Strengthening leaseholder protections over fees, charges and services: consultation

2.1 New annual report

26. Measures in the 2024 Act will require landlords to provide an annual report before, or early in the 12-month accounting year. It is proposed that this report should go beyond current practice for many landlords, which often only includes provision of service charge demands, budgets (in some cases), and the statutory Summary of Rights and Obligations.

27. The Secretary of State and Welsh Ministers have powers to prescribe the annual report’s format, content and how it is provided to leaseholders. They can also exempt certain categories of landlords or types of service charges from this requirement if considered appropriate.

28. The annual report must be provided within one month of the new accounting period’s start, but it can be published earlier as long as it covers the “relevant” 12-month period. This means that landlords could combine this report with the service charge demand if they wished, for example, to reduce costs.  

i) Proposed format and contents of the annual report

29. The aim is to make the annual report clear, accessible and useful for leaseholders and in one place provide most of the key information they will need about what they will be charged for over the year ahead and any significant planned expenditure beyond it. We propose the annual report includes the following minimum information:
    1. Key contact details – such as managing agent, landlord(s), and where relevant, the Resident Management Company, fire safety responsible person, Principal Accountable Person under the Building Safety Act 2022, any Resident Tenants’ Association, and any Right to Manage Company;
    2. Important lease dates – such as interim service charge demand and financial year-end dates;
    3. Basic information about the building’s health and condition – including details of previous and planned annual statutory surveys;
    4. Administration charges – a copy of a schedule of the mandatory administration charges required by Section 61 of the 2024 Act (see section 2.6);
    5. Major works – plans for major works in the next two years and whether anticipated costs are covered in whole or part by a reserve fund;
    6. Handling disputes – information to sign post leaseholders where to go if they are unhappy with the service charge or have questions (e.g. details of the landlord’s complaint procedure, contact details of the Leasehold Advisory Service, and rights to demand key documents); and
    7. Details of formal actions or statutory processes affecting the building – for example, enforcement notices, litigation (within the confines of General Data Protection Requirements [7]), or enfranchisement claims. 

A mock-up of the proposed annual report is at Annex A.

ii) Exemptions to the requirement to provide an annual report

30. The Secretary of State and Welsh Ministers have the power to grant exemptions from providing an annual report based on landlord type, description of service charge or any other specified matter. Our starting position is that there should be no exemptions. This is to ensure leaseholders get the essential information they need. We are aware, however, of some cases that may justify different arrangements, and our consideration of each of these is set out below.

a) Fixed service charges and event fees in the retirement sector  

31. There is less of a direct relationship between the amount paid by leaseholders charged fixed service charges and the landlord’s costs. This is particularly the case in specialist retirement housing where many leaseholders’ costs are managed through a combination of fixed service charges and event fees.[8]

32. Given this, we propose that an annual report should still be provided, but to exempt landlords who charge both fixed service charge and event fees from requirements to include in it, minimum information part g) Details of formal actions or statutory processes affecting the building (see paragraph 29). However, we propose that in return these landlords should disclose details of any event fees as and when they apply to retirement properties as part of the annual report. This will be a useful reminder of the event fee obligation which owners will have agreed on purchasing the property but could later be overlooked, particularly for those which are only triggered on exit from or sale of the property which may be some years later.

b) Intermediate and superior landlords

33. Some landlords may face difficulties in meeting some of the requirements of providing the minimum information proposed in the new annual report. In particular, landlords of intermediate leases (“head lessors”). Head lessors will be entitled to receive information from their landlord (or “superior landlord”) through the annual report. However, their leaseholders (or “sub-lessees”) should also be entitled to receive information from the head lessor who, as their immediate landlord, are also required to prepare an annual report. As such, the head lessor may not have all the required contents of the annual report to be able to pass on to the sub-lessee and, furthermore, the accounting period for the head lessor may be different to that of the superior landlord.

34. Two options are proposed to address this concern:
    • Annual report exemption Option 1: Delay the requirement to provide the annual report to the sub-lessee until the superior landlord provides the relevant information to the head lessor. Leaseholders would receive the service charge demand form in line with the head lessor’s accounting period but would need to wait to receive information held by the head lessor until it could be combined with information held by the superior landlord, at the end of the superior landlord’s accounting period. The information would be provided all together as one report, but this could mean a delay for leaseholders; or
    • Annual report exemption Option 2: Require all head lessors provide the minimum information they hold as part of the proposed annual report within the statutory time frames. For example, information that the head lessor could provide as part of the annual report, which may be provided alongside the service charge demand, would be a subset of the proposed minimum information (at paragraph 29) and include:
      1. Table of contact details;
      2. Key basic information relating to the health and condition of the building; and
      3. Handling disputes. 
35. The initial information provided in Option 2 would then be supplemented with the remaining minimum information provided by the superior landlord at a later date. While leaseholders will get more information upfront, it will be incomplete and may burden landlords administratively having to provide information in separate batches. We would welcome views, especially from leaseholders and head lessors, on which option is preferable. 

c) Lack of information

36. Due to their working practices, some landlords, particularly social landlords, might struggle to provide parts of the minimum information proposed for the annual report, or provide information in the manner prescribed. Possible instances might include:
    1. Where the landlord would need to provide more information than is relevant to the individual building. For example, reports, such as fire risk assessments can cover multiple buildings. In such circumstances we propose that this information should still be provided, but in doing so the landlord should make it clear where information provided does not apply solely to that building;
    2. Where the landlord does not hold the information. We think this will be rare but could potentially occur for example, when information is transferred under a change in landlord or managing agent. To help us determine whether an exemption might be needed, we would welcome views on the minimum information proposed to be required by the annual report that a landlord might not reasonably hold, and in what circumstances, and the burden of proof that landlords should need to demonstrate to qualify for such an exemption; or
    3. Where existing legislation provides a formal exemption. For example, a Fire Risk Assessment may not cover every type of building (for example, a maisonette).