The Government proposes to increase the transparency of service charge systems by implementing various parts of LAFRA 2024. This will be done by introducing the following:
1.1 A new mandatory annual report
This new document will have to follow a prescribed format and must be provided within the first month of every annual service charge period. It must contain key contact details for the managing agent, landlord(s), and where relevant, the Resident Management Company, fire safety responsible person, Principal Accountable Person under the Building Safety Act 2022, any Resident Tenants’ Association, and any Right to Manage Company. It would also set out the important lease dates, such as interim service charge demand and financial year-end dates. It will also include basic information about the building’s condition, including details of previous and planned annual statutory surveys, and details of any plans for major works in the next two years and whether anticipated costs are covered in whole or part by a reserve fund. A copy of a schedule of the mandatory administration charges should be clearly set out (see more information at section 1.6), along with details of someone to contact if leaseholders are unhappy with the service charge or have questions. Finally, the report should include information about any formal actions or statutory processes affecting the building, such as enforcement notices, litigation or enfranchisement claims. A mock-up of the proposed annual report is here.
The Government envisages that some properties will be treated differently. For example, they propose that the providers of retirement housing schemes which charge a combination of fixed service charges and event fees should publish a streamlined annual report which includes details of how the event fees work. Similarly, they recognise that a landlord is an intermediate landlord might face difficulties meeting some of the requirements of providing the minimum information proposed in the new annual report if the relevant documentation is held by the head lessor.
1.2 A new standardised service charge demand form
The Government suggests introducing a standardised service charge demand form, which should contain: the name and address of the leaseholder, the landlord and the property for which service charges are payable; the total amount payable for the period based on the budget; the payment details and deadline; the consequences of non-payment; and the details of planned expenditure on maintenance, insurance and management costs for the building. A mock-up of the proposed service charge demand is here.
The consultation asks for feedback on a number of issues including how the costs of compiling the new demands forms and annual reports will affect business and whether (and to what extent) these costs will be passed on to leaseholders.
1.3 A new notice of future service charge demands
Under Section 20B of the Landlord and Tenant Act 1985, a landlord must notify leaseholders of service charge costs being incurred or demanded within 18 months of incurring them. At present, there is no prescribed form for this notice. The consultation proposes to put this right by introducing a new standard form notice that would include the estimated amount of costs incurred; the amount an individual leaseholder is expected to be required to contribute to those cost; and a date on or before which it is expected that the service charge will be demanded. A suggestion of what the demand could look like is here.
1.4 Extended rights to obtain information on request
The consultation argues that leaseholders should have access to key documents about their building at any time. This list of documents would include fire risk assessments, lists of items of expenditure in the service charge as well as documents which deal with the management and maintenance of individual buildings. A list of the suggested documents that leaseholders could require is set out here.
Leaseholders would be able to request these documents in respect of the last six years and that landlords must provide the requested information within 28 calendar days. If the landlord needs to obtain this information from a third party, and the information spans many years and involves multiple agents, the Government is minded to allow an extension of seven extra calendar days should be appropriate. This does not seem like much time in which to obtain historic information, so a transitional regime might be sensible so that information can be compiled in an accessible place from the start of the new regime but there would not be a need to obtain pre-commencement information.
The landlord may charge the leaseholder for making copies, but not for viewing information in person unless copies are made.
Exemptions would only be available for commercially sensitive information or for vexatious requests where a leaseholder repeatedly asks for the same information within a short timeframe.
1.5 Application of proposals to tenants
The Government asks consultees whether social housing tenants of Private Registered Providers and Registered Social Landlords should also receive an annual report and have the right to access specific information.
1.6 A new duty to publish administration charge schedules
Section 61 of LAFRA 2024 introduces a duty on landlords to publish a schedule of the various administration charges that could be levied on leaseholders. The Government has produced a mock-up of such a table here and requests feedback on it.
1.7 Better information about insurance
Currently, section 30A of the Landlord and Tenant Act 1985 allows leaseholders to request a summary of their insurance policy from their landlord and to inspect the insurance documents. Section 60 of LAFRA 2024 places a duty on landlords to provide information about the insurance policy without leaseholders having to request it.
This provision could also help to address the incentive model whereby landlords or property managing agents working on their behalf receive a portion of the building insurance broker’s commission for insurance-related activities. This could incentivise them to choose brokers on the basis of remuneration received rather than best value for the leaseholder. The Government is also considering requiring managing agents and landlords to declare any conflicts of interests with the insurance broker and insurer.
1.8 New standardised service charge accounts
Section 56 of LAFRA 2024 will, when implemented, imply into leases a requirement for landlords who charge variable service charges and manage blocks of four or more dwellings to provide a written statement of accounts within six months of the end of the accounting period. These provisions will not override any terms of a lease which would require more stringent requirements such as a statutory audit. A draft version of the proposed template form accounts is here. The consultation asks for feedback as to whether ISRS 4400 would be the appropriate standard for most leasehold blocks, and there are also questions about who should certify the accounts and in what manner. The consultation also stresses that the Government is keen to understand the cost to business of introducing these measures and, critically, where these costs might fall, including whether and how they might be passed on to leaseholders.
1.9 Rebalancing the litigation costs regime
Despite acknowledging that there are circumstances where landlords should be able to recover their litigation costs from leaseholders, the consultation states that the current regime creates an imbalance whereby the risk of having to pay their landlord’s litigation costs often deters leaseholders from seeking redress in court because the responsibility lies with them to apply to limit their liability for their landlord’s litigation costs under section 20C of the Landlord and Tenant Act 1985.
The Government intends to implement sections 62 and 63 of LAFRA 2024 to limit landlords' rights of landlords to claim litigation costs from tenants, and to provide a new right for leaseholders to apply to the relevant court or tribunal to claim their litigation costs from their landlord. They are interested in the industry's views on how best to achieve a successful rebalance, including in resident-led leasehold buildings.
