Service Charge Caps

The Directions have been introduced following Government consultation. The Government has introduced new Directions that cap the amount social housing landlords in England can recover through service charges for the cost of repairs, maintenance or improvements. The Directions have been introduced following Government consultation.

The Social Landlords Mandatory Reduction of Service Charges (England) Directions 2014 include the following key points:

• They apply to all registered providers of social housing, so including Councils and private registered providers, in England.
• They only apply where the works will be funded through:
  • Decent Homes Backlog Funding provided through the 2013 Spending Round;
  • Secretary of State assistance; or
  • Homes and Communities Agency assistance.

The Directions do not apply to works previously funded and costs charged.

• The caps are £15,000 for dwellings within a London authority or £10,000 for a dwelling not in a London authority.
• The caps apply over a rolling 5 year period.
• Only leaseholders living in the property (when the works are undertaken) as their only or main home will benefit from the cap.
• The caps will not apply retrospectively.

The Social Landlords Discretionary Reduction of Service Charges (England) Directions 2014

These Directions permit social landlords to reduce service charges for the costs of repairs, maintenance or improvements below the mandatory cap where it determines it reasonable to do so. This is subject to specified criteria (for example, whether payment of the charges would cause exceptional hardship, any benefit received by the leaseholder, any estimate given prior to the purchase of the property) being considered. This reduction can apply to costs already demanded or paid.

There is however no obligation on landlords to apply any reduction or waiver.

Other Outcomes of the Consultation

The Consultation also identified a range of points that DCLG intends to address in the future:

• Providing access to summaries of the determination of tribunal cases;
• The ability to obtain recognition of a Tenant’s Association and the Tribunal’s use of the non-statutory guidelines;
• Awareness of what it means to be a leaseholder prior to purchase. In our experience many service charge disputes arise because leaseholders have not fully understood their potential liabilities when purchasing the leasehold interest;
• Obtaining information on absentee leaseholders;
• Landlords providing a realistic calculation of a price a leaseholder of a flat would have to pay the freehold or extend their lease in statutory notices and the point at which leaseholders pay the deposit to acquire a lease extension; and
• Referring the issue of transfer fee covenants found in retirement leasehold sector to the Law Commission.

It’s ‘watch this space’ for these points.

If you would like further information in relation to service charges, either generally or in relation to specific circumstances, please contact:

Emma Duke on 0121 214 3617 or [email protected]; or

Jonathan Cox on 0121 212 7453 or [email protected].

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