Service Charge
Service Charges in a new Regulatory Framework Derek Rawson FRICS 19 October 2010
PLENARY ONE
• Service Charges – • The nuts and bolts of excellent service delivery
Can HAs offer quality services representing good value for money? • Yes, if Can identify the estate in which the property is located; Can identify the block in which the property is situated (if a flat)
Can HAs offer quality services representing good value for money? • Yes, if Can identify the services provided “on the ground” to both the estate and the block Have a chart of accounts that can code expenditure at both estate and block level
Can HAs offer quality services representing good value for money? • Yes, if Know how many properties share the same services at both estate and block level
Can HAs offer quality services representing good value for money? • Yes, if Where there are freeholders and leaseholders on the same estate, they are being charged the correct amounts
Can HAs offer quality services representing good value for money? • Yes, if There are commercial units in the block and the (landlord) association is charging the correct service charge to the commercial tenants
REVIEW OF LEGAL BACKGROUND
• LEGISLATION Paragraph 2.1 • CASE LAW • TENANCY AGREEMENT/LEASE/TRANSFER • TENANT SERVICES AUTHORITY
AN INTRODUCTION TO SERVICE CHARGES LEGAL BACKGROUND
Paragraph 2.1 • MANAGEMENT AGREEMENT • INDEPENDENT HOUSING OMBUDSMAN
Current Statutes • Landlord and Tenant Act 1954 • Housing Act 1980 • Housing Act 1985 • Landlord and Tenant Act 1985 Paragraph 2.1
Commercial property Introduced right to buy Consolidating Act Consolidating Act (Sections 18 to 30 for variable service charges)
Current Statutes •
Landlord and Tenant Act 1985
s11 – Landlord’s statutory obligations to repair –
1.Structure and exterior 2.Installations for supply of water, gas, and electricity and for sanitation 3.Installations for space heating and heating water Net rent cost – Leases less than 7 years
Current Statutes • Landlord and Tenant Act 1987
Amendments for S/ch (18 month rule)
• Housing Act 1988
Assured tenancies from 15/01/89 Section 116 amends L and T Act 1985
Current Statutes
• Leasehold Reform Housing and Urban Development Act 1993 • Housing Act 1996
Management Codes (ARHM and RICS)
Social Housing Grant (replaces HAG) Leasehold Valuation Tribunals extended to L and T Act cases
Current Statutes • Commonhold and Leasehold Reform Act 2002 (effective 26th July 2002)
Introduces Commonhold Revisions to Landlord and Tenant Act 1985/1987 Details being introduced by Regulations (not completed as at September 2010)
Current Statutes • The Service Charge (Consultation Requirements) (England) Regulations 2003
•
Effective 31st October 2003
•
Limit of £250 (including VAT) for one-off contracts Limit of £100 per annum for long-term contracts (more than 12 months) Watch VAT increase in January 2011
• • Statutory Instrument 2003 No. 1987 •
Current Statutes • The Service Charges (Summary of Rights and Obligations and Transitional Provision) (England) Regulations 2007 • • Statutory Instrument 2007 No. 1257
Effective 1st October 2007
Current Statutes • Housing and Regeneration Act 2008 (22nd July 2008)
Replaces Housing Corporation with The Homes and Communities Agency and The Tenant Services Authority Revisions to Section 21 Landlord and Tenant Act 1985 (in Schedule 12)
Current Statutes • The Service Charge Information (England) Regulations 2010
Regulations drafted and planned to come into force on 6th April 2010. This did not happen due to General Election and new coalition government do not see it as a priority
Current Statutes • The Service Charges (Designated Account) (England) Regulations 2009
Regulations drafted and planned to come into force on 6th April 2010. This did not happen due to General Election and new coalition government do not see it as a priority
Current Statutes • Equality Act (2010)
Possible cost implication for service charges if occupier requests work to be done in the communal areas
Recent Case Law • Wording of the tenancy agreement must be precise • Tenant must not suffer significant prejudice as a result of landlord failing to consult
Peabody Trust v Reeve (2008)
London Borough of Camden v leaseholders of Grafton Way (2008)
Other Case Law
• Interest on loans
Boldmark v Cohen (1985)
• Reasonableness of variable clauses
The Guinness Trust v West Midlands RAC (1998)
• Consultation
Martin v Maryland Estates (1999)
Case Law •
Staff accommodation costs
•
Gilje v Charlgrove Securities (2002)
•
Sinking Funds
•
St Mary Mansions V Limegate Investment Co Ltd (2003)
•
LVT cannot consider service charges paid
•
Daejan Properties v London LVT (2002)
NET RENT AND SERVICE CHARGE Net Rent • Mortgage • Management • Maintenance Service Charge • Costs of facilities provided over and above those to an individual dwelling
Proforma consistency • Development appraisal • Schedule of services attached to tenancy agreement • Finance codebook • Spreadsheet used for calculating service charges • Income and expenditure statements for residents
The Tenancy Agreement •
Should contain
1. Covenant to provide services 2. List of services provided
The Tenancy Agreement • 1. 2. 3. 4. 5.
If variable service charge, should also state: Cost at first letting; Frequency of variation; Basis of calculation; Method of apportionment; and How tenant can appeal.
Housing Benefit Regulations Key Definition (Regulation 12) The payments in respect of which housing benefit is payable in the form of a rent rebate or allowance are the following periodical payments which a person is liable to make in respect of the dwelling which he occupies as his home
Housing Benefit Regulations (a) Payments of, or by way of, rent; (e) Payments of or by way of service charges, payment of which is a condition on which the right to occupy the dwelling depends Water rates to dwelling excluded
How to make the most of service charge contracts with your suppliers • Involve your customers in writing the specification for your contracts • Ensure that you have followed the s20 consultation procedures if using variable service charges
How to make the most of service charge contracts with your suppliers • Remember that an individual leaseholder or tenant must not be financially disadvantaged by the way in which a contract is entered into.
How to make the most of service charge contracts with your suppliers • Quality control monitoring – customer feedback • Consider the issue of local v regional or national suppliers
How you can ensure that service charge statements are consistent, accurate and transparent • Identify the development to which the service charge account relates • Identify the number of units contributing towards the service charge account
How you can ensure that service charge statements are consistent, accurate and transparent • State the estimated income receivable for the service charge year just ended • State the actual expenditure for the service charge year just ended • Show the resulting balance and how it will be dealt with
How you can ensure that service charge statements are consistent, accurate and transparent
• If charging for depreciation, ensure that a similar figure is included in the expenditure side of the account to ensure that the money is retained by the landlord (and not handed back the following year as a surplus)
How you can ensure that service charge statements are consistent, accurate and transparent
• Follow the lease/tenancy agreement in how balances should be dealt with (for example, carried forward, invoice issued immediately if deficit, credit refunded immediately)
How you can ensure that service charge statements are consistent, accurate and transparent • Ensure statements are prepared within six months of the service charge year end (s20B Landlord and Tenant Act 1985) • If unable to prepare statements within six months of year end, write to all those affected explaining that the accounts are being prepared and when they will be issued
THE HOUSING CORPORATION
9.
GOOD PRACTICE GUIDE
Service Charges – Value for money? March 2007 (Ten tips for getting it right)
THE HOUSING CORPORATION
1. 2.
3. 4. 5.
User friendly information Involve tenants and leaseholders at an early stage in setting service charges and agreeing estate service delivery Comply with legislation re: consultation On multi-landlord and multi-tenure estates consult everyone in the same way Create sub-accounts for service charges (to separate from net rent)
THE HOUSING CORPORATION
6. 7.
8. 9. 10.
On multi-landlord and multi-tenure estates liaise with other landlords and their tenants to consider whether estate wide contract is feasible Explore with residents the options to include or exclude services for which service charges are made Ensure that information about tenders and contracts is in plain language Other languages/formats? Consult individual tenants and residents as well as their recognised residents association
PLENARY ONE
• Service Charges – • The nuts and bolts of excellent service delivery
Can HAs offer quality services representing good value for money? • Yes, if Can identify the estate in which the property is located; Can identify the block in which the property is situated (if a flat)
Can HAs offer quality services representing good value for money? • Yes, if Can identify the services provided “on the ground” to both the estate and the block Have a chart of accounts that can code expenditure at both estate and block level
Can HAs offer quality services representing good value for money? • Yes, if Know how many properties share the same services at both estate and block level
Can HAs offer quality services representing good value for money? • Yes, if Where there are freeholders and leaseholders on the same estate, they are being charged the correct amounts
Can HAs offer quality services representing good value for money? • Yes, if There are commercial units in the block and the (landlord) association is charging the correct service charge to the commercial tenants
REVIEW OF LEGAL BACKGROUND
• LEGISLATION Paragraph 2.1 • CASE LAW • TENANCY AGREEMENT/LEASE/TRANSFER • TENANT SERVICES AUTHORITY
AN INTRODUCTION TO SERVICE CHARGES LEGAL BACKGROUND
Paragraph 2.1 • MANAGEMENT AGREEMENT • INDEPENDENT HOUSING OMBUDSMAN
Current Statutes • Landlord and Tenant Act 1954 • Housing Act 1980 • Housing Act 1985 • Landlord and Tenant Act 1985 Paragraph 2.1
Commercial property Introduced right to buy Consolidating Act Consolidating Act (Sections 18 to 30 for variable service charges)
Current Statutes •
Landlord and Tenant Act 1985
s11 – Landlord’s statutory obligations to repair –
1.Structure and exterior 2.Installations for supply of water, gas, and electricity and for sanitation 3.Installations for space heating and heating water Net rent cost – Leases less than 7 years
Current Statutes • Landlord and Tenant Act 1987
Amendments for S/ch (18 month rule)
• Housing Act 1988
Assured tenancies from 15/01/89 Section 116 amends L and T Act 1985
Current Statutes
• Leasehold Reform Housing and Urban Development Act 1993 • Housing Act 1996
Management Codes (ARHM and RICS)
Social Housing Grant (replaces HAG) Leasehold Valuation Tribunals extended to L and T Act cases
Current Statutes • Commonhold and Leasehold Reform Act 2002 (effective 26th July 2002)
Introduces Commonhold Revisions to Landlord and Tenant Act 1985/1987 Details being introduced by Regulations (not completed as at September 2010)
Current Statutes • The Service Charge (Consultation Requirements) (England) Regulations 2003
•
Effective 31st October 2003
•
Limit of £250 (including VAT) for one-off contracts Limit of £100 per annum for long-term contracts (more than 12 months) Watch VAT increase in January 2011
• • Statutory Instrument 2003 No. 1987 •
Current Statutes • The Service Charges (Summary of Rights and Obligations and Transitional Provision) (England) Regulations 2007 • • Statutory Instrument 2007 No. 1257
Effective 1st October 2007
Current Statutes • Housing and Regeneration Act 2008 (22nd July 2008)
Replaces Housing Corporation with The Homes and Communities Agency and The Tenant Services Authority Revisions to Section 21 Landlord and Tenant Act 1985 (in Schedule 12)
Current Statutes • The Service Charge Information (England) Regulations 2010
Regulations drafted and planned to come into force on 6th April 2010. This did not happen due to General Election and new coalition government do not see it as a priority
Current Statutes • The Service Charges (Designated Account) (England) Regulations 2009
Regulations drafted and planned to come into force on 6th April 2010. This did not happen due to General Election and new coalition government do not see it as a priority
Current Statutes • Equality Act (2010)
Possible cost implication for service charges if occupier requests work to be done in the communal areas
Recent Case Law • Wording of the tenancy agreement must be precise • Tenant must not suffer significant prejudice as a result of landlord failing to consult
Peabody Trust v Reeve (2008)
London Borough of Camden v leaseholders of Grafton Way (2008)
Other Case Law
• Interest on loans
Boldmark v Cohen (1985)
• Reasonableness of variable clauses
The Guinness Trust v West Midlands RAC (1998)
• Consultation
Martin v Maryland Estates (1999)
Case Law •
Staff accommodation costs
•
Gilje v Charlgrove Securities (2002)
•
Sinking Funds
•
St Mary Mansions V Limegate Investment Co Ltd (2003)
•
LVT cannot consider service charges paid
•
Daejan Properties v London LVT (2002)
NET RENT AND SERVICE CHARGE Net Rent • Mortgage • Management • Maintenance Service Charge • Costs of facilities provided over and above those to an individual dwelling
Proforma consistency • Development appraisal • Schedule of services attached to tenancy agreement • Finance codebook • Spreadsheet used for calculating service charges • Income and expenditure statements for residents
The Tenancy Agreement •
Should contain
1. Covenant to provide services 2. List of services provided
The Tenancy Agreement • 1. 2. 3. 4. 5.
If variable service charge, should also state: Cost at first letting; Frequency of variation; Basis of calculation; Method of apportionment; and How tenant can appeal.
Housing Benefit Regulations Key Definition (Regulation 12) The payments in respect of which housing benefit is payable in the form of a rent rebate or allowance are the following periodical payments which a person is liable to make in respect of the dwelling which he occupies as his home
Housing Benefit Regulations (a) Payments of, or by way of, rent; (e) Payments of or by way of service charges, payment of which is a condition on which the right to occupy the dwelling depends Water rates to dwelling excluded
How to make the most of service charge contracts with your suppliers • Involve your customers in writing the specification for your contracts • Ensure that you have followed the s20 consultation procedures if using variable service charges
How to make the most of service charge contracts with your suppliers • Remember that an individual leaseholder or tenant must not be financially disadvantaged by the way in which a contract is entered into.
How to make the most of service charge contracts with your suppliers • Quality control monitoring – customer feedback • Consider the issue of local v regional or national suppliers
How you can ensure that service charge statements are consistent, accurate and transparent • Identify the development to which the service charge account relates • Identify the number of units contributing towards the service charge account
How you can ensure that service charge statements are consistent, accurate and transparent • State the estimated income receivable for the service charge year just ended • State the actual expenditure for the service charge year just ended • Show the resulting balance and how it will be dealt with
How you can ensure that service charge statements are consistent, accurate and transparent
• If charging for depreciation, ensure that a similar figure is included in the expenditure side of the account to ensure that the money is retained by the landlord (and not handed back the following year as a surplus)
How you can ensure that service charge statements are consistent, accurate and transparent
• Follow the lease/tenancy agreement in how balances should be dealt with (for example, carried forward, invoice issued immediately if deficit, credit refunded immediately)
How you can ensure that service charge statements are consistent, accurate and transparent • Ensure statements are prepared within six months of the service charge year end (s20B Landlord and Tenant Act 1985) • If unable to prepare statements within six months of year end, write to all those affected explaining that the accounts are being prepared and when they will be issued
THE HOUSING CORPORATION
9.
GOOD PRACTICE GUIDE
Service Charges – Value for money? March 2007 (Ten tips for getting it right)
THE HOUSING CORPORATION
1. 2.
3. 4. 5.
User friendly information Involve tenants and leaseholders at an early stage in setting service charges and agreeing estate service delivery Comply with legislation re: consultation On multi-landlord and multi-tenure estates consult everyone in the same way Create sub-accounts for service charges (to separate from net rent)
THE HOUSING CORPORATION
6. 7.
8. 9. 10.
On multi-landlord and multi-tenure estates liaise with other landlords and their tenants to consider whether estate wide contract is feasible Explore with residents the options to include or exclude services for which service charges are made Ensure that information about tenders and contracts is in plain language Other languages/formats? Consult individual tenants and residents as well as their recognised residents association
