Caps on leaseholder service charges

Caps on leaseholder service charges

As you may know, on 12 August 2014, the Government introduced legislation to extend “The Social Landlords Mandatory/Discretionary Reduction of Service Charges (England) Directions.”

The extension now means that all future central government assistance for works of repair, maintenance or improvement are subject to a cap, as long as the work is funded by Decent Homes funding.

The legislation states that leaseholder service charges must be capped over any given 5 year period (to £10,000 outside of London and £15,000 inside London) and applies to both Local Authorities (LAs) and Registered Providers (RPs). The question is; what are your plans to manage the impact?

The consultation responses, although relatively limited, gave some insight into the effects of these caps, namely that some organisations felt they wouldn’t be able to meet the decent homes standard. It also gave some indication as to how some LAs and RPs would fund the costs above the cap. However, it was evident that a lot of organisations hadn’t decided on how to deal with it yet.

As you might expect, leaseholders and leaseholder groups made up the majority of the consultation response. This isn’t surprising given a couple of the examples of the costs that some people were expected to pay:

  • Leaseholders who owned a four bedroom flat were being charged £53,000 each for improvement works
  • One leaseholder was paying around £1,000 a month to the council for various service charges

Whatever your opinion on these changes, it is something that all organisations are going to have to manage but it is better to be proactive rather than reactive. I guess it all comes back to the hot topic in the sector at the moment and that’s Value for Money.

The question that we should all be asking ourselves is; can you avoid going above these caps in the first place? It is about good contract and asset management; selecting the right works to carry out, appointing the best contractor and getting the best balance between cost and quality. In a lot of cases, it should not be about how we might fund the cost above the cap but instead, working out how you can avoid going over the cap in the first place.

For more information contact Stephen Benson: