The Leasehold and Freehold Reform Act 2024 – Part 4
Regulation of Leasehold
We continue with our series of bulletins in which we consider each of the different ‘parts’ of The Leasehold and Freehold Reform Act 2024 (LAFRA). We now look at ‘Part 4’ which deals with the Regulation of Leasehold.
Part 4 introduces an array of changes to the Landlord and Tenant Act 1985 (the 1985 Act), aimed at providing greater transparency for leaseholders and additional routes for enforcing accountability of landlords.
Service charge demands and accounts
The reforms introduced in LAFRA Part 4 will create more transparency and regulation of service charges. Much of the detail is awaited and will be provided by secondary legislation.
The Act introduces a new service charge definition and, as a result, some of the regulation contained in the 1985 Act will apply to fixed service charges.
A new prescribed form for service charge demands will standardise the documents used and remove the need to serve a separate summary of rights and obligations.
Part 4 creates a new requirement for landlords to produce an annual report which will again be in a prescribed form. This must be provided to all tenants within one month of the end of the accounting period. Although the detail of the form is still not known, hopefully this will be forward thinking rather than looking at the costs from the previous year because, at that stage, the actual costs would not be known.
Part 4 also introduces statutory obligations on the landlord in relation to service charge accounts. In cases where a variable service charge is payable and relevant costs relate to four or more dwellings, there is now a statutory obligation to provide a written statement of account within six months of the end of the accounting period. This statement of account will need to include a qualified accountant’s certification that it is a true representation of the account.
Leaseholder rights to inspection
The leaseholders current right to request a summary of costs and to inspect supporting documents under sections 21 to 23 of the 1985 Act is to be extended. Secondary legislation will provide new details of how to make these requests, the timeline for a response and exceptions to the provision of documents. This is likely to make information more accessible to leaseholders.
Enforcement
Alongside the above changes, LAFRA introduces new provisions for the enforcement in relation to some of the requirements of Part 4, with the aim of providing landlord accountability. Should a landlord fail to comply with the provisions relating to service charge demands, the annual reports or requests for information, a leaseholder may apply to the First-tier Tribunal (Property Chamber) (FTT) for an order that:
- The landlord complies with the relevant requirement within 14 days;
- The landlord pays damages up to £5000; and
- Any other order that the Judge may see fit.
Insurance
A new provision included in Part 4 removes the ability of a landlord to recover insurance commissions. Instead, these will be replaced by an ‘insurance handling fee’, which will be treated in the same way as other service charge costs; based on work undertaken and time spent. This feature is to increase the transparency of payable fees.
Where an insurance commission is charged where it should not be, or where the correct process is not followed, the FTT will have jurisdiction to order the return of the prohibited commission charge and to award damages in the sum of one to three times the amount of the commission charged.
Administration charge schedule
Part 4 also introduces a duty for landlords to publish an administration charge schedule to each leaseholder and to provide an updated version each time it is changed. The form of this schedule is yet to be published, but the schedule will need to outline the admin charges payable or alternatively the method by which any such charges will be calculated.
Again, Part 4 reinforces this duty by creating the ability for leaseholders to apply to the FTT where a landlord has failed to comply with this duty. The FTT has jurisdiction to order the schedule to be provided within 14 days and for damages of up to £1000.
Costs
Currently, provided the lease allows it, a landlord may seek to recover its legal costs of dealing with proceedings, through the service charge. It is then for the leaseholder to make an application to the FTT under Section 20C (1985 Act) to prevent a landlord from doing so. Part 4 effectively reverses this position and, instead, a landlord will be required to make an application to the FTT to allow them to recover costs through the service charge and without this order they will not be able to do so. The FTT may grant such an order if it is ‘just and reasonable’ to do so.
Additionally, a new right will be created for leaseholders to allow them to recover their litigation costs from the landlord, again where the FTT considers it ‘just and reasonable’ to do so.
While the detail of the changes to be introduced by Part 4 is awaited through secondary legislation, the impact of these changes is clear; to create further standardisation to ensure clarity and transparency for leaseholders. LAFRA provides leaseholders with additional routes to hold landlords accountable.
While these changes do impose additional and/or altered responsibilities on the landlord, it is hoped that further standardisation will provide clarity for leaseholders and landlords alike.
If you would like to discuss any leasehold issues, please request a free initial consultation with one of our experts, Lynn James, Gabrielle Roberts or Tara Moseley.
Article written by Bryn Hughes Jeffries
Other articles in this series:
Part 1 – Ban on leasehold houses
Part 2 – Lease enfranchisement and extension
Part 3 – Other rights of long leaseholders
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