In good health?

Since the 1980s, the right to buy has taken social landlords into a significant new business area of leasehold management. Some London local authorities now find almost a third of their housing stock is owned by leaseholders, while housing associations have significantly increased their leasehold portfolios through stock transfers.

However, service charge management and accounting systems may not have kept pace with the requirements of leaseholder management. As leaseholder groups demand more accountability, a more structured approach is required.

New requirements for landlords to provide leaseholders with a service charge statement of account and individual statement for each accounting period, accompanied by an accountant’s certificate, suggest that now is a good time to carry out a health check.

If you answer ‘no’ to any of these questions then you may be incorrectly charging your leaseholders.

Do you have an efficient system to allocate cost of works?

For landlords that manage blocks of flats of similar sizes and tenures a simple cost allocation to individual flats will generally apply. By contrast, local authorities have historically managed large stocks of rented properties where rents are pooled and subsidised and costs are managed at the higher level of the housing revenue account.

Authorities have had to find ways to identify block and estate costs. However, their financial accounting systems and their contracting and invoicing requirements are generally not geared towards operating at this level. As a result, manual processes may be used for disaggregating costs, which are susceptible to error.

While housing associations may have established their own service charge systems, they can find themselves inheriting these issues on large scale stock transfers.

Does your service charge system operate in a controlled environment?

At the level of individual repair orders it should be possible to identify when repairs should not be charged (for example, due to the existence of warranties from previous work).

However, systems managing a large volume of repairs may not be geared to deliver this consistently.

At the whole stock level, the landlord should be able to reconcile total expenditure with chargeable and non-chargeable expenditure and account for year-on-year changes.

This will act as a control to verify that the correct total sum is being charged to leaseholders.

Where financial systems are not designed to report chargeable costs this reconciliation is difficult and time-consuming.

Do you act as a ‘good landlord’?

The landlord should ensure that works are carried out to a reasonable standard.

The landlord and leaseholder should reach a common understanding of quality standards, delivered through robust repairs ordering and strong contract management processes. These should include repairs itemised in sufficient detail for the individual statement.

david.longbottom@gtuk.com

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