Government launches consultation on “switching on” provisions regulating service charges and estate management charges in the Leasehold and Freehold Reform Act 2024

On 4 July 2025, the Government launched a consultation: “Strengthening leaseholder protections over charges and services: consultation”. This consultation explores the implementation of various provisions contained within Part 4 of the Leasehold and Freehold Reform Act 2024 (“LAFRA 2024”) relating to the regulation of service charges and estate management charges.

The Government considers that the new service charge framework provided for in LAFRA 2024, for residential buildings of 4 or more properties, will involve:

• A standard form service charge demand at the beginning of the accounting year; 
• A budget for the forthcoming year;
• A new annual report at the same time as the demand or within the first month of the accounting year;
• A standard form interim service charge demand six months into the year for the remaining estimated service charge costs for that year; and
• A full financial statement of account and a demand or credit for any underspend or overspend for the previous 12-month period.

New standard form service charge demands, budgets and annual reports

LAFRA 2024 requires that service charge demands be in a specified format. The consultation proposes that the minimum level of information to be included in an initial standard form service charge demand will be the name and address of the leaseholder and landlord, the total amount payable for the period based on the budget, the payment details, the deadline for payment and the consequence of non-payment together with the annual budget. Annex B contains example forms of service charge demand and budget.

The new annual report requirement set out in LAFRA 2024 will include minimum information which must be provided to leaseholders. The minimum information will include key contact details, important lease dates, basic information about the building’s health and condition, a copy of a schedule of mandatory administration charges which all landlords will be required to publish under LAFRA 2024, plans for any major works in the next two years and confirmation of whether anticipated costs are covered in whole or part by a reserve fund, information as to how leaseholders can resolve disputes and details of formal action or statutory processes affecting the building including litigation or enfranchisement claims. An example of the annual report appears at Annex A of the consultation. The Government is consulting on whether there should be any situations in which certain landlords are exempt from providing an annual report.

An area of difficulty highlighted by the consultation is where there are intermediate landlords who may not have sufficient information from a superior landlord to provide an annual report to their leaseholders. The Government propose two options:

• The annual report requirement is delayed until the superior landlord has provided the relevant information to the head landlord; or
• Require all head landlords to provide a minimum information to a different standard which will include only details which they would hold within the statutory time frame to include contact details, key basic information about the health and condition of the building and disputes procedures to be supplemented with further information at a later date.

The 18-month rule

Landlords currently serve Section 20B notices where the annual accounts are unlikely to be completed by the end of a period of 18 months from the start of the service charge accounting year to protect their position under the 18-month rule. Under LAFRA 2024, landlords will be required to issue a new future demand notice. This must include the estimated amount of costs incurred, the amount of an individual leaseholder’s contribution and a deadline date by which a formal service charge demand will be issued. For multi-year programmes of works, landlords are expected to issue a future demand notice for each new set of works. There will be new regulations containing valid reasons for changing the demand date which may include delays to major works and disputes with the contractor which delay invoicing of the final bill. The Government seeks views on whether there should be any other permitted circumstances in which the demand date may be changed. 

The concept of future demand notices poses issues for landlords in practice because if a landlord was already aware of the exact amounts incurred and each leaseholder’s contribution, in most cases they would be able to issue annual accounts and service charge demands for any annual shortfall in the usual way. Annex C to the consultation contains a form of future demand notice.

LAFRA 2024 will require landlords to provide a written statement of accounts in a standard form within six months of the end of the accounting period. The Government proposes that the minimum information in those accounts should include a balance sheet, income and expenditure reports, statements for reserve funds and a statement of service charge collection deficits. The Government is keen to understand the cost to business of introducing these measures and where these costs might fall, including whether they might be passed onto leaseholders. 

Rights to information

Leaseholders have rights to information under existing legislation. LAFRA 2024 will replace existing rights with new “enhanced” rights to request more detailed information about service charges, insurance and maintenance, including rights to receive copies of documents. The Government has drawn up a list of documents which the leaseholder could request copies of including but not limited to fire risk assessments, building surveys, contracts for services, invoices and receipts for service charges and details of reserve funds. This would include documents for the current service charge year but also for a period up to the previous 6 years. There may be concerns about the additional administrative costs which may be incurred by landlords and their agents in complying with such requests. The Government is proposing that there is an exemption if a leaseholder repeatedly requested the same information within a short timeframe.

Litigation costs

LAFRA 2024 introduces a requirement that a Court/Tribunal Order is required before a landlord can recover their litigation costs under the terms of the lease by way of service charges or administration charges. Where it is necessary to incur additional costs seeking an order for costs, this can only lead to additional costs for leaseholders in the long run. For resident-owned management companies, there may be real concerns about how legal advice will be funded where there is a presumption against recovery of legal costs unless the relevant Court or Tribunal Order is obtained. The Government is proposing that the requirement to apply to Court is suspended for Right to Manage Companies and resident-owned management companies to enable them to add costs to a lessee’s account under the terms of the lease and then subsequently seek an order for their payment via the Court/Tribunal. The Government is seeking views on possible exemptions to this requirement, for example, where a landlord seeks to recover service charges via the County Court and the leaseholder admits the amount claimed or does not respond to the claim. The Government’s proposal is for that exemption to apply only to seeking administration costs from the defaulting leaseholder rather than recovering the costs by way of service charges.

When implemented, LAFRA 2024 will imply a term into all leases giving leaseholders the right to claim litigation costs from their landlord whether defending a claim brought by a landlord or bringing a separate claim against the landlord. The Government seeks views on the types of claim where this right should be available.

Estate management charges

The Government wants to extend the above service charge framework to apply to estate management charges. This would cover costs relating to services, repairs, improvements and insurance in respect of an estate where the freehold transfer contains a requirement for the freeholder to contribute towards those communal costs and which binds subsequent owners. If the estate management scheme was created under one of the statutory schemes under the Leasehold Reform Act 1967 or the Leasehold Reform, Housing and Urban Development Act 1993, the scheme will fall outside the scope of LAFRA 2024.

New proposed reforms to consultation process for major works and qualifying long term agreements

The consultation includes questions about the consultation process for major works and qualifying long term agreements (“QLTAs”). Landlords are currently required to consult with leaseholders where works require any leaseholder to contribute more than £250 or in respect of a QLTA where any leaseholder’s contribution exceeds £100.  LAFRA 2024 contains no provisions to amend the process but the Government has proposed some new reforms including:

• To make it compulsory in all new long residential leases to include a provision enabling the creation of a reserve fund;
• To enable existing long residential leases to be varied to allow for the creation of a reserve fund or enable a reserve fund to be created whatever the terms of the lease if certain criteria are met e.g. 50% of qualifying leaseholders support the creation of a reserve fund.  This option will mean that existing leases are effectively varied automatically by operation of law without any actual variations in practice;
• Raise the threshold for consultation in relation to major works to £600 from any leaseholder;
• Raise the threshold for consultation in relation to QLTAs to £300 from any leaseholder;
• Standardise the notices to be served during the consultation process;
• Require all works to be commenced within 12 months from the consultation process otherwise consultation must be re-started.
• Change the dispensation process; and
• Enable “dispensation” if a sufficient number of leaseholders agree consultation is not necessary.

Regulation of managing agents

The Government proposes to implement recommendations made by Lord Best in his report on the Regulation of Property Agents from July 2019. This includes requiring managing agents to hold minimum levels of qualification and bringing in an enforcement regime. The Government is envisaging a 36-month transition period to enable qualifications to be achieved. In addition, the Government wants to give additional powers to leaseholders to change managing agents. This includes a right for a sufficient number of leaseholders to veto the landlord’s choice of managing agent or to enable leaseholders to require a switch of managing agents where a sufficient threshold of support is met. This may result in uncertainty if exercised on multiple occasions.  

Responding to the consultation

The Government’s proposals recommend the biggest changes to residential long leases for over 20 years. Most of these build on the existing framework but some landlords may have serious concerns that some of the proposals, particularly around the recovery of litigation costs, will make the management of residential and mixed-use buildings unworkable.  Clearly, there is a huge amount of detail behind the Government’s proposals and landlords, managing agents, professional services providers, insurers, leaseholders and anyone involved in the management of residential or mixed-use properties should respond to the consultation to ensure the Government receives views from a substantial number of stakeholders within the residential arena. The consultation will close on 26 September 2025.

We are tracking developments on our Essential Residential Hub and our timeline: Changing landscapes in residential leasehold, which can be found here.

Please contact Laura Bushaway, Lauren Fraser or your usual Charles Russell Speechlys contact if you have any queries.