Service Charge Essentials for Park Operators

The Leasehold and Freehold Reform Act 2024 (‘LAFRA 2024’) will increase scrutiny of fixed service charges. Existing obligations under the Landlord and Tenant Act 1985 (‘LTA 1985’) continue to apply to variable charges.

We have already noticed an increase in challenges against park operators from their leaseholders. As LAFRA 2024 takes effect, park operators must be prepared for greater transparency requirements, tighter regulation of service charge demands and additional risks of challenge.

Fixed Service Charges - What’s changing?

Government policy statements made during the passage of LAFRA 2024 highlight their concern that fixed charges have, in some cases, been used to recover estate costs “without sufficient transparency or accountability”.1 Michael Gove explained in the Second Reading debate that: “a number of the people who have built, operated and retain the freehold on these estates levy service charges for all sorts of things that, in my view, are totally inappropriate. That is why the Bill makes clear that service charges have to be issued in a standardised format, so that they can be more easily scrutinised and challenged”.2

LAFRA 2024 will place fixed service charges on a clearer statutory footing, bringing them closer in treatment to variable charges.3 Although the detailed regulations are still awaited:

• Fixed service charges will become subject to new leaseholder rights to information.
• Park operators will also be required to issue demands in a standardised format, making it easier for leaseholders to understand what is being charged for and on what basis.4
• Significantly, leaseholders will have a new right to challenge fixed charges in the First-tier Tribunal (Property Chamber).5

For park operators, fixed annual charges can be an important part of the income structure. They will need to be prepared for more frequent push-backs and possibly a formal challenge.

Will LAFRA 2024 Affect Existing Leases and Demands?

The focus of LAFRA 2024 is on future service charges. However, it allows for detailed secondary regulations that could apply certain obligations retrospectively.6 It is possible that historic demands that were unclear or unsupported will be open to challenge.

Will LAFRA 2024 Apply to Holiday Accommodation (Chalets, Lodges, Holiday Parks)?

LTA 1985 does not apply to leases of land for siting caravans, but may apply to leases of chalets or lodges if the lease grants exclusive possession and the structure is legally a building/fixture rather than a caravan. It is essential to note that structures built as caravans may be treated as buildings if they have become permanently annexed to the land (e.g., fixed to foundations, utilities permanently connected, etc.), In marginal cases, we recommend legal advice.

LAFRA 2024 is expected to work in the same way.

Variable Service Charges - Existing Obligations under LTA 1985

Variable service charges will continue to be governed by LTA 1985. Key requirements include:

• Reasonableness: all service charges must be reasonably incurred and reflect works or services carried out to a reasonable standard.
• Documentation: every demand must be supported by clear records showing how the charge has been calculated.
• Consultation: leaseholders must be consulted before major works or long-term service contracts are entered into, allowing them to comment on scope and cost.
• Transparency: detailed accounts and supporting documents should be made available to leaseholders on request.
• Timeliness: charges must be demanded within the required timeframe to remain recoverable (the 18-month rule).
• Evidence : maintaining clear records of works, supplier contracts, and cost allocation decisions is essential to defend any future challenge.7

What should park operators do now?

As the regulatory environment becomes more demanding, we recommend that park operators respond proactively by:

• Reviewing all leases and occupation agreements to check whether LAFRA 2024 may apply.
• Auditing current service charge demands. Park operators should check that fixed charges were clearly explained and any indexation or adjustment was calculated correctly. Be sure that variable charges have complied with the existing requirements.
• Auditing their record-keeping to ensure that the necessary evidence will be available if it is ever needed.
• Training and providing guidance to staff who deal with leases and leaseholders.
• Being ready for challenges and disputes. Identify them early and have a clear response strategy. Always consider taking legal advice before responding.

Contact our legal experts

1 House of Lords, Monday 29 April 2024, 3.21pm - Leasehold and Freehold Reform Bill - Hansard - UK Parliament

2 House of Commons, Monday 11 December 2023, 5.12pm, Michael Gove on service charges - Leasehold and Freehold Reform Bill - Hansard - UK Parliament

3 Leasehold and Freehold Reform Act 2024, fixed service charges (s.53) - Leasehold and Freehold Reform Act 2024

4 Leasehold and Freehold Reform Act 2024 (s.54), Tribunal challenge provisions - Leasehold and Freehold Reform Act 2024

5 Leasehold and Freehold Reform Act 2024 (s.58), Tribunal challenge provisions - Leasehold and Freehold Reform Act 2024

6 Leasehold and Freehold Reform Act 2024 (21E(7)), Statutory regulations - Leasehold and Freehold Reform Act 2024

7 Landlord and Tenant Act 1985 (ss18-20B) - Landlord and Tenant Act 1985