The DCLG has released the “Social landlords reduction of service charges: mandatory and discretionary directions 2014“, in force as of today, 12 August 2014.
The upshot of the mandatory directions is that a social landlord which undertakes “repair, maintenance or improvement” wholly or partly funded by
(a) the Decent Homes Backlog Funding provided through the 2013 Spending Round; and
(b) any other assistance for the specific purpose of carrying out works of repair, maintenance or improvement provided by—
(i) any Secretary of State; or
(ii) the Homes and Communities Agency.
is limited in the amount of service charge or major works charge it can levy on its leaseholders for the work.
The limit is as follows:
such service charges and any services charges which the social landlord proposes subsequently to make for costs incurred in respect of such works in any period of five years [shall not] exceed a total sum (“the total sum”) of—
(i) £15 000 for a dwelling situated within a London authority; and
(ii) £10 000 for a dwelling not situated within a London authority;
On some estate wide ‘decent homes’ major works programmes, that cap could amount to a very significant sum. Major works charges of £30,000 or £40,000 are not uncommon. If spread over 100 leaseholders, the difference could be £2 million or so.
The question for social landlords, then, is whether taking Decent Homes (or other Govt/HCA money) is worth it in view of the cap on major works charges that would follow. Who is to subsidise the works, the Government, or its leaseholders? And that is both a financial and a political question.
[From an exchange with the GLA assistant director of housing on twitter, it appears that the Decent Homes Backlog funding in London – devolved to the GLA – will only be caught in 2015/16, as this is when the 2013 Spending Round Backlog funds will come into play. There will clearly be some difficulties over whether the Decent Homes funding being spent by the social landlord is from a tranche predating the 2013 spending round. Joy. Meanwhile, out of London, is Decent Homes backlog funding provided through HCA covered, no matter which Spending Round it originated from? A straight reading says yes ]
Also released are the Discretionary Reduction Directions.
These give a social landlord a power to waive or reduce service charges, having regard to the following criteria:
(a) any estimate of the costs of the works of repair, maintenance or improvement notified to the lessee or any predecessor in title before the purchase of the lease of the dwelling;
(b) whether the purchase price paid by the lessee took account of the costs of the works of repair, maintenance or improvement;
(c) any benefit which the social landlord considers the lessee has received or will receive as a result of the works of repair, maintenance or improvement, including an increase in the value of the lease (including the reduction of a negative value of the lease), an increase in the energy efficiency of the dwelling, an improvement in the security of the dwelling and an improvement in services or facilities;
(d) whether, upon receipt of an application by a lessee, a social landlord, having regard to the criteria set out in paragraph 4, considers that the lessee would suffer exceptional hardship in paying the service charge; and
(e) any other circumstance of the lessee which the social landlord considers relevant.
Additionally, in cases of exceptional hardship, where the leaseholder has made an application, the landlord hold have regard to:
(a) whether the dwelling is the lessee’s only or principal home;
(b) the total amount of the service charges paid or are payable by the lessee since the purchase of the lease of the dwelling;
(c) the amount of the service charge payable in the year in which the lessee applies for the reduction because of exceptional hardship;
(d) the financial resources available to the lessee;
(e) the ability of the lessee to raise funds to pay the service charge;
(f) the ability of the lessee to pay the service charge if the landlord extended the period for payment; and
(g) any other relevant consideration.
These powers can be applied retrospectively to charges already made and/or paid.
But these are discretionary powers. The Landlord therefore has to consider exercising them, but does not have to grant a waiver or reduction.