Millions of leaseholders will receive stronger rights, powers and protections to better challenge extortionate service charges thanks to major reforms to the feudal leasehold system.
Leaseholders are required to pay a service charge to cover the upkeep of shared areas in their building, however in too many cases they are left facing very unclear and unaffordable fees.
By switching on measures in the Leasehold and Freehold Reform Act 2024, almost five million leaseholders in England and Wales will receive the transparency they need to hold their landlords to account and easily challenge these costs.
Leaseholders will receive standardised service charge documentation, which will spell out clear and detailed information about how their service charges are calculated and spent.
The aim is to make it easier for them to challenge unreasonable bills and potentially save money where expenses are unjustified, with further reforms to stop them having to automatically pay for landlords’ litigation costs even where they have won their case.
Housing and planning minister, Matthew Pennycook, said: “The cost of living remains a pressing concern for leaseholders and many are struggling financially as a result of high and rising service charges, and other opaque and excessive leasehold costs.
“This bold package of reforms will arm leaseholders with greater rights and protections and empower them to challenge poor practice and unreasonable charges and fees – driving up leaseholder living standards as we work to bring the feudal leasehold system to an end as part of our Plan for Change.”
RICS Chief Executive, Justin Young, commented: “The announcement is an important step forward in raising standards and improving transparency in the leasehold sector. Accountability and professionalism in property management is essential to give leaseholders confidence.
“Mandatory qualifications for managing agents will help to achieve this.
“We fully support the government’s ambition to deliver meaningful, proportionate reform that has lasting benefit for consumers. The consultation recognises that professional bodies play a critical role in delivering trust and confidence. RICS’ work seeks to ensure the highest level of professionalism across our membership – and around 30% of leasehold properties are managed by an RICS Regulated Firm.
“Qualifications alone, however, are only part of the solution. RICS looks forward to working with MHCLG to achieve their vision, drawing on our deep regulatory experience and existing infrastructure.”
The Property Institute chief executive, Andrew Bulmer, remarked: “We welcome this wide-reaching consultation which seeks to improve the lives of residents in shared buildings.
“Measures to improve the transparency of service charges will empower residents with useful information on costs, while mandatory qualifications for property managers are vital to improve standards and ensure residents get the level of service they deserve.
“The Property Institute looks forward to playing our part in this essential mission towards a fairer, better and more transparent residential property sector.”
Demands for service charges are currently only required by law to include a limited amount of details, which can leave leaseholders in the dark over what services or works make up their bill.
This can leave leaseholders at risk of being overcharged for poor quality work, or out of pocket for work that has not been carried out in some of the worst cases, on top of existing cost of living pressures.
The government is now pushing ahead to implement these reforms and is consulting over the best way forward to ensure they are robust, workable and protect leaseholders effectively.
Queries about service charges accounted for one in three of all enquiries to the Leasehold Advisory Service (LEASE) last year, showing the need for the government to act and drive-up transparency.
Further reforms – in addition to measures in the Act – will see the Section 20 ‘major works’ process improved to ensure leaseholders are not hit by one-off, unexpected and very large bills with little or no notice as is the case currently. LEASE will shortly be publishing an insight report into the challenges currently experienced by leaseholders going through this process.
Other measures will give leaseholders the power to demand a switch or veto a landlord’s choice of managing agent and introduce mandatory qualifications for the role to stamp out bad practice in line with Lord Best’s 2019 recommendations. This reform will ensure all managing agents have the knowledge and skills they need to do their jobs effectively, and put an end to leaseholders and residential freeholders suffering abuse and poor service.
The government says these reforms will help drive up living standards in our Plan for Change and complement work to bring the feudal leasehold system to an end and make commonhold the default for new flats, ahead of publication of a draft Leasehold and Commonhold Reform Bill later this year.
Natalie Chambers, director of the RFA, commented: “We welcome the significant steps taken by government to address longstanding calls from the RFA, leaseholders and wider industry to raise managing agent standards through proper statutory regulation.
“Reforms that improve service charge transparency will help to bring about better accountability and understanding for residents whatever the tenure of a building.
“The government must however be mindful of any reforms which will add unwanted costs for leaseholders. This includes sweeping reforms to the insurance regime and cost recovery mechanisms, which are designed to support the effective long-term management of buildings on behalf of all residents.”
“We look forward to collaborating with government to ensure these reforms deliver a positive outcome for all.”
Timothy Douglas, head of policy and campaigns at Propertymark, added: “Propertymark has long campaigned for reform of the leasehold system, including reducing costs and improving transparency to support agents and protect consumers. Proposals for new standardised service charge demand forms are welcome, but the reforms should go further. It must include implementation of a code of practice and disclosure document concerning event fees in specialist retirement developments as drafted by the Law Commission in March 2017.
“We continue to engage constructively with the UK government on measures to introduce mandatory qualifications for managing agents. It is vital that professional bodies, continued professional development and a code of practice are utilised as part of the plans. We must also ensure that any proposals involve mandatory qualification requirements for sales and letting agents to drive up standards and protect consumers when buying, selling and renting homes regardless of tenure, whilst also forming an integrated blueprint for regulatory reform across the property sector.”
Key points being consulted on:
+ Better service charge transparency, including new standardised service charge demand forms, annual reports, service charge accounts and administration charges
+ Improving buildings insurance transparency, including what information should be provided to leaseholders, so they have assurance they are getting fair value and are better able to challenge any unreasonable insurance charges
+ Rebalancing the litigation costs regime and removing barriers for leaseholders to challenge their landlord
+ Reforming the section 20 ‘major works’ procedure that leaseholders must go through when they face large bills for such works
+ Considering the case for greater protections for leaseholders paying fixed service charges, protections for client money, or improvements to the process for appointing a manager in cases of serious management failure
+ Opportunities to encourage the provision of information and services digitally to be more accessible and reduce costs, but also ensuring safeguards so that all leaseholders receive the information they need
+ Introducing mandatory qualifications for managing agents to ensure that all agents have the knowledge and skills they need to provide a good service for leaseholders.
