The Ministry of Housing Communities & Local Government has recently run a consultation on 'strengthening leaseholder protections over charges and services'. The consultation, which has now closed, sought views on new proposals for reform around service charges - what leaseholders pay, and the services received but what did it actually propose?
Who did the consultation affect?
References to "landlords" in the consultation includes freeholders, landlords of intermediate leases, Resident Management Companies (RMCs) and Right to Manage Companies (RTMs). "Leaseholder" means anybody "owning house or flats who are liable to pay a service charge".
It is split into three parts as follows:
(1) Implementing aspects of Part 4 of the Leasehold & Reform Act 2024 (LAFRA) through secondary legislation
One of the aims of the consultation is to improve the amount and type of information leaseholders receive. It proposes that landlords should provide a standardised service charge demand, an annual report, a standardised interim service charge demand for the remaining costs for that year (to be provided at 6 months into the year), a full and accredited financial statement of accounts and further information as prescribed but with enhanced rights to request information on demand. It further notes that it is not intended that landlords be unduly burdened, and that additional costs of provision of this information should be reasonable, particularly as the costs will likely be borne by the leaseholders.
(2) New additional service charge reforms
This part focuses on proposed reforms of the major works regime, including section 20 consultation and the requirement to implement an asset maintenance plan (AMP) in order to link reserve funds to major works to provide additional transparency, reducing the consultation period whilst also increasing the level at which consultation is required.
(3) Qualification of managing agents
The third part of the consultation proposes the introduction of mandatory professional qualifications for managing agents in England. Agents must currently belong to a government approved redress scheme – either The Property Ombudsman or the Property Redress. This is proposed to be extended to agents who work solely on behalf of estate management companies on freehold estates.
What views were sought?
Of particular note, the consultation discusses several proposed significant changes to the current leasehold regime. These include:
- Standardised demands, accounts and forms of information
It also proposes to implement a standardised form of consultation notice.
- Increasing transparency and information provided to leaseholders
Landlords will be required to provide a new annual report to leaseholders that includes information such as (a) key contact details (b) important lease dates (such as service charge demand dates and financial year-end dates), (c) basic information about the building's health and condition (d) administration charges (e) major works (f) handling disputes and (g) details of formal actions or statutory processes affecting the building.
Leaseholders will have extended rights to obtain information on request – this will vary the current process for requesting a summary under section 21 of the Landlord & Tenant Act 1985. The information proposed to be provided is set out at Table 1 at paragraph 76(i) of the consultation, with leaseholders able to request information for the previous six years.
- Exclusion of the changes
It is proposed that there be an exclusion in relation to tenants – notably social housing tenants – who pay a service charge. The consultation considers:
- Whether the same form of standardised service charge demand should apply to tenants.
- The use of a simplified annual report.
- The proposed use of a bespoke list of prescribed information to be given to tenants, rather than the extended rights to obtain information on request.
- Whether the schedule should be provided on request as well as part of the annual report.
- Electronic provision of information
Landlords will in certain circumstances be able to issue information or demands via email, where the leaseholder has "opted in" to receive electronic communications.
- Litigation Costs
The consultation considers whether there ought to be any exemptions to the requirement to apply to the Court or Tribunal to recover litigation costs as an administration charge where a landlord has issued a debt claim in the civil Court in instances where the claim is either admitted or not defended.
It also considers whether any application to recover litigation costs on resident-led management should be suspended until a specified time or event – notably to allow the application to be made at the same time as the initial substantive claim or application, with an ability to stay this pending an appeal.
With respect to the provision of the leaseholders' right to apply for their costs, the consultation sets out, at Tables 2 and 3, a list of types of cases proposed to be included. The proposals are broadly in line with cases where a landlord can currently recover costs under a contractual costs clause in a lease
- Consultation process
The following is proposed for the consultation process:
- The threshold for major works is to be changed to £600 for major works, and £300 for qualifying long-term agreements.
- Exclusions from the regime are proposed – particularly energy contracts and single utility providers – but with provisions of appropriate levels of transparency about the contracts entered into, including details of providers approached and quotes obtained, details of the contractors, total cost and length of agreement and disclosure of any connection to the landlord and any broker or provider.
- Implementing a use of standardised forms and shortening the consultation period to 21 days from the current 30 days, requiring works to start within 12 months of the end of the consultation period.
- As head landlords are required to consult with sub-tenants, placing an obligation on the intermediate landlord to inform the head landlord at the outset and each time there is a change in ownership of a flat.
- In terms of dispensation, proposals for the process to make it clear that the FTT must consider the extent to which the landlord tried to formally consult leaseholders when deciding whether to grant dispensation, set clear grounds for when dispensation is justified (e.g. emergency works), and an exemption from seeking dispensation if there is a sufficient number of leaseholders and the landlords agrees that a consultation is not necessary, but that it must take place in advance of works being commenced, with a high threshold of 80-85% leaseholder agreement, with the landlord to prepare a prescribed consent document.
- Protections for leaseholders paying fixed service charges
The current proposal is to increase information for those who pay fixed service charges, but there is a suggestion to go further and entitle fixed service charge payers to challenge their reasonableness.
- Power to appoint a manager or replace a managing agent
Proposals include:
- Simplifying the preliminary notice.
- Expanding the grounds for challenge under section 24 of the Landlord & Tenant Act 1987 – such as persistent non-compliance with the new obligations proposed in the consultation – and the power for the Tribunal to deal with less egregious matters.
- Allowing an automatic renewal of an order in certain circumstances.
- With respect to a managing agent, allowing leaseholders the right to veto (by a majority) the proposed agent, or give leaseholders a right to require the landlord to change managing agents within a specified time period, with a process to be specified.
- Qualification of managing agents:
The Consultation proposed a requirement for managing agents to obtain certain levels of qualifications, depending upon the complexity of the functions performed, with a requirement for continuing professional development.
Two options were proposed for implementation and enforcement:- Implementation led by designated professional bodies, supported by local authority enforcement (this being the preferred option).
- Give government-approved redress schemes a role in the implementation of mandatory qualifications, supported by local authority enforcement.
Next steps
There is no commitment as to when Part 4 of LAFRA will be brought into force, but the Government has repeatedly stated its intention to do so during its term.
The Government is currently analysing the feedback from the consultation.
If the proposals are implemented, they will require landlords, RMCs, RTMs and agents to invest significant time and resources into ensuring compliance with the reforms. Affected parties should therefore ensure that they keep appraised of the position and commence early planning to ensure that all necessary systems can be put into place ahead of any changes.
