The Leasehold and Freehold Reform Act 2024 (LAFRA) received Royal Assent on 24 May 2024 as part of the "wash up" ahead of the general election. Not only does LAFRA introduce significant changes to the arena of leasehold enfranchisement, but the legislators also used it as an opportunity to fix some of the drafting issues in the Building Safety Act 2022 (BSA).
Coming into force today (24 July 2024) are the following sections of LAFRA which make amendments to the BSA:-
- 117 (recovery of legal costs through service charge);
- 118 (repeal of section 125 of the BSA); and
- 119 (higher-risk and relevant buildings: notifications in connection with insolvency).
These amendments are to Part 5 of the BSA, which deals with Remediation Orders and Remediation Contribution Orders (RCOs). This article sets out the amendments made to the BSA by section 117 of LAFRA, which will be of particular interest to Residential Management Companies (RMCs) and Right to Manage companies (RTMs) in respect of applying for RCOs – read on to find out why. For more detail on RCOs, please see the following link:-
Remediation Contribution Orders under section 124(1) of the Building Safety Act 2022, Felicia Persis (howardkennedy.com)
As for the remainder of LAFRA, the last indication given by the former Government is that these sections may come into force in 2025 – 2026. Such indication was given prior to the general election, and it is yet to be seen how the Labour Government will approach LAFRA. However, we are expecting further delays since the Government announced a new Leasehold and Commonhold Reform Bill in the King's Speech.
Section 117 of LAFRA: Recovering the costs of an RCO application via a service charge
The intention behind the BSA is to afford protection to leaseholders in respect of buildings to which the BSA applies. However, the drafting of the BSA prior to the amendment made by section 117 of LAFRA meant that RMCs and RTMs were left between a rock and a hard place in respect of funding remediation works.
Section 117 of LAFRA introduces a whole new ballgame for RMCs and RTMs because these entities can now recover the cost of taking professional advice and applying for RCOs via a service charge, which was not possible under the original drafting of the BSA.
RMCs and RTMs do not generate an income and the funds available to them are service charge monies. Therefore, whilst the option to consider making an RCO application was in theory available to them, this was academic. Where those responsible for defects in buildings have been slow or unresponsive to remediating defects, this created a serious funding problem for RMCs and RTMs which has delayed necessary remediation works and left buildings unsafe as a result.
Now that section 117 of LAFRA has come into force, this funding issue has been wiped out which should mean that there should not be delays to carrying out remediation works due to difficulties with funding. In circumstances where the parties responsible for defects are not working with RMCs and RTMs to remediate, these bodies are now empowered to take action against parties where it is just and equitable to do so to require them to financially contribute towards the cost of making buildings safe. It is the case that an RCO can also include recovery of any professional fees incurred, so there is scope for RMCs and RTMs to recoup those costs for the benefit of leaseholders.
It is expected that there will be an influx of RCO applications made by RMCs and RTMs and we are already working with such clients to explore their options.
Watch this space and please get in touch with Bhavini Patel (bhavini.patel@howardkennedy.com) and Felicia Persis (felicia.persis@howardkennedy.com) for any queries.
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