Supporting Older People Conference

Supporting Older People Conference OS7: Are you being served? Update on service charges Speaker: S:\Dept\Conferences\2010-11\Finance 2011\Marketing\Handbook Derek Rawson Chartered Surveyor and Housing Consultant Chair: Pascale Mezac Business Planning Services Plan2moro

Are you being served? Update on Service Charges Derek Rawson FRICS 23 March 2011

How to demonstrate value for money through a transparent process Need to: Identify the estate in which the property is located; Identify the block in which the property is situated (if a flat)

How to demonstrate value for money through a transparent process Need to: 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

How to demonstrate value for money through a transparent process Need to: Know how many properties share the Know how many properties share the same services at both estate and block level

How to demonstrate value for money through a transparent process Need to: Ensure that where there are freeholders Ensure that where there are freeholders and leaseholders on the same estate, they are being charged the correct amounts

How to demonstrate value for money through a transparent process Need to: Ensure that where there are commercial units in the block, (e.g. shops and offices), the (landlord) association is charging the correct service charge to the commercial tenants

How to demonstrate value for money through a transparent process To satisfy these needs, you must: Provide written schedule of services with every tenancy Have signed and dated copies of all your leases and conveyances;

How to demonstrate value for money through a transparent process To satisfy these needs, you must: Know what services are being provided on the ground by visiting the estate (useful to take photos)

How to demonstrate value for money through a transparent process Grounds maintenance Tree surgery Access roads and line painting Playground

How to demonstrate value for money through a transparent process Only 3-6 have entryphone and communal lighting Block also includes 1- Block also includes 1-2 and 7-8

How to demonstrate value for money through a transparent process Need to: Have variable service charges rather than Have variable service charges rather than fixed

How to demonstrate value for money through a transparent process Variable service charges require: Reconciliations between estimates and actuals within six months of the year end; Production of evidence of service charge costs when requested;

How to demonstrate value for money through a transparent process Information about rights of residents to be sent with every demand for a service charge; and Consultation before major repairs (where costs Consultation before major repairs (where costs exceed 250 including VAT per resident) and entering into a long-term agreement of more than 12 months (where costs exceed 100 per annum (including VAT) per resident)

How to demonstrate value for money through a transparent process The process: Stage One Consult with residents about the proposed specification and invite names of contractors Allow 30 days for comments Amend specification if possible and Must include residents nominee in tender list Out to tender

How to demonstrate value for money through a transparent process Stage Two Receive tenders and prepare tender report Must provide details of two lowest to residents for comment and where they can inspect the rest 30 days for comments Accept tender (possible Third Stage if not accepting lowest tender or tender from residents nominee)

How to demonstrate value for money through a transparent process Stage Three Within 21 days of accepting the tender notify all residents of the reasons why not accepting the lowest or the residents nominee.

How to demonstrate value for money through a transparent process Note on EU procurement route Must still inform residents of the proposed process and allow residents to comment on the specification, even if they cannot nominate a contractor

Implications of changes in regulation No major changes in legislation but recent decisions of the courts emphasise need to be aware of, and to comply with, existing legislation One minor change for Right to Buy Administration see Statutory Instrument 2010 No 2769.

Implications of changes in regulation The Housing (Right to Buy) (Service Charges) (Amendment) (England) Order 2010 changed the index used in calculating the inflation allowance to that published by the Building Cost Information Service of the Royal Institution of Chartered Surveyors Effective from 29 December 2010

REVIEW OFLEGAL BACKGROUND LEGISLATION CASE LAW Paragraph 2.1 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 Housing Act 1988 Amendments for S/ch (18 month rule) 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 Introduces Leasehold Reform Commonhold Act 2002 (effective 26 th July Revisions to Landlord and 2002) Tenant Act 1985/1987 Details being introduced by Regulations (not completed as at March 2011)

Current Statutes The Service Charge (Consultation Requirements) (England) Regulations 2003 Statutory Instrument 2003 No. 1987 Effective 31 st 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

Current Statutes The Service Charges (Summary of Rights and Obligations and Transitional Provision) (England) Regulations 2007 Statutory Instrument 2007 No. 1257 Effective 1 st October 2007

Current Statutes Housing and Regeneration Act 2008 (22 nd 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 6 th 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 6 th 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 Must comply with both stages of the consultation process (freeholder did not supply copies of estimates) Daejan Investments Ltd v Benson (January 2011) (LVT Upper Chamber (Lands Chamber) - Court of Appeal)

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)

Case Law Staff accommodation costs Gilje v Charlgrove Securities (2002) Sinking Funds St Mary Mansions V Limegate Investment Co Ltd (2003)

The Tenancy Agreement Should contain 1. Covenant to provide services 2. List of services provided

The Tenancy Agreement If variable service charge, should also state: 1. Cost at first letting; 2. Frequency of variation; 3. Basis of calculation; 4. Method of apportionment; and 5. 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

Processes involved in driving value Proforma consistency for money and cost effectiveness Development appraisal Schedule of services attached to tenancy agreement Finance codebook Spreadsheet used for calculating service charges Income and expenditure statements for residents

Processes involved in driving value for money and cost effectiveness Involve your customers in writing the specification for your contracts Ensure that you have followed the s20 Ensure that you have followed the s20 consultation procedures if using variable service charges

Processes involved in driving value for money and cost effectiveness Remember that an individual leaseholder or tenant must not be financially disadvantaged by the way in which a contract is entered into. A proper consultation was the essence of the statutory scheme (law report on Daejan v Benson)

Processes involved in driving value for money and cost effectiveness Quality control monitoring customer feedback Consider the issue of local v regional or national Consider the issue of local v regional or national suppliers

Processes involved in driving value for money and cost effectiveness 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

Processes involved in driving value for money and cost effectiveness 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)

Processes involved in driving value for money and cost effectiveness Follow the lease/tenancy agreement in how balances should be dealt with (for example, carried forward, invoice issued immediately if deficit, credit refunded immediately)

Processes involved in driving value for money and cost effectiveness 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