Service charges have long been one of the most contentious aspects of leasehold property ownership. The Leasehold and Freehold Reform Act 2024 is ushering in one of the most significant overhauls of leasehold law in decades. A key area of change is service charge regulation. For landlords and managing agents, this means greater responsibilities, tighter rules, and new expectations around transparency.

Key Obligations Under the Act

1. Standardised Service Charge Demands
   All demands must now follow a prescribed format. This ensures clarity for leaseholders and removes scope for inconsistent or confusing presentations. Landlords and managing agents should review their billing systems to make sure templates comply.

What will the prescribed format be?

Although full details are anticipated to be set out in secondary legislation, service charge demands are expected to include:

• A clear summary page with total amount, due date, and period covered.
• An itemised breakdown of costs such as maintenance, insurance, and management fees.
• A statement of leaseholder rights, explaining how to request information or challenge charges.
• A short certification section confirming accuracy and compliance with the Act.

2. Detailed Cost Breakdowns
   Leaseholders will be entitled to itemised accounts, setting out exactly how their contributions are being used. This includes management fees, insurance, maintenance, and reserve funds. Going forward, landlords and managing agents should expect closer scrutiny from leaseholders.
3. Annual Reporting
   Landlords and managing agents will be required to provide clear, accessible annual statements of service charge accounts. These must be issued in line with government standards and will need to be easily understandable to a layperson.
4. Tribunal Challenges
   Leaseholders now have a simpler and more cost-effective route to challenge service charges at the First-tier Tribunal. This makes it essential to ensure that all charges can be fully justified with accurate records.
5. Insurance Commissions
   The Act clamps down on landlords and managing agents receiving insurance commissions through service charges. Stricter requirements are to be expected on transparency of those costs incurred. It is paramount that any insurance costs passed on to leaseholders reflect genuine expenses.

Why Compliance Matters

• Reduced Disputes: Transparent, well-presented charges lower the risk of leaseholders disputing costs, saving landlords and managing agents time and costs.
• Legal Protection: Failure to meet new reporting and format requirements could lead to successful challenges at tribunal as well as potential reputational damage.
• Trust & Professionalism: Demonstrating compliance helps build better relationships with leaseholders and avoids accusations of overcharging or concealment.
• Market Expectations: Where there has been significant negativity publicised over many years over the ownership of leasehold property, the reforms reflect a wider cultural shift toward transparency. Those landlords and agents who adapt quickly will be more appealing to leaseholders and developers and will hopefully rebuild the picture of owning a leasehold property.

Practical Steps for Landlords and Agents

• Update Templates: Ensure all service charge demands follow the new statutory format.
• Improve Record Keeping: Keep detailed evidence of all expenditure so charges can be justified if challenged.
• Train Your Team: Make sure property managers and finance departments understand the new rules and how to implement them.
• Review Insurance Arrangements: Remove commission structures that could fall foul of the new regulations.
• Plan for Annual Reports: Establish a process for preparing and delivering clear yearly accounts in line with the Act.

Conclusion

The Leasehold and Freehold Reform Act 2024 places greater accountability on landlords and managing agents. By requiring standardised demands, detailed accounts, and transparent reporting, the reforms are designed to empower leaseholders and limit the scope for unfair practices.

For landlords and agents, the message is clear: embrace transparency, tighten your processes, and prepare your teams. Under the new regime, failure to issue service charge demands in the prescribed format or without proper supporting detail could render them legally unenforceable. The charges may be unable to be recovered from leaseholders until they are corrected. By adapting early, you not only maintain compliance and reduce the risk of disputes but also safeguard your ability to recover legitimate costs efficiently and uphold confidence in your management practices in a more tightly regulated market.

Written by: Amelia Hughes, CS Litigation Chartered Legal Executive

Please contact us if you would like more information about the issues raised in this article or any aspect of debt recovery on 020 8290 7400 or email info@jpcreditsolutions.co.uk

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