The Prime Minister’s unexpected announcement of a general election to take place on 4
July 2024 caused parliament to conduct a final flurry of business in the run up to last
week’s bank holiday weekend. Late on Friday 24th May, the Leasehold and Freehold Reform Act 2024 (LFRA) received Royal Assent.
This was the last Bill passed in the parliamentary session. At the time of the release of this summary, the LFRA 2024 has yet to be published. However, this summary is intended to help our members in understand the Bill, and of course once the Act has been published, further updates will be circulated to members outlining the changes in some further detail and discussing the impact of those changes for members.
We are grateful to Cassandara Zanelli, of Property Management Legal Services for her expertise in providing this summary.
Firstly, it is perhaps also important to flag that although the Act has received Royal
Assent, none of the provisions are yet in force. Certain of the provisions (which are
discussed further below) will come into force two months after the Act is passed into law,
meaning those provisions will become operative by 24 July 2024.
The remaining provisions are subject to commencement under regulations, which will be
introduced in due course. To coin a phrase from American politics, there are still a large
number of “known unknowns”.
Members should rest assured that TPI will be keeping its members up to date with all
developments and will continue our engagement and collaboration with the Department
to influence and shape the forthcoming secondary legislation. We are also working with
industry stakeholders to assist members in implementing the changes that will need to
be made when the time comes (and the regulations are published).
Leasehold and Freehold Reform Act 2024: an overview of key reforms
The LFRA 2024 aims to substantially improve the rights of residential long leaseholders
of houses and flats in England and Wales by:
– Banning the grant of long residential leases of houses unless they are within a
permitted exception.
– Increasing the rights of residential leaseholders regarding service charges, insurance,
administration charges and the provision of sales information on assignment, and
reducing their liability to pay litigation costs.
– Substantively amending the law relating to leasehold enfranchisement and lease
extensions of both houses and flats and extending the right to manage (RTM). Such
amendments include:
- Increasing the standard lease extension term to 990 years for houses and flats (up from 50 years in houses and 90 years in flats);
- Removing the bar preventing leaseholders from taking over the management of a site or buying their freehold if more than 25% of the floor space is non-residential; the limit has now been increased to 50% to enable more leaseholders to access RTM or the right to a collective enfranchisement; and
- Removing the requirement for a leaseholder to have owned their house or flat
for two years before they can extend their lease or buy their freehold.
In addition, the LFRA 2024 regulates estate management charges to provide freeholders
with similar protections to those enjoyed by residential leaseholders. It also requires
landlords and estate management companies who manage property or estates to sign
up to a mandatory redress scheme.
The LFRA 2024 also regulates demands, and amends remedies, for non-payment of
historic rent charges of the type that it has not been possible to create since 22 August
1977.
KEY REFORMS – WHAT MEMBERS NEED TO KNOW
To assist members, we have set out below some of the key areas of the LFRA 2024 which
will affect members and their practice.
Building Safety Act
Part 8 to the LFRA deals with changes made to the Building Safety Act.
Notably, changes have been made to section 123 (which deals with remediation orders)
and section 124 (which deals with remediation contribution orders). In proceedings for a remediation order, the Tribunal will (once the provisions come into force on 24th July 2024) be able to direct a relevant landlord to produce or provide an expert report or survey relating to relevant defects (or potential relevant defects) and the steps taken (or that might be taken) in relation to that relevant defect. Additionally, with remediation contribution orders, section 124 has been expanded and details examples of costs that could be included in any remediation contribution order.
These include costs of obtaining experts reports, costs of temporary accommodation
and costs incurred in taking “relevant steps”.
Relevant steps are steps to:
- Prevent or reduce the likelihood of a fire or collapse of the building occurring as a
result if a relevant defect; - Reducing the severity of such an incident; or
- Preventing or reducing harm to people in or about the building that could result
from such an incident.
Arguably, a remediation contribution order can include the cost of interim measures
designed to mitigate a building safety risk (such as employing a waking watch, upgraded
fire alarms etc).
The above provisions will come into force on 24th July and will apply to any proceedings pending on the day the provisions come into force ( as well as any proceedings brought after that date). The provisions also apply to costs incurred before as well as after the amendments come into force.
The LFRA also amends paragraph 9 to schedule 8 of the BSA. As it stood, paragraph 9
prevented the recovery of legal or professional fees via the service charge mechanism
where such costs related to the liability (or potential liability) of any person in relation to
relevant defects. This was a cause of concern to many lessee-owned and -controlled companies, who were keen to take professional advice but were concerned about the ability to recover those costs.
The amendment makes clarifies that the bar on the recovery of legal and professional
costs at does not apply to RMCs and RTM companies who make an application for a
remediation contribution order. This will no doubt come as welcome news to those
management companies. Again, this provision comes into force on 24th July.
Remedies for rent charge arrears
Rent charges are often considered to be quirky and a little antiquated. Broadley
speaking, there are two different types of rent charge; fixed rent charges and variable
estate rent charges (the latter probably being the most common rent charge that agents
will deal with in developments where owners pay a “maintenance charge” towards the
maintenance of the common parts of an estate.
The LFRA amends the Law of Property Act 1925 in respect of the fixed rent charges (which
it refers to as “regulated rent charges”). As an aside, it has not been possible to create this
type of rent charge since August 1977, and these charges will be expunged in 2037.
The LFRA sets out new requirements in relation to notices that must be served before
action is taken to recover or compel payment of regulated rent charge arrears and
prescribes information that must be set out on any demand and the documentation to
accompany the demand.
These provisions come into force on 24th July 2024.
Whilst these provisions relate to regulated rent charges (and agents may well be more
familiar with variable estate rent charges), the LFRA also deals with the regulation of
estate management.
The provisions relating to the regulation of estate management are not yet in force, and
we have no indication as to when those provisions might be brought into force.
When they come into force, they will regulate estate management charges to provide
freeholders with similar protections to those enjoyed by residential leaseholders. And
will also requires landlords and estate management companies who manage property or
estates to sign up to a mandatory redress scheme.
Some headline points are:
- Estate management charges are only recoverable to the extent that those
charges are reasonably incurred and where they are incurred in the provision of
services or the carrying out of works, only if the services or works are of a
reasonable standard. This mirrors the section 19 protections leaseholders have in
relation to service charges.. - There are consultation requirements, similar to section 20 (with the “appropriate
amount” to be set down by regulations). - There is an 18-month time limit in demanding these costs. This mirrors section
20B. And also a “future demand notice” mirroring section 20B(2). - The Tribunal will have the jurisdiction to determine the payability and
reasonableness of estate management charges, mirroring the current position
under section 27A in relation to service charges. - Demands for payment will need to be in a specified form, and contain specified
information, and be provided in a specified manner. The “specification” will be set
down in regulations. - As with leasehold properties, there will be new duties in relation to annual reports
and accounts. Again, the detail of this will be in regulations.
Service charges
The LFRA also makes changes to service charges and amends the Landlord and Tenant
Act 1985. These provisions are not yet in force.
Here are some of the headline points:
- Demands for payment will need to be in a specified form, and contain specified
information, and be provided in a specified manner. The “specification” will be set
down in regulations. - Section 20B(2) notices (referred to as “future demand notices”) will also need to
be in a specified form, and contain specified information, and be provided in a
specified manner. The “specification” will be set down in regulations. - Service charge accounts. Landlords (which for these purposes includes anyone
entitled to enforce payment of a service charge) will have a duty to provide
service charge accounts. These will include a written statement of account (in a
specified form and manner) setting out the variable service charges payable by
the leaseholder and each connected leaseholder, the relevant costs and any
other specified matters. There must be a written report prepared by a qualified
accountant which is prepared in accordance with specified standards and
containing a statement by the accountant in a specified form and manner (again,
to be set out in regulations). Landlords will have a duty to provide adequate
invoices, receipts, or other documents to the accountant. There will be a 6-month
window to produce the accounts from year end. - Annual reports. Landlords will have a duty to provide “annual reports” to
leaseholders in respect of service charges arising in that period. Regulations will
follow setting out the information to be contained in the report, the form of the
report, and the manner in which the report is to be provided.
There will be a one month window to produce the annual report from year end.
- Right to obtain information on request. Leaseholders will have a right to obtain
information from their landlord on request, about service charges; or services,
repairs, maintenance, insurance, or the management of dwellings. The detail of
this will come in regulations. - Enforcement of duties relating to service charges. Leaseholders will have new
rights to make an application to the Tribunal if a landlord does not demand service
charges as per the new requirements or fails to provide the annual report
(explained above). The Tribunal will have powers to order the landlord to demand
service charges properly, provide the annual report, and make an order that the
landlord pays damages to the leaseholder for the failure. The Tribunal also has a
general power to make any other order they consider consequential. Damages
may not exceed £5000. - Insurance costs. a limitation will be placed on the recovery of insurance costs
where those costs are “excluded costs”. “Permitted insurance payments” will be
allowed, although there is no definition of what a permitted insurance payment is
and it will be specified in regulations which are to come. In the event excluded
costs are charged (referred to as “prohibited amounts”) an application can be
made to the Tribunal. In this kind of application, the Tribunal will have power to
order the return of all (or some) of that amount, together with damages. Damages
payable under this section must equal or exceed the prohibited amount but not
exceed an amount that’s three times the prohibited amount.
Administration charges
- There will be a duty to publish an administration charge schedule, documenting the administration charges that may be payable by the leaseholders. In the event the landlord fails to do so, an application can be made to the Tribunal, and a Tribunal could order damages (up to £1000) to be paid. Litigation costs. New provisions will essentially reverse the current position, so that a landlord’s litigation costs in proceedings are not recoverable as service charges (or administration charges) unless the landlord applies for (and successfully obtains) an order from the Court of Tribunal allowing the landlord to recover those costs. It remains to be seen when the Act is finally published as to whether there will be exceptions to this new rule so far as resident-led organisations are concerned.
- Sales information requests. There will be an obligation on a landlord who receives
a sales information request to provide the leaseholder with any of the information
within its possession. Regulations will follow that will limit the amount that can be
charged for this. This is not an entirely unexpected provision, as there has been
much discussion over recent years about the proposed “cap” to LPE1/FME1 fees.
The detail of this (and timeframe) will come out in the regulations to follow.
We hope this provides a helpful summary and proves useful to help you, your firm and
your clients prepare for the new legislation. TPI will continue to keep members informed
and updated as provisions come into force, and on progress of secondary legislation.
In the meantime, if you have any questions about the LFRA 2024, please email them to
[email protected]
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