Service Charges The Practical Issues

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Service ChargesThe Practical Issues

• Peter BirdPrimary Business Support

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First principles

• Service charges are charged for services that are
  beyond the benefit of a residents own home.
• The services usually benefit a group of residents
  and are paid for by those residents.
• Charges have to be categorised as either eligible
  or ineligible for Housing Benefit.

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The Regulators view

• The Regulator Code and Guidance 2005 says
• Guidance at Para. 3.1 All residents have
  information about their service charges,
  including costs that their charges cover, how
  charges are budgeted, and increases calculated.

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Options for charging methods

• Fixed charges
• Variable charges

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Fixed charges

• Landlord estimates the costs for the coming year.
• Advises leaseholders/tenants of the charge.
• Administers the services during the year.
• Calculates following years charges based on
  experience, financial trends and plans for the
  future.

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Variable charges

• Landlord estimates charges for the coming year.
• Advises leaseholders/tenants of the estimated
  charge.
• Administers the services during the year.
• Following year end calculates actual costs.
• Has accounts audited.
• Advises leaseholders/tenants of actual costs and
  adjustment to be applied to their account.

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Where to start in an ideal world

• Decide which features you want to charge for.
• Identify the sources of cost data.
• Identify the properties that benefit from each
  feature.
• Establish an ongoing mechanism for data
  collection and apportionment.
• Decide on using fixed or variable charges.

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Where to start - in the real world

• Examine your tenancy agreements and leases to see
  what they say about charges.
• Identify properties to which charges should be
  applied.
• Establish what elements are being charged for and
  which are not.
• Establish what has happened historically.
• Identify the source of data used for charges and
  evaluate its accuracy.
• Establish whether you should use fixed or
  variable charges.

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Common problems in the real world

• Lack of clarity about services to be charged.
  (Is the HMS able to hold the data?)
• Lack of clarity about which properties benefit
  from which services. (Again, does the HMS hold
  this data?)
• Unsure whether charges are eligible for HB (Is
  the rent accounting section aware of the
  distinction).
• Source of costs for each charge not known
  comprehensively. (Is this information able to be
  split out from larger contracts?)

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Common problems in the real world

• Lack of understand about the information needs
  amongst those issuing works and letting
  contracts.
• Lack of consistency in lease/tenancy agreement
  terms.
• Lack of a mechanism for regular collection of
  data.
• Lack of understanding amongst those drawing up
  tenancy agreements for specific lettings
  documents being issued incomplete.

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Service charge included
No schedule here, or attached
No details of apportionment
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Common problems in the real world

• Failure to issue annual statements.
• Poor understanding amongst residents.
• Failure to comply with terms of
  leasehold/tenancy.
• Handling capital costs initial costs and
  repairs costs.
• And finally, a lack of realisation of the
  problems relating to service charges and the
  potential for loss of income.

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S.20 Consultation

• Consultation is required under Section 20 of the
  Landlord and Tenant Act 1985, as amended by the
  Commonhold and Leasehold Reform Act 2002 and in
  accordance with the Service Charges (Consultation
  Requirements) (England) Regulations 2003.

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S.20 Consultation

• Consultation on major works and long-term
  agreements
• Major works installation of new equipment, day
  to day repairs and cyclical maintenance to
  communal parts.
• Long term agreements maintenance of communal
  parts of building or external facilities provided
  for residents of the building.

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S.20 ConsultationMajor works

• Works on a building or other premises.
• (repairs, maintenance or improvement where cost
  of improvement is included in lease)
• Qualifying works
• Where the contribution by any one leaseholder is
  over 250.

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S.20 ConsultationQualifying works

• Requirement in summary
• Need to describe works and seek comment.
  Leaseholders can suggest contractors (which must
  be invited to bid subject to defined rules). 30
  day notice.
• --- Undertake tendering etc ---
• Following bidding, need to describe bids from at
  least two bidders and responses to comments from
  first consultation and seek further comment. 30
  day notice.

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S.20 ConsultationQualifying works

• Requirement in summary (contd)
• Unless contract is awarded to residents chosen
  contractor, or lowest priced bid, the landlord
  must give notice within 21 days stating the
  reason for the decision, summarising comments
  received and the landlords response to the
  comments.
• NB this is a notice, not a consultation.

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S.20 ConsultationLong Term Agreement
Any contract or agreement (relating to service
charge matters) by a landlord.

• Qualifying contracts
• Of more than 12 months duration.
• Where one or more residents contribution will be
  more more than 100 in any year.

NB Exceptions include new development before
residents move in.
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S.20 ConsultationQualifying Long Term Agreement

• Requirement in summary
• Need to describe requirement for contract and
  seek comment. Leaseholders can suggest
  contractors (which must be invited to bid subject
  to defined rules). 30 day notice.
• --- Undertake tendering etc ---
• Following bidding, need to describe bids from at
  least two bidders and respond to comments from
  first consultation and seek further comment. 30
  day notice.

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S.20 ConsultationQualifying Long Term Agreement

• Requirement in summary (contd)
• Unless contract is awarded to residents chosen
  contractor, or lowest priced bid, the landlord
  must give notice within 21 days stating the
  reason for the decision, summarising comments
  received and the landlords response to the
  comments.
• NB this is a notice, not a consultation.

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S.20 ConsultationOther Arrangements

• Provision for qualifying works under a qualifying
  long-term agreement.
• Provision for exemption from elements of
  consultation when a public notice is issued under
  EU procurement procedures for works and
  agreements.
• Do you consult other RSLs to which you supply
  services?

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Leasehold Valuation Tribunal (LVT)

• The LVT can determine the reasonableness and
  amount of the service charge.
• It has the power to determine whether there is a
  liability to pay.
• It can vary leases.
• It can consider administration charges and their
  method of calculation.

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Leasehold Valuation Tribunal (LVT)

• It can dispense with the need for S20
  Consultation where it believes it is appropriate
  to do so.
• Either the leaseholder or the landlord can apply
  to the LVT.

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LVT Issues

• Considerable number of cases where S20 not served
  properly
• Can sometimes be overlooked by LVT if not
  adversely affected tenants but dont rely upon
  it!
• If error in S20 process identified best to start
  again.
• LVTs ability to determine urgent cases.
• Communication.
• Improvements introduced in CLRA 2002.

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Service Charges value for money?

• Housing Corporation research March 2007
• What customers want
• What customers should get good practice
• Do customers get what they want?
• LVTs
• Partnering
• Consultation
• Tips for getting it right

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Good practice
What Customers want

• Landlords need to understand differing needs of
  residents.
• Choice of methods of payment.
• Some want to pay in cash, some want to pay at
  Post Offices and banks with no extra charge.
• Vulnerable residents may need help to understand
  invoices and make payments.
• Incentives for early payments.
• For major works, enable interest free payments
  over longer periods.
• Itemised charges.

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Good practice
What Customers want

• Clear indication of estimates Vs costs.
• Involving of residents in what is needed.
• Supplying residents with specification of the
  work so they can make informed judgement of the
  work/services.
• Feedback on performance of contractors.
• Landlords to consider importance to residents
  when assessing VFM.
• Involving residents when making the assessment of
  VFM.

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Good practice
What Customers want

• Feedback on how consultation has affected service
  delivery and costs.
• For major works, enable interest free payments
  over longer periods.
• Consultation over general issues rather than just
  specific works.
• Leaseholder/service charge payers forum.

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Good practice
Examples of good practice

• Assessment of hardship cases, allowing longer
  repayment periods, putting charge on property
  Bracknell Forest BC
• A variety of payment options LB Brent
• Early payment discount LB Brent
• Loan facilities for larger bills LB Brent
• Pay as you like pay as much as possible when
  possible Basildon DC
• Consultation over general issues rather than just
  specific works Raglan HA
• Asking residents what needs doing before
  surveying Waverley DC
• Leasehold forum Gosport BC

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Good practice
Examples of good practice

• Setting service charges
• By property value/floor area/location - LB Tower
  Hamlets
• By rateable value Thanet DC
• Bedrooms and floor area LB Waltham Forest
• VFM
• Internal arbitration LB Southwark
• Comparing admin and management costs with others
  Crawley BC
• MORI poll William Sutton Trust
• Complaints analysis and telephone surveys LB
  Hammersmith Fulham

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Ten top tips for getting it right

1. Explore with residents what services are
   required.
2. Involve residents early in agreeing services and
   monitoring arrangements.
3. Consult individual tenants and leaseholders as
   well as their recognised residents associations.
4. Keep consultation on tenders and contracts in
   plain language.
5. Provide user friendly information.
6. Consider people who need information in other
   languages and/or formats.

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Ten top tips for getting it right

1. On multi-tenure estates consult tenants and
   leaseholders in a similar way.
2. On multi-landlord estates liaise with other
   landlords to see whether estate-wide services
   will give better VFM.
3. Create sub accounts to separate service charges
   from rent.
4. Comply with legislation!

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Conclusion

• Service charges is a complex area of housing
  management that needs careful and dedicated
  management.
• The issues can be resolved if a systematic
  approach is applied.
• Help is available if you need it.