Assessing the Government’s current and future plans for leasehold reform

In November, I had the privilege of speaking at a Westminster Legal Policy Forum session focussing on the key issues surrounding the implementation of the Leasehold and Freehold Reform Act 2024 (LAFRA) as well as discussing the likely content of the proposed Leasehold and Commonhold Reform Bill announced in the King’s Speech.

Implementation of LAFRA 2024

A week prior to the Forum, the Housing Minister, Matthew Pennycook MP, acknowledged serious flaws in the current legislation and outlined plans for future consultations on specific provisions.

The RFA and its members have long argued that for LAFRA to deliver for leaseholders, it must properly address the number one concern of leaseholders – rising service charge.

LAFRA’s current provisions – including annual reports, written statements of account, and prescribed forms – may satisfy some leaseholders. However, a substantial majority remain far more concerned about escalating service charges and the lack of mechanisms to mitigate these costs.

Last year, The Property Institute (TPI) produced the Service Charge Index, an analysis of service charge from 2019 – 2024 detailing service charge increases and reasons for those increases. These included building insurance, utilities and professional fees, largely due to high inflation following the pandemic and the global energy crisis.

Clearly these factors are out of the control of a freeholder, RMC RTM and Commonhold Association. Therefore, the costs would not change by moving to another form of tenure – such as commonhold – and it’s also not clear how the current provisions in the Act will tackle rising service charge.

So how does the Government tackle rising service charges?

As Chair of the Residential Freehold Association’s Leasehold Reform Subcommittee, I  support additional regulation of property managers recommended to government by Lord Best in 2019 as Chair of the Regulation of Property Agents Working Group (RoPA), as a way of providing further protections to homeowners.

Proper regulation should seek to:

• Ensure robust procurement practices.
• Improve the accuracy of service charge estimates and year-end accounts.
• Provide leaseholders with greater transparency about the services they are funding.

In addition to regulating managing agents, the construction industry must also be held accountable for developing buildings that are not fit for purpose. Proper regulation of this sector is essential to prevent another building safety crisis.

The RFA believes that these combined measures are critical to addressing the issue of rising service charges.

The likely content of the proposed Bill

Turning to the Draft Leasehold and Commonhold Reform Bill, it is important to address Labour’s prior advocacy for abolishing the leasehold system entirely.

The RFA strongly cautions against assuming that abolishing leasehold would resolve issues such as rising service charges, block management challenges, or building safety concerns. On the contrary, such a move would exacerbate these problems.

The Government must avoid the mistakes of its predecessors and ensure that any new legislation refrains from retrospectively undermining those who have invested in the sector in good faith, most notably pension funds.

Extensive research, including studies conducted by the previous Government, shows a majority of leaseholders hold positive or neutral views towards the leasehold system and that a majority do not support the removal of leasehold as a choice of tenure, underscoring the importance of leveraging the expertise of professional freeholders.  And those leaseholders who do take an active role may change their mind or move on – building profiles change all the time – so there must be a viable option to full back on. 

A Collaborative Path Forward

The RFA remains committed to working with the Government and industry stakeholders to implement measures that will deliver meaningful benefits for leaseholders.  With careful planning, balanced legislation, and a collaborative approach, we can create a more transparent framework that meets the needs of leaseholders whilst respecting property rights of industry stakeholders.