Friday, 19 December 2014

Should Excessive Service Charges be repaid to HB government department?

Posted in: Need to Know | Ask the Experts

17/03/2012 4:07 pm

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17/03/2012 4:20 pm

Oh dear. That would set the cat amongst the pigeons!

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17/03/2012 5:57 pm

In the case of 1 if found to be overcharging should be forced to repay back to the Government Office and when I wrote to the Housing Executive at the Council was not interested

In the case of 2 under Section 19 of Landlord and Tenants Act 1985 I walk around and got the people to sign a petition and we have challenged the Housing Association under Reasonanbleness  of the Service Charges and that a Dispute Arisen.  We having a Special Meeting with the Housing Association shortly

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Mo Houseman

Mo Houseman

Posts: 6

19/03/2012 11:32 pm

Sunflower it looks like you are an admirable example of an engaged tenant. Good luck with your meeting with the HA.

On the other point - what I'm raising is the idea that the Housing Association might be required by one government department or another to repay it's overcharged Service Charges to the government much as it does to individual tenants when overcharging has been identified.

Also I'm suggesting that where systematic overcharging (ie to a larger number of tenants) has occurred it might be useful to have a mechanism in place that challenges this on a larger scale rather each individual having to make an individual challenge of his or her Service Charges.

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20/03/2012 7:57 am

Under Service Charges under Housing Regulation 2006 we have no jurisdiction over them these  Housing Association.   I went and raised my concerns with Local Authority and DWP they appears to be no safeguarding that tax payer money under Housing Benefit payments under Service Charges has any guidelines.  So you have to go looking at the law.  Look at Unfair  Terms in Consumer Contract Regulations due to our appears to be using tactic of a cynical and disreputable Housing Association and was being evades and not addressing our issues and our website just used the words contact us and speak to a officer.  Ours had no links.   Only one booklet but again was management friendly and not customer friendly and appears changing Good Practice Guidelines putting more charges on the Tenants which really is the Rent Strucuture.  I found a report for Leaseholders but again nothing for Tenants.     So went and look on the Leaseholder Tribunal website and  used they words to write up the Petition to get everyone demand a meeting.  I've wrote to both The Rt Hon Grant Snapps, Housing Minister and The Rt Hon Jack Dromey, Shadow Housing Minister and I am still awaiting a response

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Mo Houseman

Mo Houseman

Posts: 6

06/04/2012 2:03 am

Thise thread was intended to promote discussion of the situation on which a housing association has fallen into the temptation of using Service charges as another revenue stream. Inflating the charges beyond way beyond what would be required to meet the reasonable cost of the services supplied. Or transferring costs for ordinary maintenance onto service charge bills.

I think many in the housing profession are aware thtat this sometimes happens. The question is IS it fair game for HA's & others to do this or should a system exist that penalises HA's for this practise by raking back the overcharges for all tenants in an area when this practise has been identified as going on? Would HA's be discouraged from trying it on if the guilty HA's were forced to pay a all the costs of  investigating & clawing back the overcharges?

Or should we take the view that this overcharging is a legitimate tactic -  given the ever increasing services that the government seems to expect Social Housing landlords to provide without adequate funding?.

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06/04/2012 12:06 pm

Under TSA Standards it was suppose to be Value for Money, Eliminating Fraud and a Solid Audit Trail its was suppose to be about  honesty, transparency, accountability, openness and  scrutiny what they say we can have and what we can have and what we get is never the full information.  I blame the boards of HA. But the average Tenant cannot get to the board and question these Service Charges.  Where is the current legisation.   Only a book by the National Housing Federation that is out of print.   We also understand with a not for profit HA is suppose to be at cost only.  

Also many started charging Management Fees.   So what does my Rent cover then?

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10/04/2012 11:13 am

Hi there, I know a thing or 2 about service charges and in case 1, it would be a yes, the charge can be retrospectively reduced and the housing provider would need to take the necessary action to amend the charge over the period, which could involve a refund to HB.

In case 2 I would take a more pragmatic approach and suggest that in these instances it is more efficient to agree a credit to be carried forward to offset the ongoing costs as it simply saves on admin, i.e. to refund a service charge amiunt to HB someone has to advise of the new covering periods then HB have to reassess the amount due and then an overpayment needs to be recovered, if you think of this in terms of time taken to acheive the goal unless the amount is substantial the admin out weighs the benefit (NB if a tenant moves out who pays their own costs prior to recieving the full benefit of the overcharge being repaid via a carried forward credit then a refund should be given). If totally eccessive then a one off refund would be due.

In relation to the general theme, I have experience of working with many housing providers helping them improve their service charge procedures and recover more costs.  In my experience, overall housing associations are losing money in the provision of service chargeable costs.  There are always cases that highlight poor administration and over charges do occur, however, in general I truly believe housing associations are not recovering / charging the full cost of service provision.

I think this area has had more attention in recent times as housing providers are starting to put more work in to correcting this situation which obviously does create a reaction.

Management fees / admin fee - up to 15% is permissable, some providers opt to charge a lower rate, this is for managing the charge, arranging the contracts, doing the accounts, paying staff to work on service charges etc. 

If you are interested in what your rent is for, I would point you in the direction of the Target Rent regime, which in my mind seperated rents from service charges and defined a social rent, if you are interested Ithis was first published in the governement green paper a decent home for all.

If you have queries on how best to challenge charges where you beleive they have been inflated beyond "reasonable" / "actual costs" pleae provide some detail and I will happily advise how best to query l challenge such costs.

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10/04/2012 6:12 pm

Anon - 10/04/2012 11:13am - it sounds like you know quite a bit about service charges. Wonder if you could offer advice on my situation? My RSL sold a few of properties on the estate several yrs ago. The homeowners challenged the service charge and have now been told they don't have to pay anything, while a review is taking place. The housing manager told me the reason they made this decision is because they couldn't prove what service the homeowners were getting. So my question is how can they prove what service the tenants are getting, who are still paying the charge. NB. The charge covers estate management costs. Thanks...

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11/04/2012 4:06 pm

Hi there, anon service charge person here with a little bit of advice that might clarify this situation hypothetically.

The evidence / proof issue may well be to do with the type of service charge the homeoweners are liable to pay.  They will be charged what is called a "Variable Service Charge" which has certain (legal) requirements to evidence the charge and they can ask to see historic accounts which are in most instances approved by chatered accountants.  If your housing provider does not operate a variable service charge for its rented residents it may be that they do not have the necessary evidence due under a variable charge. Therefore, if they are looking to correct this sitaution to evidence the charge they will be preparing financial information to meet these requirements before they can start to recover their costs.

i have assumed you are not charged a variable service charge (to fit with this hypothetical answer) however, it is always worth checking your tenancy agreement to try and understand what type of service charge is in place.  A Variable charge would either be stated as a variable charge or make reference to "actual costs", alternatively you could be charged what is known as a Fixed Service charge or even a pooled service charge.  I won't go into the details of precisely what defines these charges, but in answer to your question the evidence required under these charges is not the same as those needed under a variable charge. Your housing provider shoudl be able to provide a service charge budget for the current year, which would show anticipated and know costs that they are going to incur in providing the services, they may even be able to provide details of last years spend on services to evidence the reasonableness of charge.

You reference "estate charge", more detail on what this means should be available so you can understand what services are provided / covered.

2 disclaimers - 

1 - I have only pointed out a hypothetical scenario where this could occur .

2 please do not take this commentary as being a negative for fixed charges, I support social landlords using fixed service charges as they are far less expensive to administer and any money saved in the provision of social housing is clearly a good thing. Also a fixed charge that is well run is a perfectly fair way to charge for serivces.

I hope this helps, I'll keep an eye on the thread if any further general advice is needed.

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11/04/2012 7:27 pm

Hi there service charge person - anon 11/04/2012 4:06pm. Thanks v much for providing the clarity, its really useful info.
So without running the risk of hijacking this thread.. As I understand it homeowners could be expected to pay a different type of 'variable' service charge than tenants.
I've looked at my TA and I believe its a fixed service charge - the wording says "the charge does not vary from year to year according to the costs of the service you receive". (Does that also mean the cost won't vary due to inflation?)
I actually don't mind paying a charge because I do see the benefit of it. It covers upkeep of open spaces eg gardening; a caretaker; non contract fees.
So I guess my question would still be if they cannot evidence the variable service charge for homeowners; where is the proof that tenants are getting any benefit from the fixed charges? I happen to know that some homeowners have not been charged anything for several years - surely that's plenty of time to get the evidence needed. Thanks..

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12/04/2012 11:48 pm

Well this is interesting. Many leaseholders think that overcharging on service charges is rampant. Other professionals in related fields (I mean the legal advisers and solicitors who deal with the cases) have expressed the view overcharging on service charges is rampant in the area of Temporary Accommodation provision. And the details of some of this overcharging indicates that overcharging on service charges may be being used as an extra source of income by some housing associations. This is of course very improper, to say the least!.

Now a professional ( Anonymous on 10/04/2012 11:13 am.) who helps housing associations increase their service charges says that in general he thinks HA's under charge (oh yes!). Does this mean they don't charge as much as they could get? I suspect that somewhere in all the rules and legislation relating to service charges that there are opportunities for HA's to transfer all kinds of costs onto the individual tenant. That is if they've got the brass neck for it!

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Mo Houseman

Mo Houseman

Posts: 6

17/04/2012 1:52 am

Experienced observers appear to hold totally opposite views about the fairness of current Service Charge practises.
This is clearly pointed out by Inside Housing's own article on the findings of London Assembly’s planning and housing committee.

The comments on this article also clearly show that many believe they know of unfair service charge practises by RSLs.
As one comment illustrates (quoted below) this sometimes may extend to maximising service charges to provide another stream of revenue!

" ....if you look at all the new schemes being built in the Capital you will not fail to notice how the majority have been designed to maximise service charges, with token communal facility for which maximum charge may be later applied.

I will not name the well known RSL concerned, but when I worked in their development department blocks were designed with service charge potential as a growth income from years 3 onwards. The only balancing act was the move towards mixed tenure where the service charge to tenants had to be seen to be consistent and so dampened the potential maximum charge levied."

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17/04/2012 10:15 am

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24/04/2012 10:50 am

- Anon 11/04/12 - Evidence for a fixed charge,

Hi there, to answer your question regarding evidence, a variable charge requires specific accounts evidencing "actual costs", without the this information provided in the correct format the charge is still payable, but the housing provider needs to provide this information to be able to collect the serivce charge.

For a fixed charge the evidence required will just be your serivce charge budget, clearly you can question the cost of services and the level of service provision, but they do need to produce service charge statements to be able to collect for the cost of serivces.

If I were you I would look to try and understand precisely what services are being provided, ensure that you are only paying your fair share - i.e. if you estate had 100 properties you were paying 100th of the total costs (i.e. not subsiding shared owners / private owners costs) and you could ask about their tendering process to try and qualify Value for Money in the serivces that are being provided. 

So basically the proof is a budget based on actual and anticipated costs, this would be contract prices where available - i.e. grounds maintenance and anticipated costs for items such as communal electricity, which should logically be based on the previous 12 months usage plus any extra costs they know they will incur in the year to come - i.e. a new service or enhanced service is to be provded.

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24/04/2012 10:52 am

sorry small but important correction to the above on a fixed charge they do not need to provide service charge statements!

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27/04/2012 8:59 am

Hi there, in response to David xxxx I find you comments quite concerning a perhaps emphasising the wrong points.

Firstly I find your comment regarding your experience of development teams quite odd. Firstly a service charge budget would naturally be projected to increase by yr 3 as warranties have started to run out on communal assets and gerneally servicing costs will start to increase.  Calling service charges an additional income stream is quite misguided in my opinion, service charges in social housing are to cover the cost of providing the service and there is no benefit to the landlord in having a high cost in services and a high service charge.

My experience of development teams is that they often do not fully consider service costs, which can lead to large future increases in costs when landlords realise they aer not fully charging for the costs of services. In my work I have implemented working practises and procedures to resolve this issue.  I now sit on meetings to inform the design phase to ensure no unnessary costs are built in by design.

I do agree with the article's main point which I see as a need to improve administrative stanards and have spent most of my career working to this end.

Now for an unpopular but true comment, I see the biggest issue for Leaseholders / Shared Owners is the one off large bills for repairs / cyclical maintenance, unfortunatley if administered correctly to account for this, charges would increase to be able to negate the need for one large bills by contributing to reserve / sinking funds.

One of my biggest bug bears when people purchase a leasehold property or Shared Ownership is the legal advice they receive prior to purchase. Solicitors should be reporting to their client the state of / likely future costs of services and this should be clearly explained before they purchase.

Anyway I still stand by my initial statement that overall social landlords are losing out on service costs but perhaps to temper this statement, to enable them to recover their full costs, in many cases a lot of work is needed on their administrative practises and information provision to tenants.

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12/11/2013 10:09 am

Hi, I would appreciate some advice. We bought in variable service charges for our supported tenants (as well as individual statements for each property in the scheme). After each year end, we refund any credits due and in the case of shortfalls, we collect in 12 instalments from the following April. We wrote to the LA's about those cases where we are paid HB directly to seek advice on if they were happy for us to refund the tenants cocerned. One LA has written back and advised that they have never heard of this practice and that they expect us to simply roll the credit forward. I would like to know what response we could offer them and if we could simply refund the tenants directly and what the likely consequnces would be?

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13/11/2013 11:32 am

the same anon as the comment above yours here....

firstly why would you ever do a variable SC on supported! bad call, I'd put a lot of effort in to reversing that decision as it simply won't be administratively cost effective on supported.

I would not refund any CR's as the LA is right, you should carry forward the CR to the next accounting period, this is standard procedure on a variable SC (unless there has been a service failure - i.e. large sums that should be refunded).  By doing this refunds are not needed, you don't need to raise a refund and HB don't have to process a payment all good.

If the tenant is in reciept of HB direct you are paying a HB OP to a third party, expecting them to update their circs with HB, HB to recalc the claim, and the tenant to pay it back!!! Mad! if on part HB this would be a nightmare.... don't do it!!! roll the credit forward.

Honestly I struggle with this being a real scenario - 1 you have variable on supported! 2 you'd refund a cr at year end... I think some service charge administration training may be needed.... Ps I have been known to run the odd course for reasonable rates :)

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