The prospect of leasehold reform has been bubbling away for some time now. It reached a crescendo last year, with the Leasehold and Freehold Reform Act 2024 receiving royal assent on 24th May 2024, in the “wash up”, before the dissolution of Parliament.
Part IV of the Leasehold and Freehold Reform Act 2024 contains a swathe of significant changes to the law relating to residential service charges and the management of residential leasehold property.
However, none of the provisions have come into force in substance (the power to create Regulations excepted), and much of the detail is yet to be added by secondary legislation.
The Labour Government has expressed its commitment to bringing these changes into force and, on 4th July 2025, published a consultation paper with that in mind, entitled “Strengthening leaseholder protections over charges and services”.
The consultation ends today.
So, what can we expect from these changes? We have provided a summary of some of the key proposed reforms below. Any reference to “landlord” includes RMCs and RTM companies (in accordance with s.30 of the Landlord and Tenant Act 1985).
Standardised Service Charge Demands
By s.55 of LAFRA, there will be a new, prescribed form of service charge demand. If the prescribed form of demand is not used, the service charge comprised in the demand will not be payable.
Leaseholders will also be able to apply to the FTT for an order compelling the landlord to demand service charges in the correct form, within 14 days, and/or an order for damages, up to a maximum of £5,000.
It would also appear, from the consultation paper, that the mechanism for demanding service charges will itself be prescribed, although it is not clear whether this process is to override any contradictory lease terms, or run alongside the lease.
The consultation paper proposes three “types” of demand:
- Initial: at or prior to the beginning of the year, together with a budget, also in a prescribed form.
- Interim: mid-year,
- Reconciliation: following the production of the year-end accounts – as to which, see below.
Proposed draft versions of the three types of demand can be found at Annex B, B2 and B3 of the consultation paper.
Concerns over the reconciliation demand
Concerns have been expressed that the prescribed form of budget that has been proposed (which is basic in its current form) is not sufficiently flexible to take into account the complexities of different types of development, with a variety of different cost schedules. Hopefully those concerns will be considered.
It is proposed that the contents of the initial and interim service charge demands should include the following information:
- Name and address of leaseholder, landlord (whether or not the manager) and the property address.
- The total amount payable for period based on the (prescribed) budget (to be served alongside initial demands).
- Payment details and a deadline for payment.
The consultation paper also proposes that the reconciliation demand should include an explanation of the overspend or underspend and a table comparing the budget with actual costs.
If the new process is to replace existing service charge mechanisms in leases, there will be a concern that (where the lease provides for this – more often than not, it doesn’t) existing powers to demand a “surcharge” or “special levy” for major works that were not anticipated in the budget are lost.
This may be problematic for RMCs and RTM companies that have no way of funding works and services, other than through the service charge money that they collect.
Future Service Charge Demands / Future Demand Notices
By s.54 of LAFRA, there will be a new, prescribed form of section 20B(2) notice (now called a “future demand notice”).
If the prescribed form of future demand notice is not used and the notice does not contain the required information, it will not be valid, and any costs that are incurred more than 18 months after the cost is demanded will not be recoverable.
A proposed draft form of future demand notice can be found at Annex C of the consultation paper.
The notice contains the usual s.20B(2) statement, following by a table, setting out the following information:
- Item of relevant cost
- Estimated cost amount
- Expected contribution
- Expected demand date
If the actual contribution exceeds the estimated contribution, the excess will not be payable; and if the service charge is demanded later than the expected demand date, it won’t be payable unless the date is extended on one of a number of limited grounds (for example, unavoidable delays to major works, or disputes which delay the final bill).
What is an “item of relevant cost”?
Could it be a heading of expenditure – essentially a category of costs, equating to the total of several invoices – or must it be a single invoice, or a series of invoices relating to one service or set of works from a single provider? If it could be any of those perhaps that should be stated.
What does “expected demand date” refer to?
One would assume that the “expected demand date” must be realistic and not, say, a date in 10 years’ time (with a view to avoiding the consequences of being late).
Extended Rights to Obtain Information
By s.57 of LAFRA, leaseholders will be given extended rights to request information.
The consultation paper suggests that leaseholders should be able to request documents from previous years; limited to, say, 6 years.
There will be a time limit to respond to requests. A 28-day time limit is proposed, with the potential to request extensions (of e.g. 7 days) in specific circumstances, such as where it is necessary to obtain documents from others, and information spans many years and multiple agents.
The consultation paper proposes a prescribed list of financial and non-financial information that leaseholders can request:
Building & Site Management:
- FRAs
- PAS9980 reports
- EWS1 certificates [NOTE THAT THIS DOES NOT ENABLE LEASEHOLDER TO REQUIRE L TO OBTAIN ONE]
- Building surveys
- Asbestos survey
- Electrical safety testing reports
- Legionella surveys
- Safety Management Plans
- Planned maintenance plans and programmes
- Specifications & tender documents
- Fire safety & building safety enforcement
- H&S reports and proof of compliance with H&S requirements
- Details about building’s construction
- Information regarding installation of heat networks
Financial:
- Contracts for supply of goods and services (or summary if GDPR concerns)
- Management agreements
- QLTAs
- Invoices & receipts
- Details of reserve / sinking funds
- Buildings insurance claims history
- Summary of costs of previous accounting period
- Budget for major works
- Details of expenditure from reserve
- Copy of previous year’s annual report
- Copy of previous year’s service charge demands
- Copy of the administration charge schedule
There will also be provisions for requests to third parties, and possibly exemptions relating to commercially sensitive information and vexatious requests.
By s.60 of LAFRA, leaseholders are to be given extended powers to request information about insurance. The consultation paper suggests mandatory 30-day response times. A duty to disclose conflicts of interest, and to publish information about how to make a claim, is also recommended.
The proposals to ban insurance commission and replace it with “permitted insurance payments” has been dealt with in a separate consultation paper. The government’s response is awaited.
Concerns over the right to obtain information
This will, undoubtedly, be a concern for managing agents, due to the potential volume and complexity of paperwork, and the cost implications of requests for large amounts of paperwork, potentially spanning up to 6 years, especially if documents are not handed over from a previous agent when a new managing agent take over developments.
Administration Charge Schedules
By s.61 of LAFRA, landlords will be under a duty to publish a prescribed form of administration charge schedule, to be provided alongside the annual report (which is discussed below).
The term “administration charge” is defined in Paragraph 1 of Schedule 11 to the Commonhold and Leasehold Reform Act 2002 and includes (among other things) fees for consents (licences to alter and sublet etc.) and costs and fees that are incurred due to a breach of one or more of the obligations, on the part of leaseholders, contained in leases of dwellings.
The administration charge schedule must specify:
- Fixed or exact costs
- Where the costs are not fixed and the exact cost is not known, the method of calculating the cost.
An administration charge will only be payable if the amount appeared, or was determined in a manner specified, for the “required period” in a published administration charge schedule. The “required period” is the period of 28 days ending with the date of the demand.
Questions around the administration charge schedules
It is unclear whether this will effectively prevent administration charges from being demanded within 28 days of the publishing of an administration charge schedule.
It will be important for landlords and their agents to coordinate with the external professional teams that they instruct to ensure that they have up to date information about their charges.
The landlord may revise an administration charge schedule. If revised, the landlord must publish the revised schedule.
It is also unclear how much information will be required in relation to, say, prospective litigation costs (subject of course to section 62 of LAFRA which is discussed briefly below). Will it be enough to state the hourly rates of the solicitors, legal executives or other members of staff who may be involved? What if new solicitors etc. join the team, or the client wants to change the firm of solicitors that they are using?
A proposed draft prescribed form of administration charge schedule is included in the consultation paper as Annex D.
Aside from rendering the offending administration charges not payable, a tenant can apply to the FTT for an order compelling the landlord to produce an administration charge schedule in 14 days and/or an order for damages of up to £1,000.
Standardised Service Charge Accounts
By s.56 of LAFRA (which inserts s.21D into the Landlord and Tenant Act 1985), a term is implied into the lease that on or before the account date for each accounting period, the landlord must provide the tenant with a written statement of account, in a specified form and manner.
The “account date” is 6 months after the end of the service charge year, specified in the lease; or if no such period is specified, 6 months after the end of the period of 12 months, beginning on 1st April.
The consultation proposes that the written statement of account:
- Is prepared on an accruals basis.
- Contains a balance sheet.
- Contains an income and expenditure account.
- Contains information about sinking / reserve funds.
- Contains information about collection deficits and non-payment.
- Possibly, contains multiple service schedules for complex buildings.
This is unlikely to change a great deal, as most year-end accounts are prepared on this basis.
Due to the statutory implication of terms relating to written statements of account, presumably other lease terms which contradict these new requirements will effectively be overridden.
Reporting standards for service charge accounts
Three potential financial reporting standards are mentioned in the consultation paper, which proposes that the International Standard on Related Services (ISRS) 4400 is adopted.
There may be exemptions for some local authorities, and where the lease requires an audit.
There are likely to be transitional provisions. The consultation paper suggests that:
- If accounting period ended less than 6 months after year end, there should be a 12 month extension to the coming into force of the new rules.
- If accounting period ended more than 6 months after year end, there should be a 6 month extension to the coming into force of the new rules.
Annual Report
By s.56 of LAFRA, which introduces a new s.21E into the Landlord and Tenant Act 1985, the landlord is required to publish an “annual report”, within one month of the end of the accounting period specified in the lease; or, if no period is specified, within one month of the end of the period of 12 months beginning on 1st April.
Until the consultation paper was published, the contents of the “annual report” was largely unknown and a matter of intense speculation.
LAFRA says very little about the “annual report”, save that it is “in respect of service charges” and is to contain information about “other matters which the appropriate authority considers are likely to be of interest to a tenant” (those “other matters” being the subject of secondary legislation).
The consultation paper put an end to that speculation, proposing the contents of the annual report in some detail, and attaching a draft form of annual report at Annex A.
The proposed contents are as follows:
- Key contact details (landlord, agent, fire safety / responsible person, RTA).
- Important lease dates.
- Basic information about the health and condition of the building (including details of previous and planned statutory surveys), information about the building and the cost of maintaining it.
- Administration charges (accompanied by the administration charge schedule).
- Plans for major works for the next two years and whether anticipated costs and covered in whole or in part by reserve fund.
- Complaints handling / handling disputes – where to go if leaseholders are not happy.
- Other information about the year ahead.
- Any statutory proceedings (enfranchisement, RTM) or enforcement action “against the landlord”.
Exemptions for fixed service charges and retirement homes are being considered.
Litigation Costs
A lot has already been written about the proposed changes to the law relating to the recovery of legal costs (and other professional fees) associated with litigation.
The proposal effectively amounts to a reversal of s.20C of the Landlord and Tenant Act 1985 and para.5A of Sch.11 of the Commonhold and Leasehold Reform Act 2002: rather than the onus being on the leaseholder to apply for an order preventing legal and other costs from being recovered as a service or administration charge; the default position will be that (subject to exceptions) litigation costs will not be recoverable unless the landlord applies for an order permitting the recovery of its costs and the court or tribunal grants the order.
In addition, a term will be implied into leases which gives leaseholders the right to apply to a court or tribunal for an order that they are entitled to recover their litigation costs against a landlord.
There is a lot to unpick here, including the meaning of “litigation costs” and whether those costs include pre-action costs. That debate is beyond this briefing note.
The headline from the consultation paper is that there is a proposed exemption for debt claims that are undefended or admitted. If this exemption appears in the secondary legislation, it will be a huge relief to landlords and their agents.
However, other forms of litigation (including contested claims and applications before the FTT, and claims and applications relating to breaches of covenant) remain a concern.
Time will tell whether the exemption for RMCs and RTM companies that was proposed briefly before LAFRA received royal assent will find its way into the secondary legislation.
Digital Information
Somewhat frustratingly (but perhaps understandably), the consultation paper falls short of providing for deemed service by email or other electronic means.
Rather, leaseholders may “opt in” to receiving demands, notices and other communications electronically.
For those that refuse or fail to “opt in”, it seems that paper demands and notices are here to stay (for the time being).
Regulation of Managing Agents
The consultation paper proposes that firms of managing agents and property managers should be required to become members of a designated professional body.
The consultation paper also proposes mandatory qualifications, suggesting:
- Level 4 for property managers (with a “lead in” time of 3 years from the date of coming into force of the legislation).
- Level 3 for more junior members of staff (with a “lead in” time of 2 years from the date of coming into force of the legislation).
- Level 5 qualifications for company directors and senior members of staff (presumably with a longer “lead in” time).
It is anticipated that there will be “regulated activities” that can only be undertaken by qualified individuals, including:
- Day-to-day liaison with clients, including voluntary and Recognised Tenants Associations;
- Managing property disputes and terminations - managing disputes between occupiers, dealing with complaints of noise or other anti-social behaviour in breach of leases, dealing with terminations of contracts;
- Handling statutory requests – for example, dealing with lease extensions or variations, dealing with any breach of covenant;
- Financial obligations – a wide range of functions including opening bank accounts on trust; preparing service charge estimates and budgets; managing service charge monies and reserve funds; collecting service charge and ground rent contributions; collecting arrears; providing copies of relevant financial documents; processing payments;
- Insurance – advising, arranging and/or administering buildings insurance policies and renewals and/or handling associated claims; Instructing the preparation of reinstatement cost protection for insurance valuation purposes;
- Building Management – dealing with repairs, maintenance, renewals and improvements; entering into and managing contracts on behalf of the landlord; complying with statutory requirements (e.g. on major works process); inspections of the common parts and other parts of the building; Engagement with the landlord on management issues;
- Managing fire and health and safety issues – engaging with people qualified to carry out mandatory health and safety and fire safety inspections, and fire risk assessments;
- Providing sales and purchase information – including offering vacant properties for let and dealing with pre-contract sales enquiries;
- Carrying out company secretarial services – including preparing papers for and attending board meetings and Annual General Meetings, maintaining company registers;
- Complying with obligations under the Building Safety Act 2022 (or equivalent future Building Safety legislation in Wales) – engaging with the Accountable Person and other relevant qualified person(s) to ensure relevant documents and procedures are prepared on time (e.g. Building Safety Case, Residents Engagement Strategy, complaints procedure), ensure appropriate surveys are carried out, manage or advise on applications for building assessment certificates, ensure compliance with other relevant obligations.
“Grandparenting” provisions are proposed, which would give individuals with existing qualifications a quicker route to qualification.
There are likely to be exemptions for those who carry out the above activities in the course of carrying out their own regulated activities as solicitors and accountants (such as handling service charge litigation and preparing service charge accounts).
There are likely to be ongoing CPD requirements. 15-20 hours is mentioned, but it must be clear what is being done and not simply a matter of “hitting the numbers”.
Will the regulation of the industry improve standards? Will it also increase costs, and managing agents’ fees? No doubt the answers to those questions will become apparent in the years that follow.
Other Proposed Reforms
A variety of other proposed reforms are discussed in the consultation paper.
These include:
- Mandatory reserve funds and a power to collect contributions towards, and maintain a reserve fund, even if the lease does not contain reserve fund provisions (possibly subject to a simple majority vote of affected leaseholders).
- Changes to s.20 consultation, including:
- Increasing the consultation threshold to £600 per lease for qualifying works and £300 per lease for QLTAs.
- An explicit power to waive the s.20 consultation requirements, likely limited to smaller blocks and with the requirement being for 100% agreement, or a large majority (such as 85% - 90%).
- Prescribing limited grounds for granting dispensation, such as where works are of an emergency nature.
- Protection schemes for service charge funds.
What does the consultation mean for leaseholders?
The consultation marks another important step in the Government’s push to make leasehold ownership more transparent and accountable.
For leaseholders, the reforms promise greater clarity and more say in how their developments are run. For landlords, RMCs, RTM companies and managing agents, they could bring fresh compliance challenges and added costs. Much will depend on the detail of the secondary legislation and how far it takes account of the practical realities of managing different types of buildings.
In the meantime, the current law continues to apply, and both leaseholders and landlords should carry on managing their service charges and obligations as they do now.
At Brethertons, we will be following developments closely and are here to help clients understand what these changes could mean in practice. If you are a leaseholder and would like advice on how these reforms might affect you, contact our leasehold enfranchisement team today.