are expected to allow for an easier route of lease variation to include obligations on the parties relating to the maintenance and management of a reserve fund.
- Appointment of Managing Agents The consultation expresses concern around the limited rights tenants have to express their opinion over the appointment of a managing agents. Proposals have been made in the consultation for tenants to be able to veto the appointment of a managing agent or request the replacement of an existing managing agent when there has been a significant failure on the managing agent’s part.
- Professional Body for Managing Agents With the aim of bettering the standard of managing agents, it is proposed that new statutory requirements are put in place requiring all individual managing agents and firms to join a designated professional body which can only be joined once a minimum qualification has been passed.
A draft Leasehold and Commonhold Reform Bill is expected to be issued by the consultation’s executive later this year. This will outline the new framework for commonhold ownership but will also include numerous other reforms to the leasehold system. We expect some of the reforms will include the eight points listed above. The consultation is open for comments until 26 September 2025 at which point the Government will start the new leasehold and commonhold ownership rules.
Contact details
eleanor.tordoff@tyrlaw.co.uk +44(0)7908 190547 +44(0)113 322 8240
