Plenary three: How to calculate and apportion service charges effectively

Transcription

1 Leasehlder and Tenant Service Charges Cnference Plenary three: Hw t calculate and apprtin service charges effectively Speaker: Chair: David Hunter Partner, Beevers and Struthers Steve Michaux Grup Directr f Leasehld Services A2 Dminin Husing Grup

2 Beever and Struthers Hw t calculate and apprtin Service Charges effectively Presented by: David Hunter 03 December 2013

3 David Hunter Partner, Scial Husing Team, Beever and Struthers. 32 years sectr experience in Statutry Audit, Business Assurance, Gvernance, Risk Management and Financial Cnsultancy. 10 years as LSVT Bard member at Wulvern Husing frm Shadw Bard. Bard member f cmmercial subsidiary Wulvern Platfrm.

4 Fixed and Variable Service Charges: Definitins A fixed service charge is where the landlrd estimates the cst f prviding services t a prperty at the beginning f each financial year. The tenant pays the service charge thrughut the year and at n pint will there be additinal amunts t pay r refunds due back. The usual methd with tenants. Variable service charges ccur where the landlrd sets an estimated charge at the beginning f the financial year, and then prduces a final accunt nce the year is cmplete. The final accunt cmpares the actual csts in delivering services t a prperty against the estimate that was set, and may result in a credit back r an additinal amunt due frm the resident. The usual methd with leasehlders.

5 Fixed and Variable Service Charges: Best Practice The decisin between a fixed and variable service charge regime is ne fr each husing assciatin t make, and ften will be finely balanced. A variable regime means much mre stringent prcedures but in exchange it guarantees that the landlrd can recver every penny spent n services. Generally, the larger the service charge in relatin t the net rent, and the likelier it is t vary unpredictably frm year t year, the strnger the case fr a variable charge. Hwever, in general needs husing, where service charges are relatively lw and reasnably stable, a regime f fixed charges may well be adequate. Natinal Husing Federatin Service Charges A Guide fr Husing Assciatins

6 Perspective: Fixed Service Charges Histrical Fr rental prperties, lsses culd be ffset: Revenue Deficit Grant Hstel Deficit Grant Grant Redemptin Fund Rent Surplus Fund Mre Recently Service Charge Deficits frm rental prperties 2010 / m fr the Tp 60 RPs

7 Revenue / Capital? Revenue Service Csts Day t day running csts Repairs nly fr Leasehlders Charged t Leasehlders and Tenants Charges must reflect actual csts and be reasnable Cnsultatin and Sectin 20 ntices Demands fr payment within eighteen mnths Capital Service Csts Cmpnents and Fabric f the building Charged t Leasehlders nly Charges must reflect actual csts and be reasnable Cnsultatin and Sectin 20 ntices Demands fr payment within eighteen mnths

8 Calculatin f Service Charges Leasehlder Service Charges must be prvided fr in the lease Include capital and revenue items Right t Buy restricted t Sectin 125 Ntice Tenant service charges must be prvided in the tenancy agreement and include revenue items nly Need t decide what services t charge fr Fr example, Lifts? Calculatin shuld include the direct csts and indirect csts f the service

9 A practical respnse Keep it Simple Tenants want t knw hw much they are paying and what they are paying fr Administering variable charges culd cst substantially mre than fixed charges Where Fixed charges are made tenants shuld still be given infrmatin abut the services prvided and their csts

10 Dealing with Big Ticket Items and mre Cmplex Services Staffing Csts (wardens, managers, caretakers & cncierges) Full salary plus n-cst less a percentage fr general husing management Caretakers apprtin between estates and then between general management and service activities Lndn Rent Assessment Cmmittee decided in 1967 that an apprpriate apprpriatin t service charges is 15% Heating and Lighting Cmmunal areas One ptin t apprtin the ttal electric bill between flats and cmmunal areas based n flrspace and recver the cmmunal element as a service charge

11 Dealing with Big Ticket Items and mre Cmplex Services (cntinued) Cleaning cmmunal areas May be dne by caretaker, warden, cleaner r cntractr Need t apprtin the cleaners wages between cmmunal areas and ther wrk and add apprpriate n-csts Majr cmpnent replacement Cnsultatin Lease / restrictive cvenants Slar Panels Capital Re-charge f electricity

12 Variable Service Charges fr tenants: Des CLARA apply? CLARA = Cmmnhld & Leasehld Refrm Act This amended prvisins fr variable service charges under the 1985 & 1987 Landlrd & Tenant Acts Sectin 152 utlines the infrmatin that must be prvided t tenants and allws fr tenants t withhld service charges if inadequate infrmatin is prvided (hwever this has yet t be enacted) Sectin 153 prvides fr an accmpanying ntice. Sectin 154 entitles a tenant t inspect dcuments

13 Large Open Spaces and Plicies n Recharging thrugh Service Charges Csts vary greatly Wrk carried ut by cntractrs, staff r residents Smetimes a need t include maintenance & depreciatin f plant Nn-recurring csts such as tree surgery Example: a Lcal Authrity divided the brugh int three znes and calculated a service charge fr grunds maintenance in each zne per bed space Nt ideal a mre specific methd culd have been better

14 Apprtinment Techniques At what level shuld csts be cllected? Blck Estate Scheme District Hw t apprtin csts t dwellings? Units Bedrms Bed spaces Is there an intermediate stage f apprtinment? Fr example using flrspace t apprtin ttal csts between schemes

15 Calculatin f Administratin Fees Administratin fees can be based n: Actual csts The cst f the staff emplyed in administering service charges plus apprpriate ncsts Estimated csts An n-cst n the cst f the ther service charges 10% - cnsistent with advice f the rent fficer wh als says 15% is acceptable fr husing assciatins Difficulty in identifying actual csts is recgnised: Payment f a management charge based n a percentage f csts is nt intrinsically unreasnable, having regard bth t the psitin f the purchaser and f the vendrs. Mahase v Lndn Brugh f Camden 1996

16 Gd Practice Service: Audit Cmmissin Prvides cmprehensive infrmatin t all service users that clearly describes the rganisatin s rent and service charge setting plicy, and hw rents and service charges are calculated and cllected. Delivers accurate and timely infrmatin abut rent and service charge accunts t service users, fr example quarterly rent and service charge statements. Minimises and prevents arrears by ensuring that new rent accunts are always set up, and means f payment supplied t new tenants, befre tenancies cmmence. Ensures that accunting systems are well integrated with husing management and benefit systems. As a result the rganisatin can clearly identify arrears due t husing benefit claims r payment in credit r arrears. Separately recrds and accunts fr rent arrears, curt csts, rechargeable repairs and ther debts

17 Accunting Requirements The accunting recrds are the respnsibility f the landlrd The recrds need t be sufficient t shw all transactins invlving service charges mnies and t enable the persn preparing the infrmatin t be satisfied that the infrmatin cmplies with the legislatin. The accunting recrds wuld be expected t cntain: Details f all sums f mney received and expended by the landlrd and the matters t which the receipts and expenditure relate. Dcuments such as invices t supprt all the figures entered in the accunts. Details f lnger term cntracts and incme and expenditure in relatin t these cntracts. Draft guidance n the accuntants reprt n service charges

18 Leasehld Valuatin: Tribunal Decisins Service Charges quashed where: Leasehlder nt prperly cnsulted Westminster 2millin Wrk nt necessary Islingtn rfs t flats - 200,000 Wrk pr Csts excessive

19 Cnclusins Decide what t charge fr based n statute, case law and the prvisins f leases and tenancy agreements Decide between fixed and variable charges Identify all apprpriate csts Apprtin csts between schemes and tenants based n the best available infrmatin Ensure charges represent Value fr Mney Keep it Simple Cnsult and prvide cmplete infrmatin

20 Thank yu fr attending. Any Questins r Cmments? Yur pinin is valuable t us s please dn t frget t cmplete yur feedback frm

21 St Gerge s Huse Chester Rad Manchester M15 4JE t: f: w: