Property Litigation and the Leasehold and Freehold Reform Act 2024 (“the LAFRA”)

Continuing our series of updates on the LAFRA, we now turn to the LAFRA provisions in relation to service charges, estate management fees and the Building Safety Act.

Overview

The LAFRA was passed and obtained Royal Assent on 24th May 2024. The Act was passed at around 7:30pm before parliament was prorogued just few hours later. Whilst there have been questions over whether the Act was somewhat rushed through at the last minute, as the Act has been passed, we must take careful consideration of the changing law.

We set out some of the key parts of the Act which relate to service charges and estate management fees. Please note that this is not an exhaustive list of changes brought in by the new Act, and a lot of provisions will still need to be set out more fully in secondary legislation.

Service Charges

The Act extends the protections in the Landlord and Tenant Act 1985 to include fixed service charges which need to be accompanied by the tenant’s summary of rights and obligations.
Amendment to the definition of services charges (with reference to section 18 of the Landlord and Tenant Act 1985) with the new definition being “an amount payable by a tenant which is payable, directly or indirectly, for the purposes of meeting, or contributing towards relevant costs”.
Section 20B(2) notices to include specific content (such as the leaseholder’s proportion of costs and an estimated date for when the costs will be demanded as a service charge) must follow a prescribed form, to be detailed in secondary legislation.
Service charge demands to contain specified content and follow a prescribed form, to be detailed in secondary legislation.
Landlords must provide annual reports on other matters deemed of interest to tenants, whether or not they directly relate to service charges. This requirement will also be detailed in secondary legislation.
Landlords can recover a “fair and reasonable” contribution towards the costs incurred in producing the annual accounts.
It will be an implied term of the lease that a tenant must pay towards specified permitted insurance costs, to be detailed in secondary legislation.
Insurance commissions will be banned from inclusion within the service charge.
Landlords will not be entitled to pass on costs of Court or Tribunal proceedings via service charge, unless just and equitable to do so.

Estate Management Charges

The Act includes protections and limitations for freehold house owners who contribute towards the cost of maintaining common areas: “Estate Management Charges”.
Estate Management Charges means costs which are incurred by an estate manager in carrying out estate management for the benefit of the dwelling or for the benefit of the dwelling and other dwellings. Note that service charges are excluded from this provision.
The Estate Management Charges must be reasonably incurred and reasonable in amount.
There are consultation requirements, to be detailed in secondary legislation. An application can be made to the appropriate Tribunal to dispense with the consultation requirements.
The First-tier Tribunal will have the jurisdiction to determine the reasonableness of Estate Management Charges.
New regulations will also apply to administration charges, to be detailed in secondary legislation.

Key Dates

Whilst the Act has been passed, it is important to note that it is not yet in force. The key dates to be aware of are:

1. 24 July 2024 – The following parts of the Act will come into force:

a. the provisions regulating enforcement of, and remedies for, rentcharges (section 113 of the Act). This relates to an income-supporting rentcharge which is generally an annual sum paid by a freeholder owner to a third party who has no other interest in the property. The majority of such properties are located in the north-west and south-west of England. The rentcharges are usually a relatively small sum, however failure to pay can have serious (and arguably disproportionate) consequences. The Act seeks to introduce protective measures, including notification requirements, before further action is taken;

b. recovery of legal costs through service charges (section 117 of the Act). This provision of the Act introduces and amendment to Schedule 8 of the Building Safety Act 2022 (“BSA”) however it does not apply to legal or other professional costs provided before the section comes in to force;

c. repeal of section 125 Building Safety Act (section 118 of the Act) regarding meeting remediation costs of insolvent landlords. This provision again relates to changes to the wording of the BSA which we will cover further in an additional article;

d. higher risk and relevant buildings (section 119 of the Act) – introduces new wording before s.126 BSA regarding notifications in connection with insolvency.

2. All other parts of the Act will be commenced by the Secretary of State via statutory instrument.