The Leasehold and Freehold Reform Act should have been a defining moment for leaseholders.
The sector is suffering from a lack of coherent regulation which is leaving homeowners questioning why their service charges continue to increase.
However, in his last act in government, Michael Gove blew a golden opportunity to deliver reforms that could genuinely improve transparency and accountability around the collection and spending of service charges.
According to the government’s own data, the average service charges leaseholders pay is now £3,634, having increased by 41% in the last five years, to its highest ever levels.
Yet, across its two-hundred-plus pages, the Leasehold and Freehold Reform Act does nothing to rectify this.
This presents the new government with an easy win to deliver tangible benefits for leaseholders. However, before this, the new administration must counter lingering misconceptions around service charges that proliferated under the last government.
Firstly, service charge is not exclusive to the leasehold system. All buildings, regardless of tenure, will require residents to contribute to maintenance costs. Despite, what some have been arguing, services charges will not be cheaper under alternatives such as commonhold.
Secondly, service charge is a cost recovery mechanism. This means that if those responsible for collecting service charges, budgets and collects £2,000 but only spends £1,750, they must return the remaining £250 back to leaseholders.
Thirdly, professional freeholders ensure that management responsibilities are not imposed on homeowners, meaning they have the freedom of choice to either take on those responsibilities in their spare time or leave them to a professional.
And finally, leaseholders are able to challenge unreasonable costs through the First Tier Tribunal.
It is clear that to improve standards across the sector effective regulation is required.
This would be straightforward and popular with leaseholders. The Property Ombudsman’s most recent review shows that complaints from leaseholders centre around the issue of service charges, and the Government’s own research published last year also shows that the vast majority of leaseholder concerns centred around the lack of service charge regulation. Unfortunately, instead of addressing this, the previous Government chose to focus on ground rent, which is unrelated to service charge and not a focus for leaseholder concern.
Under effective regulation, professional freeholders can continue to demonstrate their value –procuring services like building insurance at a large scale and delivering commercial, legal and building management expertise – ensuring we have a properly functioning leasehold sector.
With effective regulation, the new government will also maintain consumer choice for residents who prefer the option of having institutional oversight of their homes, enabling both leasehold and commonhold tenures to flourish side by side.
One thing is for certain – leasehold reform will not disappear from the political agenda. The next government must learn from the past mistakes of previous administrations and seize the opportunity to address service charges, and finally deliver meaningful change for the 4.9 million leaseholders across England and Wales.
Mick Platt is a director of the Residential Freehold Association
