Leasehold Reforms - The Proposed Changes To Service Charges

On the 7th of November 2023, King Charles III delivered The King's Speech for the 2023/24 Parliamentary session and confirmed the Government's intention to reform the current Leasehold system through the Leasehold and Freehold Reform Bill ("The Bill"). The speech included plans to make changes to the regulation of leasehold management to improve the consumer rights of leaseholders in England and Wales.

The King stated: "My ministers will bring forward a bill to reform the housing market by making it cheaper and easier for leaseholders to purchase their freehold and tackle the exploitation of millions of homeowners through punitive service charges."

The Bill attempts to place tighter regulations on the management of service charges and create increased transparency over leasehold costs. The Government aims to ensure that tenants have a better understanding of the costs being charged by landlords or managing agents, as well as easy access to service charge information. The implications of these proposals are that a more open stream of information will provide tenants with the opportunity to easily scrutinise and better challenge unreasonable service charge costs.

The Leasehold and Freehold Reform Bill, published in November 2023 sets out the following provisions:

Service Charge demands.

Under the Bill all service charge demands must be:

• in a prescribed form,

• contain specified information, and

• provided to the Tenant in a specified manner.

In order for a landlord to enforce service charge payments they must ensure that the criteria above are met. The Bill further provides that any lease provisions in relation to the non-payment of service charge are effectively unenforceable if demands do not comply with the regulations.

Further details in relation to the prescribed form and specified information and manner is not set out in the Bill but will be covered by separate subsequent regulations made by the Secretary of State.

Annual Reports

Landlords could be under an obligation to provide annual service charge reports every accounting period. The accounting period is to either be a 12-month period agreed between the landlord and tenant or a period of 12 months beginning with the first of April.

Again, separate regulations made by the Secretary of State will detail the information to be contained in the report, the form of the report and the way the report will be provided.

Rights to investigate

Subsequently, Tenants will also be given the right to request service charge information from landlords or managing agents who must comply with those requests. The Bill does not set out what information can be requested or any restrictive time frames in which the information is to be provided. However, subsequent regulations will set out the detail on this.

The Leasehold and Freehold Reform Bill is currently at its second reading at House of Commons, and it remains to be seen when the Government seek to amend the Bill as they have indicated they will and to create the new regulations.

We will continue to track progress of the proposed reforms and the detail of the provisions in the regulations with interest.