The Leasehold and Freehold Reform Act 2024 is on its way. But what are the implications for block management firms and others in the residential real estate sector? What should you be aware of and how can you prepare? We take a look in this article.
What Is the Act?
The Act was initiated by the previous government and fast-tracked to receive Royal Assent in May 2024, following a 2017 government white paper. Its aim is to strengthen leaseholder rights and enhance the “right to manage” framework, giving leaseholders greater control over how residential buildings are managed. The stated goal of the act is to, “take steps to bring the feudal leasehold system to an end”. This suggests there’s something archaic or outdated about the existing system – which there may be.
But it perhaps raises the question of whether the system is broken. Or indeed, if it is broken, how much needs fixing? Whether or not one agrees with that characterisation, the reforms are wide-ranging and will materially affect the operating models of many block management firms.
What’s Changing?
One of the biggest changes looks set to be the regulatory landscape for block management firms. The current government recently concluded a consultation into tighter regulation and qualifications for managing agents. A part of the outline plan is to bring in minimum mandatory qualifications for agents.
Also, and perhaps more controversially, the changes will further tighten the rules around insurance commission payments (subject to secondary legislation). The aim is to eliminate the sharing of broker commissions by early-mid 2026 and replace them with “permitted fees” which will only be allowed for defined tasks. Whilst the definition of Permitted Fees is still to be ironed out, the current process of wrapping the agent’s commission payments into the insurance premiums paid for by the service charge looks set to end.
What Happens Next?
There is much debate about what will happen next and whether the proposals will have the desired impact for leaseholders. One unintended consequence of the cessation of commission sharing may be higher costs for leaseholders, at least in the short term, as agents look to replace lost revenue streams with increased management fees — unless alternative, equitable solutions are developed.
For residential block managers in England and Wales, now is the time to assess how these changes could affect business models, client relationships, and insurance arrangements.
At Merlin, we are actively reviewing the options and working with clients to help them prepare for the evolving regulatory landscape. If you’d like to discuss what this could mean in practice, feel free to get in touch.
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