RS2: Navigating Leasehold and Right to Buy in Large Scale Retrofit

Emma Hardman – The Leasehold Picture 

Emma Hardman is a partner at Anthony Collins Solicitors, a social purpose law firm based in Birmingham that works extensively with social housing providers, local government and health and social care organisations. She co-authored the NHF guide on service charges, and described service charges as taking up around 60% of her caseload, with tribunal claims rising sharply. 

Who are we actually talking about? Before anything else, Emma flagged that "leaseholders" covers a surprisingly diverse group. In any one neighbourhood, a housing provider may be dealing with: 

• Right to Buy leaseholders (including those with Preserved Right to Buy) 

• Right to Acquire leaseholders 

• Shared ownership leaseholders - including those who have fully staircased 

• Other outright leaseholders from mixed-tenure or Section 106 schemes 

• And in some cases, freeholders - people who purchased the freehold of a house on an estate 

Each may have a different occupancy agreement, different lease terms and different rights. This variety is the first challenge. 

Always start with the occupancy agreement. Whether it's a tenancy agreement, a lease or a transfer deed, that legal contract between you and the individual is always the starting point. Large housing providers will have multiple versions in use - different forms issued over decades, completed differently by different officers at different times. The position won't be the same for all leaseholders even within the same neighbourhood, and that needs to be factored into programme planning. 

Before any retrofit work begins, the occupancy agreement needs to answer four core questions: 

• Can the landlord actually carry out these works? 

• Can the landlord charge for them? 

• Who has future responsibility for maintaining whatever you're about to install? 

• For tenants specifically - could this become part of what they purchase if they exercise the Right to Buy? 

That last question is particularly important. Years ago, when many organisations were fitting solar panels to tenanted properties, some landlords created deeds of variation to the tenancy agreement to exclude the airspace and the solar equipment,  so when tenants bought their homes, the panels didn't automatically transfer with the property. That preserved the landlord's ability to claim the feed-in tariff and meant obligations around maintenance and non-interference could be set out clearly. Emma's point was that the same kind of forward thinking needs to be built into programme design now, not retrofitted (no pun intended) after the fact. 

Where a variation to a lease or tenancy is needed, bear in mind that leaseholders will need mortgage lender consent, and the variation will need to be registered at the Land Registry to bind future buyers. Building the time and cost for that into your programme planning matters. 

Repair or improvement - and why the distinction matters. One of the most common disputes in major works is whether what you've done counts as a repair or an improvement. Most modern leases allow landlords to charge for improvements. Older leases sometimes restrict recovery to repairs only. There's no simple test. It is genuinely case by case. But the case law has established that works don't need to be like-for-like to count as a repair. Replacing single-glazed windows with double-glazed, or replacing a flat roof with a pitched one - both have come before tribunals. The lesson from those cases is that if works repair something and also improve it, that doesn't automatically make them an improvement only. The argument needs to be built on the long-term business case for why it's the best solution. If you're uncertain, you can apply to the tribunal for a declaration before proceeding, rather than waiting to be challenged after the fact. 

One additional point here: Right to Buy and Right to Acquire leaseholders will have received a Section 125 offer notice when they purchased, which set out estimated service charges and the repairs and improvements planned for the next five years. That imposes restrictions on what you can recover in that period. Liaison between retrofit teams and whichever team produces Section 125 notices is essential. 

Variable service charges and what the law requires. Section 18 of the Landlord and Tenant Act 1985 defines a variable service charge as any amount payable for services, repairs, improvements, maintenance or management where the charge varies (or may vary) according to the relevant costs. Whether your service charge falls into this definition depends on what your occupancy agreement says - not just what you do in practice. 

Where a variable service charge applies, Section 19 requires that the works and services are reasonable, the costs are reasonable, and any amounts demanded in advance are reasonable. Either party can apply to the First-tier Tribunal (Property Chamber) for a determination of reasonableness or recoverability. Emma noted tribunal claims are increasing significantly. 

Section 20 consultation is unavoidable in most cases. For variable service charge payers, formal consultation is required whenever you enter a qualifying long-term agreement (over 12 months where the cost to any resident exceeds £100 a year) or carry out qualifying works (costing more than £250 per resident). Given current costs, this means virtually every retrofit programme will trigger it. Each stage requires at least 30 days' consultation, plus time for service and genuine consideration of responses. Dispensation is available in limited circumstances, but the grounds will narrow under upcoming reforms. All of this needs to be in project timescales from the outset. 

Floris Law -  the cap on leaseholder recharges that often gets missed. This one is named after an older lady called Floris who died as a direct result of the stress caused by the service charge demands she received after major works. The formal name is the Social Landlords Reduction of Service Charges (Mandatory and Discretionary) Directions 2014. 

The rule: if you are receiving funding from a Secretary of State programme (including Homes England), the maximum you can charge a leaseholder is £10,000 outside London or £15,000 inside London, across a five-year period. Any shortfall above that cap cannot be recovered from leaseholders. This must be built into funding models before a programme begins. There is also a discretionary version allowing landlords to apply further caps or waive charges where payment would cause hardship or where it isn't fair that the leaseholder bears the cost at all. Leaseholders must be living in the property as their main or only home to qualify. 

What's changing. The Leasehold and Freehold Reform Act 2024 and several ongoing consultations signal significant reforms ahead: 

• New prescribed template documents for the annual service charge process, plus an annual report covering the whole building, including planned works 

• An implied right for landlords to charge a sinking fund even where the lease doesn't expressly allow it, based on a publicly available Asset Management Plan 

• Section 20 consultation thresholds likely to rise,  they haven't changed since 2003, so almost everything triggers consultation at current costs 

• Grounds for dispensation will be narrowed to specific circumstances such as genuine emergencies and certain types of contract 

• Rights currently available only to variable service charge payers will be extended to fixed service charge payers and estate rentcharge payers 

• The Building Safety Act, once its provisions come into force, will require landlords to take reasonable steps to seek alternative funding (grants, developer contributions) before charging leaseholders for building safety defects — and service charges must be reduced to reflect any third party funds received 

• Government's stated ambition is to end leasehold for new flats by the end of this Parliament 

Emma described the commonhold ambition as "highly ambitious" as a timeline, but confirmed that is the stated intention. 

Tom Woolley – Right to Buy and the Revenue Problem 

Tom presented the Metis model, developed by SMS Energy, which treats solar PV and batteries as national infrastructure rather than consumer products. The core principle is borrowed from how electricity meters and network cut-outs work in your home - you use them, but you don't own them, they're not on your credit report, and someone else is responsible for maintenance and replacement. 

The Metis model in brief. Housing associations deploy PV and battery at zero upfront cost to the resident, funded through a 25-year institutional finance arrangement. Residents pay a fixed monthly subscription - Tom described it as "as simple as getting a mobile phone." Net savings exceed the subscription from day one: around 25% overall reduction in energy bills, with up to 85% reduction in reliance on grid-supplied electricity. No consumer credit. No taxpayer subsidy. The landlord retains a revenue stream from carbon credits and grid flexibility services - around £300 a year for a typical 10-panel, 5kWh battery system. Critically, no airspace lease is required, which removes a significant layer of legal complexity. 

The Right to Buy problem. Under the traditional model, when a tenant exercises their Right to Buy, the housing association loses the asset and everything attached to it - carbon credits stop, flexibility revenue stops, and the new homeowner is eventually left with an unexpected bill when the battery or inverter needs replacing after around 10 to 12 years. Some of the largest battery manufacturers are already moving away from free ongoing servicing, which will make this problem more acute for private homeowners. 

The Home Comfort Charge - how it works. When a Right to Buy application comes in: 

1. SMS/Metis reviews the installed assets on that property 

2. The housing association offers the new homeowner a Home Comfort Charge subscription as part of the sale process 

3. The new homeowner continues paying a fixed monthly fee - still lower than their energy savings (around £375 a year net saving for the homeowner) 

4. SMS/Metis continues to manage, optimise and maintain all assets including battery and inverter replacement 

5. The housing association continues to receive the revenue stream from carbon credits and flexibility services 

In Tom's words: 

"The asset stays. The service stays. The revenue stays. Only the landlord changes." 

Because the assets were structured as infrastructure from day one rather than consumer goods, there's no need to change airspace leases, transfer maintenance responsibility or renegotiate anything complex. The transition is a straightforward contract change from a landlord-tenant arrangement to a landlord-homeowner arrangement. Tom also noted that this model was designed from the outset to work for both social housing landlords and private homeowners via local authorities - so it is genuinely tenure-agnostic. 

Housing associations that already provide ongoing maintenance and ground services to residents even after Right to Buy have a natural pathway into this: they continue the service relationship in a slightly different commercial form. 

The Big Problem the Discussion Surfaced 

The most significant exchange of the session came from a provider describing a real current scenario: a block with five leaseholders, five different types of lease, no government funding available, a failed communal heating and hot water system requiring replacement, and a fixed service charge arrangement that provides no obvious mechanism to recharge the cost. 

The core problem: EWI and heat pumps in that block might cost around £50,000. Floris Law caps recovery at £10,000 per leaseholder where government funding is involved. Even that is a very large ask for most leaseholders. And where the works improve rather than merely repair (relevant for older leases without improvement clauses), there may be no right to recharge at all. 

Emma acknowledged the difficulty. She noted possible (but narrow) routes, some leaseholders may qualify as charitable beneficiaries of a charitable housing association, and the single financial guidance document expected later in 2026 might help. But she was honest that there is no clean solution currently available. 

One participant was blunt: "If there's no financial product emerging to deal with this problem, we can safely say to the sector we are definitely not going to achieve net zero." 

The sense of the room was that this is a problem everyone knows exists and nobody has yet solved and that it needs to be named and addressed directly, not left on the back burner until it becomes a crisis. 

Key Takeaways 

1. Leasehold complexity needs to be designed into your retrofit programme from day one, not discovered mid-delivery. The occupancy agreement governs what you can do, what you can charge for, and who owns what after the works. Programmes that haven't checked this first are storing up tribunal claims, unrecoverable costs and unhappy residents. 

2. Right to Buy doesn't have to mean losing your retrofit investment. The Metis/SMS Home Comfort Charge model is a working example of how to preserve a housing association's revenue stream and service relationship after a tenant purchases their home, without airspace leases or legal complexity. It won't suit every situation, but it's a concrete option worth understanding. 

3. There is an unresolved funding gap for leaseholders in mixed-tenure blocks, and the sector needs to face it directly. Where Floris Law caps apply, where leases restrict charges to repairs only, or where leaseholders cannot afford their share of major works, providers are currently absorbing costs, deferring works or leaving them undone. No financial product currently exists to bridge this gap cleanly  and without one, mixed-tenure stock risks being left behind in the push to EPC C and beyond. 

 Reflection Questions for Housing Providers 

1. Have you mapped your leaseholder occupancy agreements across your planned retrofit areas , and do you know which properties have improvement clauses, which don't, and which will trigger Floris Law caps if government funding is used? 

2. When a tenant in a recently retrofitted property exercises their Right to Buy, what happens to your energy asset revenue, maintenance obligations and equipment ownership? Is there a plan in place, or is this currently unaddressed? 

3. Mixed-tenure blocks with pepper-potted leaseholders on varying leases represent a genuine barrier to net zero delivery at scale. How significant is this in your stock, and is your organisation actively working toward a solution, or is it being deferred until programmes are ready to proceed?