Leaseholders to get stronger rights to challenge 'extortionate service charges'

Millions of leaseholders in England and Wales are to be given more rights and protections against 'extortionate service charges', the government has said.

Leaseholders are normally required to pay a service charge to cover the maintenance of shared areas in their building; however, they're often left facing unclear and unaffordable fees. 

The average annual service charge for a leasehold property in England and Wales has risen 33.9% over the past five years to £2,300, according to estate agents Hamptons.

Here, Which? explains how the new rights for leaseholders will work, other changes that will be consulted on and what to consider if you're thinking of buying a leasehold property.

What will the new service charge rights be?

Service charge demands are currently only required by law to include a limited amount of details, which can leave leaseholders in the dark over what services or works make up their bill.

The new rights mean that leaseholders will receive standardised service charge documentation, which will break down how their service charges are calculated and spent.

This should include new standardised service charge demand forms, annual reports, service charge accounts and administration charges.

According to the government, this will make it easier to spot unfair costs and challenge unreasonable bills.

The reforms also state that leaseholders will no longer be liable to pay for landlords’ litigation costs even where they have won their case.

The changes will be enacted through the recently passed Leasehold and Freehold Reform Act. The government has said that it will push through these reforms after a consultation period on how to implement the changes, which ends on 26 September.

Make your money go further

Find the best deals, avoid scams, and grow your savings with our expert guidance. From only £4.99 a month, cancel anytime.

Join Which? Money

What else is changing?

The government also outlined several other changes as part of the announcement.

Section 20 ‘major works’

The process for a Section 20 will be improved to ensure leaseholders aren't hit by one-off, unexpected and very large bills with little or no notice, as is the case currently.

Managing agents

Residents will have the right to demand a switch or veto a landlord’s choice of managing agent.

Mandatory qualifications for managing agents will also be introduced to ensure they have the knowledge and skills they need, and to stamp out bad practices.

Why is leasehold reform needed?

Which? has reported extensively on issues facing leaseholders, including ground rent ‘doubling’ clauses, punitive service charges, 'permission' fees to make minor changes to their homes, and difficulties extending leases and buying freeholds.

Although there has been some reform to ground rents, anyone buying a leasehold flat will remain liable for service charges, which have made up an increasing chunk of household expenses.

The average annual service charge for a leasehold property in England and Wales has risen 33.9% over the past five years to £2,300, according to estate agents Hamptons, easily outstripping inflation over the same period. 

The table shows typical annual service charges by region.

Service charge demands are currently only required to include a limited amount of details, which can leave leaseholders in the dark over what services or works make up their bill.

This can leave leaseholders at risk of being overcharged for poor quality work, or out of pocket for work that has not been carried out in some of the worst cases.

• Find out more: to have or to leasehold? Inside the scandal rocking the new homes industry.

Should you buy a leasehold property?

In England, Northern Ireland and Wales, flats are most commonly owned on a leasehold basis. 

If you buy a leasehold property, you'll have the right to live in the home for a set number of years (specified on the lease), but you won't own the land it stands on.

Leaseholders have to pay fees to the owner of the land (the ‘freeholder’), usually in the form of ground rent, plus an annual service charge to maintain common areas.

Buying a leasehold property can be tricky if there are any issues with the property or lease. For example, many mortgage providers will refuse to lend on a property with fewer than 80 years remaining on the lease. 

So when buying a leasehold property, it's important to check the details and terms of the lease carefully. Your solicitor or conveyancer will also help you do this.

You should also factor in whether you can afford the annual service charge on top of your mortgage payment.

• Find out more: leasehold vs freehold.

Ready to get a mortgage?

Find the right mortgage using the fee-free service provided by L&C Mortgages

Compare mortgages

If you click on the link and complete a mortgage with L&C Mortgages, L&C is paid a commission by the lender and will share part of this fee with Which? Ltd helping fund our not-for-profit mission. We do not allow this relationship to affect our editorial independence. Your home or property may be repossessed if you do not keep up repayments on your mortgage.