Create a new body to regulate service charges for residential property

We want the Government to create a new body that is empowered to monitor and regulate private, council, and housing association service charges, and impose meaningful penalties for unfair or unreasonable service charges.

This body should also provide free support to people who want to dispute charges.

We believe there is a scandal of service charge abuse in the housing sector; with extortionate annual rises in service costs, far exceeding inflation, and charges for services which have not, or could not, be provided.

Service charge abuse can cause immense financial strain, as well as emotional and physical damage to people who pay their charges directly. It also creates indirect costs for taxpayers when charges are paid via benefits.

Service charges are a financial contribution by a leaseholder for the costs of the day-to-day management and maintenance of their building (e.g., including general maintenance and repairs, buildings insurance, cost of management services).

The way in which the service charges are organised, for example, what services are paid for, what are individual contributions, and when payments are to be made, are set out in individual leases.

By law variable service charges must be reasonable and, where costs relate to works or services, the works or services must be of a reasonable standard.  Leaseholders wishing to contest the reasonableness of their service charges may make an application to the appropriate tribunal.

There are two service charge codes of practice approved by the Secretary of State for the residential leasehold sector and private retirement housing. They both seek to promote good practice and can also be taken into account at court or tribunal proceedings where relevant.

Leaseholders may seek free advice from organisations such as the Leasehold Advisory Service (LEASE) and Citizens Advice if they are concerned with the charges they are asked to pay.

The government believes very strongly that service charges should be transparent and communicated effectively, and that there should be a clear route to challenge or redress if things go wrong.

Many landlords and managing agents already demonstrate good practice and provide significant and relevant information to leaseholders. However, too many landlords are failing to provide sufficient information or clarity to leaseholders. 

The government is bringing forward a number of measures to require landlords to provide further information to leaseholders on a proactive basis and increase the transparency of their service charges and administration charges, as well as providing more information to leaseholders on a reactive basis. The Leasehold and Freehold Reform Bill introduced to Parliament on 27 November 2023 contains measures to ensure that all leaseholders regularly receive minimum key financial and non-financial information. This will help them scrutinise and more effectively challenge their landlord if they consider their fees are unreasonable.

These measures include:

• Standardising the information freeholders will be required to provide leaseholders with, by introducing a standardised service charge demand form; • Mandating the provision of an annual report, setting out key information of importance to leaseholders; • Compelling landlords to provide more relevant information to leaseholders on request; • Ensuring service charge accounts be provided within six months of the end of the previous accounting period that it covers, regardless of the lease terms. This will be subject to a number of exemptions; • Requiring freeholders to proactively disclose to leaseholders’ details of the building insurance policy that was purchased; and • Introducing an administration charge schedule, which sets out the minimum level of information that freeholders must provide tenants regarding administration fees and details on whether the costs include VAT.

The government also believes that leaseholders should not be subject to unjustified legal costs and should be able to claim their own legal costs from their landlord where appropriate. The Leasehold and Freehold Reform Bill will address this by requiring landlords wishing to pass on their legal costs to leaseholders to apply to the relevant court or tribunal seeking their approval in order to recover their legal costs from leaseholders either as an administration charge or a service charge. We will also give leaseholders a new right to apply to the relevant court or tribunal to claim their legal costs from their landlord.

Department for Levelling Up, Housing and Communities