Leaseholders given new powers to challenge service charges

Leaseholders in England are being given new rights to see and challenge service charges, as part of new plans announced this week.

More than three million leaseholders will benefit according to the Ministry of Housing, Communities and Local Government (MHCLG), with the reforms to be phased in between April 2027 and November 2028. 

The changes are part of the Leasehold and Freehold Reform Act 2024, but are only part of the Government’s plans for reforming the rights of leaseholders.

What is a service charge?

A service charge is the fee leaseholders pay towards the upkeep of their building and the areas they share with neighbours. Typical costs include cleaning communal areas, maintaining lifts, repairing the roof and insuring the building. 

As these costs are managed by the freeholder, it means leaseholders often pay towards costs they do not directly control. 

Why is the legislation being introduced?

The Government says the reforms aim to give leaseholders a clearer view of what they are paying for and why.

The reforms do not cap service charges, so freeholders can still recover the cost of managing the property. However greater transparency about how the charge is calculated should help leaseholders to effectively identify any unfair charges and take action where needed.

Key dates

The changes will be introduced in three stages. 

From 1st April 2027 

• Access to information: Leaseholders will have a legal right to request information about their service charges, including historic charges from previous years.  
• Legal costs: Freeholders will no longer be able to pass their legal costs on to leaseholders automatically. Leaseholders will also gain a route to apply to recover their own legal costs in appropriate cases. 

Currently, leaseholders who challenge a charge can risk paying their landlord’s legal bill, even if they win. The Government says removing this risk will make it easier to dispute costs they believe are unreasonable. 

From 1st November 2027 

• Clearer information as standard: Leaseholders will automatically receive clearer information as freeholders must provide service charge demands in a standardised format. They will also have to provide simpler annual reports and financial records, as well as details of administrative charges and how they are calculated.
• Insurance and management fees: The freeholder must provide detailed information about building insurance products they choose within 60 days of entering into a contract. Alongside information about the cost and coverage of the product, the freeholder must declare if there is any connection between the insurance provider and themselves, and provide a summary of the key benefits of the product.  

Leaseholders of councils and housing associations will benefit from the insurance and administration charge changes from the same date. 

From 1st November 2028 

Councils and housing association who are freeholders will also have to provide the same information, but the Government has given them an extra 12 months to prepare.

Wider leasehold reform

The Government is pressing ahead with more leasehold reforms and it seems that it is a primary focus for much of next year.

Remediation of Unsafe Cladding Bill

The Remediation of Unsafe Cladding Bill is making its way through Parliament at the moment. This Bill is particularly important for private landlords with portfolios as many of them are ‘non-qualifying leaseholders’ who do not have the same protections from cladding costs.  

A non-qualifying lease is one which was owned by someone with more than three properties on 14 February 2022 who did not use the property as their main home.  

Currently, this non-qualifying status continues to apply, even if someone else buys the property later on. Making it challenging to sell a property while also putting significant costs on to the owner.  

The Government aims to rectify this somewhat with this Bill. It does this by: 

• Only applying non-qualifying status to landlords with more than six properties; and  
• Removing non-qualifying status when it is sold to someone using it as their only home.

The Commonhold and Leasehold Reform Bill

The Government has also said it will introduce the Commonhold and Leasehold Reform Bill in Parliament before Christmas. It is expected to: 

• Cap existing ground rents at £250 a year. 
• Make it easier for existing leaseholders to move to commonhold. 
• Make a revised commonhold model the default for most new flats. 
• Replace the current forfeiture system. 

Many of you are likely to be affected by these changes and we will keep you up to date as they progress through Parliament.