An important update on rent reductions
Welfare Reform & Work Bill
If you are in the process of calculating the forthcoming 1% rent reduction & sending out letters to tenants please read this!
Are Service Charges to be excluded when calculating the 1% rent reduction?
In the last session in the House of Lords an amendment was slipped in to the Welfare Reform & Work Bill in relation to whether service charges are to be included for the purposes of calculating rent. The amendment is complicated but on 11th February 2016 the Lords published their guidance on what they consider the Bill to now say. It is this:
“Lords Amendment 34 would amend the provision regarding when service charge is or is not taken to be included in a reference to the rate of rent payable. It would provide that where service charge is part of the rent then the 1% reduction applies to the sum inclusive of service charge.”
Link to full document here: http://www.publications.parliament.uk/pa/bills/cbill/2015-2016/0132/en/16132en01.htm
So although previously the provisions said service charge was to be included in relation to Affordable Rent properties only, the Lord’s amendment is much wider as most social landlords say in their tenancy agreements that ‘rent’ includes service charges (whether fixed or variable) because generally you want any unpaid service charge to be considered as rent for arrears and possession purposes.
The Bill is now in its ‘ping pong’ stage going between the House of Lords & House of Commons with each House commenting on the amendments until an agreement is reached. At midnight last night the Secretary for Work & Pensions, Iain Duncan Smith’s comments on the Lord’s Amendments were published and he has disagreed with some of the amendments including in relation to the service charge issue! Which you would think was good news, but he has instead suggested an alternative amendment which would require the determination of whether service charge is to be included for calculation purposes or not, to be specified in Regulations. He has suggested that such Regulations would make reference to existing rent standard calculations.
Link to Iain Duncan Smith’s comments here: http://www.publications.parliament.uk/pa/bills/cbill/2015-2016/0132/amend/welfare_rm_ccla_0211.1-3.html
If Iain Duncan Smith’s amendment is agreed by the Lords then we will have to wait until the Regulations are issued by Statutory Instrument to determine whether service charge in any particular case is to be included or not, and this cannot happen until the Bill receives Royal Assent.
Our advice is to hold off sending out any more letters to those tenants who you know will have a rent reduction i.e your general needs & Affordable rent tenants. The current draft of the Welfare Reform and Work Bill provides that there will be an implied term enabling the Registered Provider to reduce the rent payable by the tenant without giving prior notice where the reduction is made for the purpose of complying with the requirements imposed by the Bill. This section will override any provision in the tenancy agreement which requires you to ordinarily give a specific notice period for rent variations.
We suggest that you continue sending out the rent increase letters for all tenants that you know for certain are not going to be subject to a rent reduction (i.e your shared ownership leaseholders & those properties that fall under the bullet pointed list below). If in doubt about whether a particular type of accommodation is going to be excluded (e.g key worker/intermediate; PFI and students) we suggest that you send the rent increase letter now so that any increase that needs to take effect in April 2016 is valid and then if it turns out they are not going to be excluded from the rent reduction requirements you can send a rent reduction letter later.
What types of accommodation/tenancies are to be excluded from the rent reduction requirements?
One of the difficulties is that we still do not have a definitive list of what types of accommodation are to be excluded from the rent decrease requirements.
What we currently know is that supported housing will be exempted from the 1% rent cut for 2016/2017 and the Government has confirmed that the intention is for the definition of supported housing to be a wide definition. This is a change in position from the Government as it had been hoped that supported housing would be exempted completely.
The Government has also confirmed that: “All supported housing as currently set out in the rent standard guidance will be excepted from the rent reduction for a period of 1 year and providers should use this as a guide as they set rents for 2016 – 2017. The exact definition will be defined in the regulations. For the purposes of clarity we intend that the exception will include though not necessarily be limited to:
- domestic violence refuges and other specialist accommodation based support for domestic violence victims
- hostels and other accommodation for the homeless
- sheltered accommodation for older people
- supported accommodation for young people
- extra care housing,
- accommodation for people with mental health or drug/alcohol problems,
- accommodation for people with disabilities
- accommodation for ex-offenders and people at risk of offending.
- Co-ops, alms houses and community land trusts
See link from National Housing Fed:
Exemptions from Rent Reductions
The Regulations detailing the exemptions from rent reductions are expected to be confirmed in the next few weeks.
There is no mention in the above list of student accommodation, intermediate/keyworker accommodation or PFI schemes. However in sittings the Government has said “The Government have made it clear our intention to look to continue to accept those types of housing that are currently exempted from the rent standard, subject to determining whether the existing definitions are appropriate in the light of the revised policy. These include specialised supported housing, which provides support for the most vulnerable people and was developed in partnership with councils or the health service. We will bring forward regulations to set out these and any further exceptions needed under Clause 22.
If you have any further queries, please do not hesitate to contact the Property Disputes team.