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Leaseholder and Tenant
Service Charges Conference
B3: How to calculate and apportion
service charges effectively
Speaker: Adrian Waite
Managing Director AWICS
Chair: John Bryant
Policy Leader National Housing Federation
AWICS Independence…..
Integrity.….Value
How to calculate and
apportion service
charges effectively
A presentation for the National Housing Federation Wednesday 4th September 2013
AWICS Independence…..
Integrity.….Value
Adrian Waite
Managing Director of AWICS Ltd
– Provides management consultancy and
training services principally to social
housing organisations
– Recently advised Northampton BC and
Oldham BC / Housing 21 on introducing
service charges
Chair of Impact Housing Association
– Former board member of Calico Housing
Association
AWICS Independence…..
Integrity.….Value
Introduction
Revenue Service Costs
– Charged to Leaseholders and Tenants
– Charges must reflect actual costs and be
reasonable
Capital Service Costs
– Charged to Leaseholders only
– Charges must reflect actual costs and be
reasonable
– Consultation and Section 20 notices
– Demands for payment within eighteen months
AWICS Independence…..
Integrity.….Value
Calculation of Service
Charges
Leaseholder Service Charges must be
provided for in the lease
– Include capital and revenue items
Tenant service charges must be provided for
in the tenancy agreement and include
revenue items only
Need to decide what services to charge for
– For example, Lifts?
Calculation should include the direct costs
and indirect costs of the service
AWICS Independence…..
Integrity.….Value
Calculation of Administration Fees
Administration fees can be based on:
– Actual costs
• The cost of the staff employed in administering service charges
plus appropriate oncosts
• For example, Northampton Borough Council
– Estimated costs
• An on-cost on the cost of the other service charges
• For example, Oldham Borough Council / Housing 21 chose
10% - consistent with advice of the rent officer who also says
15% is acceptable for housing associations
Difficulty in identifying actual costs is recognised:
– “Payment of a management charge based on a percentage
of costs is not intrinsically unreasonable, having regard both
to the position of the purchaser and of the vendors.” –
Mahase v London Borough of Camden 1996
AWICS Independence…..
Integrity.….Value
Fixed and Variable Service
Charges: Definitions
A fixed service charge is where the landlord estimates the
cost of providing services to a property at the beginning of
each financial year. The tenant pays the service charge
throughout the year and at no point will there be additional
amounts to pay or refunds due back.
– The usual method with tenants.
Variable service charges occur where the landlord sets an
estimated charge at the beginning of the financial year, and
then produces a final account once the year is complete. The
final account compares the actual costs in delivering services
to a property against the estimate that was set, and may result
in a credit back or an additional amount due from the resident.
– The usual method with leaseholders.
AWICS Independence…..
Integrity.….Value
Fixed and Variable Service
Charges: Best Practice “The decision between a fixed and variable service charge
regime is one for each housing association to make, and often
will be finely balanced. A variable regime means much more
stringent procedures but in exchange it guarantees that the
landlord… can recover every penny spent on services.
Generally, the larger the service charge in relation to the net rent,
and the likelier it is to vary unpredictably from year to year, the
stronger the case for a variable charge. However, in general
needs housing, where service charges are relatively low and
reasonably stable, a regime of fixed charges may well be
adequate.”
National Housing Federation – Service Charges – A Guide for
Housing Associations
AWICS Independence…..
Integrity.….Value
A practical response:
Impact Housing Association Keep it Simple
Tenants want to know how much they
are paying and what they are paying for
Administering variable charges would
cost £40,000 a year more than fixed
charges
Fixed charges are made but tenants are
given information about the services
provided and their costs
AWICS Independence…..
Integrity.….Value
Dealing with Big Ticket Items
and more Complex Services
Staffing Costs (wardens, managers, caretakers & concierges) –
Full salary plus on-cost less a percentage for general housing
management
– Caretakers – apportion between estates and then between general
management and service activities
– London Rent Assessment Committee decided in 1967 that an
appropriate appropriation to service charges is 15%
Heating & Lighting Communal areas
– One option to apportion the total electric bill between flats and
communal areas based on floorspace and recover the communal
element as a service charge
Cleaning communal areas
– May be done by caretaker, warden, cleaner or contractor
– Need to apportion the cleaners’ wages between communal areas
and other work and add appropriate on-costs
AWICS Independence…..
Integrity.….Value
Variable Service Charges for
tenants: Does CLARA apply?
CLARA = Commonhold & Leasehold Reform Act 2002. This amended provisions for variable service charges under the 1985 & 1987 Landlord & Tenant Acts
Section 152 outlines the information that must be provided to tenants and allows for tenants to withhold service charges if inadequate information is provided (however this has yet to be enacted)
Section 153 provides for an accompanying notice
Section 154 entitles a tenant to inspect documents
AWICS Independence…..
Integrity.….Value
Large Open Spaces and Policies on
Re-charging through Service Charges
Costs vary greatly – Work carried out by contractors, staff or residents
– Sometimes a need to include maintenance & depreciation of plant
– Non-recurring costs such as tree surgery
– Lack of information to calculate apportionments
Northampton Borough Council divided the borough into three zones and calculated a service charge for grounds maintenance in each zone per bed space – Not ideal – a more specific method could have
been better
AWICS Independence…..
Integrity.….Value
Apportionment Techniques
At what level should costs be collected?
– Block
– Estate
– Scheme
– District
How to apportion costs to dwellings?
– Units
– Bedrooms
– Bed spaces
Is there an intermediate stage of apportionment?
– For example using floorspace to apportion total costs
between schemes
AWICS Independence…..
Integrity.….Value
Example: Oldham Borough
Council and Housing 21 PFI Partnership with 1,400 homes including nineteen sheltered
schemes with 600 homes
Service Charges have never been unpooled but now there are financial
pressures and a wish to fund new services and development
Fixed Service charges to be based on estimated operational costs in
communal areas covering: – Refurbishment Life Cycle
– Life cycle contingencies
– Office running costs
– Other costs
– Cyclical maintenance
– Responsive Maintenance
– Cleaning costs
– Gardening costs – grounds
– Contingency (5% of all costs excluding life cycle)
– Administration (10%)
Service Charges to be phased in over five years for existing tenants
and introduced in full for new tenants
AWICS Independence…..
Integrity.….Value
Consultation with tenants
and leaseholders Bush HA – Consultation meetings based on
estimates and details. Value for Money assessed
based on residents’ views before and after works
done.
Raglan HA – Consult local forums on works as part of
consultation on wider issues and then report to
board.
Restormel Housing Trust – assesses value for money
through service reviews, residents’ groups and
general consultation.
William Sutton Trust – used MORI to assess
residents’ views of value for money of service
charges
AWICS Independence…..
Integrity.….Value
Good Practice: Audit Commission Provides comprehensive information to all service users that
clearly describes the organisation’s rent and service charge
setting policy, and how rents and service charges are calculated
and collected.
Delivers accurate and timely information about rent and service
charge accounts to service users, for example quarterly rent and
service charge statements.
Minimises and prevents arrears by ensuring that new rent
accounts are always set up, and means of payment supplied to
new tenants, before tenancies commence.
Ensures that accounting systems are well integrated with
housing management and benefit systems. As a result the
organisation can clearly identify arrears due to housing benefit
claims or payment in credit or arrears.
Separately records and accounts for rent arrears, court costs,
rechargeable repairs and other debts
AWICS Independence…..
Integrity.….Value
Accounting Requirements
“The accounting records are the responsibility of the landlord… The
records need to be sufficient to show all transactions involving
service charges monies and to enable the person preparing the
information to be satisfied that the information complies with the
legislation. The accounting records would be expected to contain:
Details of all sums of money received and expended by the
landlord… and the matters to which the receipts and
expenditure relate.
Documents such as invoices to support all the figures entered in
the accounts.
Details of longer term contracts and income and expenditure in
relation to these contracts.”
Draft guidance on the accountants’ report on service charges
AWICS Independence…..
Integrity.….Value
Leasehold Valuation
Tribunal Decisions
Service Charges quashed where:
– Leaseholders not properly consulted
• Westminster £2million
– Work not necessary
• Islington – roofs to flats - £200,000
– Work poor
– Costs excessive
AWICS Independence…..
Integrity.….Value
Conclusions
Decide what to charge for based on statute,
case law and the provisions of leases and
tenancy agreements
– Decide between fixed and variable charges
Identify all appropriate costs
Apportion costs between schemes and
tenants based on the best available
information
Ensure charges represent Value for Money
Keep it Simple
Consult and provide complete information
AWICS Independence…..
Integrity.….Value
National Housing Federation
How to calculate and
apportion service charges
effectively
The End –
Any Questions or Comments?
Adrian Waite (Independent Consultancy Services) Limited,
Room 3, Shire Hall, The Sands,
Appleby in Westmorland,
Cumbria. CA16 6XN.
Tel: 017683-52165 or 07502-142658.
E-mail: [email protected]
Website: www.awics.co.uk
Twitter: @AdrianWaite