Out-Law News 2 min. read
10 Oct 2013, 12:01 pm
It is consulting on capping the amount that authorities could charge leaseholders to a maximum of £10,000, or £15,000 for those in London; where the authority has received Government funding to maintain their tenants' homes. Authorities that have received funding through certain initiatives set out in the 1997 Social Landlords Mandatory Reduction of Service Charge Directions must already abide by these caps. The consultation will run until 18 November.
Property law expert Nicola Buchanan of Pinsent Masons, the law firm behind Out-Law.com, said that it was "not surprising" that the Government was seeking to extend the Directions to cover all situations where local authorities had received central funding for maintenance. However, she questioned the wording of the announcement, which some had understood as protecting all council leaseholders from excessive service charge costs relating to refurbishment works.
"The proposed caps will only apply where the refurbishment scheme has received some degree of grant funding from central Government or the Homes and Communities Agency," she said. "The rationale for this is sound, given that one of the overriding purposes of providing funding is to minimise the cost to leaseholders of refurbishment works."
"The issue for local authorities is how, in a climate of cuts, they fund the inevitable gap between the cost of works on the one hand and the grant and the recoverable capped service charge on the other. This is not a new issue, however, and is one they have had to address already on schemes affected by the current Directions. Often a public/private structured option provides the solution," she said.
The cap originally covered 'social landlords' who had received funding from the Single Regeneration Challenge Fund or Estates Renewal Challenge Fund, both of which have since ended. It was later extended to cover work funded under the New Deal for Communities Programme and the Housing Revenue Account Private Finance Initiative.
The consultation proposes extending the remit of the Directions to cover all future government funding for repair, maintenance or improvement; whether provided centrally or by the Homes and Community Agency. This would include funding granted under the Decent Homes initiative, announced as part of the 2013 Spending Round. It proposes a £15,000 cap for homes in London and a £10,000 cap for homes outside London, over a five-year period.
Commenting on the proposals, Communities Secretary Eric Pickles said that some leaseholders had received "extortionate" bills of nearly £50,000 for work on the upkeep of their building. He said that although it was reasonable for those who had purchased former council properties on the open market or under the Right to Buy scheme to pay a share of these costs, he was concerned that this was being abused by some local authorities.
"There is absolutely no excuse for councils to terrify hard-working homeowners with ridiculous and excessive charges for repairs to their building," he said. "While the vast majority of councils behave responsibly, there are some who have utterly failed to maintain standards alongside a common sense approach to charges, leaving their leaseholders crushed by outrageous bills."
"This is not fair, and where government funding is used we won't stand by and let leaseholders get pushed around by their council. That's why we are proposing a cap on leaseholder charges of £10,000 and £15,000 over a five-year period, depending on where you live," he said.
