Housing associations urged to prepare for ‘significant’ leasehold reforms

Impact of the act

 

“It’s a far-reaching piece of legislation that covers wide aspects of leasehold law,” says Zoe McLean-Wells, a partner at law firm Devonshires.

 

Under the new law, freeholders or managing agents will have to issue service charge bills in a standardised format that can be scrutinised and challenged more easily. They will also have to provide “annual reports” in respect of service charges.

 

Leaseholders will have the right to request information about service charges or services, repairs, maintenance, insurance or the management of dwellings.

 

In addition, the act will make it cheaper and easier for people to extend their lease or buy their freehold, and increase the standard lease extension to 990 years for houses and flats. This is a rise from 50 years for houses and 90 years for flats.

 

The act will make it cheaper for leaseholders to exercise their enfranchisement rights (the right to extend a residential lease or acquire the freehold), as they will no longer have to pay their freeholder’s costs when making a claim. It will also extend access to redress schemes for leaseholders to challenge poor practice.

 

Douglas Rhodes, a partner at law firm Trowers & Hamlins, says the new requirements around service charges will place extra administrative burdens on HAs, as they will have to provide more information about how they are running estates and how they are passing service charges on.

 

On the lease extension aspect, HAs will need to budget for lower income, as costs for leaseholders to extend their leases will fall.

 

“It is going to have a significant impact, practically, for housing association landlords. In general, there’s going to be a lot more to do pretty much across the board in terms of preparing budgets, preparing accounts and dealing with questions as and when they get raised,” Mr Rhodes says.

 

Advice for housing associations

 

Mr Rhodes says that changing systems now will not necessarily help HAs, as precise details of the new requirements in LAFRA are not yet known.

 

He says the sector should ready itself to engage with the government as and when it consults on the actual implementation of the act.

 

Mr Rhodes says HAs should identify which of their homes have fixed service charges and which have variable charges, as they will need to do different things for each type.

 

“It sounds simple, but for big associations that have had a number of mergers, it’s actually not that simple,” he says.

 

Devonshires’ Ms McLean-Wells says HAs should ensure they are familiar with the requirements of LAFRA in relation to the changes to the service charge regime and, ahead of the relevant provisions of the act coming into force, they should start thinking about how they will amend their processes to incorporate additional requirements.

 

“They should also review their relevant policies and procedures to see whether they require amendment,” she says.

 

Jon Slade, a director at consultancy Campbell Tickell, says that HAs should start planning and preparing now, based on the known changes.

 

HAs should think about the implications for their strategy, policy and processes, he adds.

 

Mr Slade says landlords can also identify where further clarification is needed, for example the specific format of service charge accounts.

 

“The preparatory work required will vary from organisation to organisation. Those which are already at the top of their game will probably have less of a road to travel. If you’ve got fixed charges and you are less prepared in other ways, then it’s going to be a medium to a large amount of work. It won’t hit every landlord equally.

 

“My message would be: ignore it at your peril. If you do, you will soon get brought up short by customers who are aware of these new changes. So, get on with your planning and prep now.”

Housing associations’ preparation

 

Marie Chadwick, policy leader at the National Housing Federation, points out that HAs are experienced at delivering bills and reports to customers on service charges. In many cases, landlords will be able to build on their existing processes to deliver the new regime.

 

“We also believe the government can learn from existing housing association procedures,” she adds.

 

Ms Chadwick says 990-year leases are one of the “bigger provisions” of the act for HAs. Many have started preparations for lease extension requests and have processes in place off the back of a new shared ownership model launched in 2021.

 

Ms Chadwick says there is an appetite to “work with the [new] government on the detail to ensure it delivers for leaseholders whilst recognising the different operating environments for housing associations compared with other freeholders”. 

 

G15 landlord Metropolitan Thames Valley Housing (MTVH) says it has been preparing for many of these changes since before the legislation came into force and is already meeting its requirements in many cases, because they “are the right thing to do for our residents”.

 

The 57,000-home landlord has already met the act’s central requirements over recent years, according to a spokesperson. It currently operates both statutory and non-statutory lease extensions and offers any homeowner, qualifying or not, the opportunity to extend their lease.

 

MTVH’s new leases are also granted at 990 years wherever it is the freeholder, with lease extensions granted up to 990 years where possible.

 

On service charges, the HA says it is already improving “the transparency of costs, accessibility and making charges easier to understand”.

 

“We are also improving the system which analyses affordability risks, so ensuring we target support for homeowners in need,” an MTVH spokesperson says. “We have ringfenced funding to support homeowners on a case-by-case basis.”

 

Dave Lockerman, director of housing operations at Stonewater, says the landlord, which manages over 39,000 homes, has worked “extensively” over the past few years to improve “transparency, affordability and accountability” in respect of all its services, including service charges.

 

He says Stonewater has established processes that will support the extension of leasehold rights to freeholders. In addition, its approach to service charges means that much of what will be introduced is already within its service structure.

 

But Mr Lockerman adds: “We are currently reviewing the administration charges across all homes, to ensure consistency.”

 

Stonewater already has an increased standard lease length in place, and is reviewing its standard lease terms in line with the introduction of an annual rent increase limit of the Consumer Price Index (CPI) plus one per cent, introduced last year for some new shared ownership customers.

 

“While changes in this area will undoubtedly impact on budgets, we are working to ensure that our service delivery to customers is not affected,” Mr Lockerman says.

 

Sarah Chatfield, director of homeowner services at Peabody, says it is too early to say how the new act will affect the landlord, but it is “keeping a watchful eye on things, and evaluating what it means for us and our residents”.

 

“We support any measures that protect and strengthen the rights of resident leaseholders,” she says.

 

Riverside says it is continuing to review the legislation to understand what it means for its customers and for the landlord.

 

The HA says it recently moved the service charge and rent function into its customer service division under one customer charges team, supported by business transformation projects that will improve the customer journey.

 

Riverside adds that the provisions in the new act will form part of its service improvement plan, particularly around the accuracy of costs, customer information and query resolution.

 

“We recognise we will need to do some significant engagement with third-party management companies to ensure that we are able to comply with the changes when they are implemented, but feel the work we are doing now will support us with this,” a spokesperson says.

 

“Service charges are a high priority for our business and, with our customers in mind, is an area we are always striving to improve upon.”