Under most construction contracts, the contractor takes on the ground conditions risk. However, a recent case has demonstrated that the risk can fall on the employer.
There is a change of language from Target Rent to Formula Rents and confirmation:-
- that Formula Rents are to increase annually by the increase in CPI of the preceding September; and
- the end of convergence (unless a waiver is obtained).
The Regulator will only consider issuing a waiver if the inability to continue to converge means that a RP is unable to meet other standards, particularly in respect of financial viability.
These positions will, as we mentioned in our January 2014 Thoughtpiece, cause pressure on some RPs so it is worth reminding providers of where income can be increased. These are:-
- RPs can charge Formula Rents on re-letting
- Where major improvements have been undertaken RPs can have the 30% market value element of the Formula Rent reviewed with a view to charging that revised Formula Rent on re-letting.
Perhaps most significant for the sector in the long-term is the confirmation of “pay to stay”. Properties with tenants and their partners falling into the group known as “Higher Income Social Tenants” or “HISTs” fall out of the Rent Standard, leaving RPs to charge what they wish, but taking into account market forces, the provisions of their tenancy agreements and their governing instruments.
HISTs are tenants, their partners/spouses whose combined household income (no reductions) is more than £60,000 in the relevant tax period. Where several people live in a property the highest two incomes should be taken into account. The period is the full preceding tax year in the year before the Rent Standard. The HCA gives an example that the income received in the 2013/14 tax year would guide the rent payable for the 2015/16 tax year. However, if a HIST household is then subject to a certain and ongoing loss of income, RPs are expected to look again at the rent level. Identification of HISTs, working out what to charge and when that charge needs to be reduced, are certain to occupy RPs over the next few months.
For more information
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