The cost of living remains a pressing concern for leaseholders across England and Wales. In addition to managing the costs of household bills and other essentials, many are struggling to cope with the additional financial strain placed on them by high and rising service charges that are all too often opaque in nature.
With a view to better protecting leaseholders, I am pleased to announce that the Government have launched a wide-ranging consultation on proposals to hold landlords and managing agents to account for the services they provide and the charges and fees they levy.
At the heart of the consultation are the measures contained in the Leasehold and Freehold Reform Act 2024 to improve fairness and transparency in the calculation and presentation of service charge demands. Once enacted, these will ensure that all leaseholders are issued with standard service charge documentation in a form that provides clear, detailed information about how their service charges are calculated and spent. The result will be service charges that are more easily challengeable at the appropriate tribunal if leaseholders consider them to be unreasonable.
Through the consultation, we are also seeking views on the measures contained in the Leasehold and Freehold Reform Act 2024 relating to landlords’ legal costs. By addressing the unreasonable practice where landlords are able to recover their litigation costs from leaseholders regardless of the outcome of a legal challenge, we intend to reduce existing barriers to justified challenges against poor practice.
We are also acutely aware of the ongoing impact of opaque and substantial building insurance commissions recovered from leaseholders through service charges. As part of the remediation acceleration plan announcement last December, the Government launched a public consultation on measures to prevent the imposition of such charges. It closed in February and we intend to set out next steps in due course.
Improving the fairness and transparency of service charges and rebalancing the legal costs regime will significantly strengthen leaseholder consumer rights, but we are using the consultation to seek views on proposals that extend beyond those reforms to the leasehold system already in statute as a result of the Leasehold and Freehold Reform Act 2024.
Specifically, we are inviting views on reform of the section 20 process that leaseholders must go through when a landlord wants to carry out “major works” funded by a service charge. We know that one-off, unexpected, and often very large bills for major works can place huge financial strain on leaseholders. Far too many receive little or no notice about such works and so have little time to obtain sufficient funds.
It is not in dispute that buildings must be properly maintained, but major works, such as repairing a roof or replacing a lift, should be properly planned for, with leaseholders as far as possible kept fully informed. The current system does not work for anyone, whether leaseholders, managing agents or landlords, and we are seeking views on how we can improve it to make it fit for purpose.
Through this consultation, we are also taking initial steps to strengthen the regulation of managing agents by introducing mandatory professional qualifications that will set a new basic standard that managing agents will be required to meet.
Managing agents play a key role in the maintenance of multi-occupancy buildings and freehold estates, and their importance will only increase as commonhold becomes the default tenure and existing leaseholders are empowered to exercise their right to manage, collectively enfranchise, or to convert to commonhold.
While we know that there is good practice in the sector, far too many leaseholders and residential freeholders suffer abuse and poor service at the hands of unscrupulous managing agents. While further reform will be necessary to drive up the standard of service provided by managing agents and ensure they are made more accountable to leaseholders, the introduction of mandatory qualifications in England is an important first step to ensuring all agents have the knowledge and skills they need to do their jobs effectively.
The consultation also explores other ways in which the regulation of managing agents could be strengthened, including specific interventions recommended in the final report of the regulation of property agents working group chaired by Lord Best, such as giving leaseholders the power to switch and veto managing agents. We will continue to reflect on the various other recommendations made in the 2019 report.
Taken together, the various proposals outlined in the consultation will provide existing leaseholders with far greater rights and protections and will empower them to challenge poor practice and unreasonable charge and fees.
Given the complexity of property law and the wide variation of leases across millions of homes, it is important that we engage extensively through the consultation to ensure the smooth implementation of the proposals in question. As such, we want to hear from leaseholders themselves as well as all those involved in managing leasehold buildings.
Following the consultation, we intend to bring the various measures into force as quickly as possible. We also remain firmly committed to commencing the remaining provisions in the Leasehold and Freehold Reform Act 2024 and to progressing the wider set of reforms necessary to end the feudal leasehold system for good, as set out in the written ministerial statement of 21 November 2024.
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