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

These two new directions replace the previous directions for mandatory and discretionary reduction of service charges and came into force on the 12 August 2014. Social landlords will be aware of the previous regulations but material changes have been implemented by these 2014 directions.

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

These directions apply to social landlords making a service charge payable by a lessee in respect of a dwelling in England in respect of the cost of repair, maintenance or improvement where such works have been undertaken with relevant assistance from a specified programme where an application for such assistance is made on or after the 12 August 2014.

For the Regulations to apply the lessee must be a qualifying lessee and this means a tenant who is an individual and who occupies the dwelling as his or her only or principal home.

Relevant assistance is defined as that part of a grant or other financial assistance from one of the programmes set out within the Schedule to the Regulations which defines programme as:

The Decent Homes backlog funding provided through the 2013 spending round and
Any other assistance for the specific purpose of carrying out works of repair, maintenance or improvement provided by:

Any Secretary of State; or
The Homes and Communities Agency.
The relevant date for determining whether the Directions apply is the date of commencement of works which are undertaken wholly or partly with such relevant assistance.
Where service charges are raised for the cost of repair, maintenance or improvement for works which are undertaken wholly or partly with relevant assistance and the costs incurred in respect of such works in any period of five years exceed a total sum of £15,000 for a dwelling within a London authority and £10,000 for a dwelling outside of a London authority, a social landlord must reduce the service charge in that period of five years to either £15,000 or £10,000 depending on the location of the dwelling.
Where a service charge is to be raised for works of repair, maintenance or improvement undertaken wholly or in part with relevant assistance and the maximum service charge is specified in the application for assistance to be a sum less than £15,000 for a dwelling within a London authority and £10,000 for a dwelling outside of a London authority and

The application is approved and
The Secretary of State agrees that the maximum service charge would be the sum specified in the application or such other sum below either £15,000 for a dwelling within a London authority or £10,000 for a dwelling outside of a London authority, then

The social landlord must reduce any service charge so that it does not exceed the agreed amount.

Practical Points

As the applicability of the mandatory reduction applies to a qualifying lessee at the relevant date it is possible that at the date of raising Section 20 Notices or estimated demands that a lessee may not be a qualifying lessee and therefore an estimated charge is raised for a sum in excess of the statutory cap of £15,000 (for London authorities) but subsequently between the estimate and commencement of works an assignment of the lease occurs such that the assignee occupies the flat as their only or principal home with the result that as at the date that the works commence the statutory cap will apply with the result that the final account costs for the works scheme will be capped to the statutory sum being a figure less than the estimated demand.

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

Subject to considering the criteria referred to below a social landlord where it makes a service charge in respect of works of repair maintenance or improvement may waive or reduce the service charge by an amount that the landlord to considers to be reasonable. Any such waiver or reduction so made is in addition to any other waiver or reduction that may be made.

Specified Criteria:

any estimate of the costs of the works of repair, maintenance or improvement notified to the lessee or any predecessor in title before the purchase of the lease of the dwelling;
whether the purchase price paid by the lessee took account of the costs of the works of repair, maintenance or improvement;

any benefit which the social landlord considers the lessee has received or will receive as a result of the works of repair, maintenance or improvement, including an increase in the value of the lease (including the reduction of a negative value of the lease), an increase in the energy efficiency of the dwelling, an improvement in the security of the dwelling and an improvement in services or facilities;

whether, upon receipt of an application by a lessee, a social landlord, having regard to the criteria set out in paragraph 4, considers that the lessee would suffer exceptional hardship in paying the service charge (see below for details on exceptional hardship); and

any other circumstance of the lessee which the social landlord considers relevant.

Exceptional hardship

When considering an application to reduce the service charge or major works charge because of ‘exceptional hardship’, a social landlord should have regard to the following:

whether the dwelling is the lessee's only or principal home;
the total amount of the service charges paid or are payable by the lessee since the purchase of the lease of the dwelling;

the amount of the service charge payable in the year in which the lessee applies for the reduction because of exceptional hardship;

the financial resources available to the lessee;

the ability of the lessee to raise funds to pay the service charge;

the ability of the lessee to pay the service charge if the landlord extended the period for payment; and

any other relevant consideration.

The discretionary power applies in relation to service charges “already demanded so as to permit the non-enforcement of the charges; and already paid so as to permit a refund”.

Practical Points

Any discretionary reduction is in addition to any other waiver or reduction and therefore it is possible for a social landlord to exercise its discretion to waive or reduce service charges below the statutory cap that may apply under the mandatory directions.

The discretionary powers are expressly provided to apply to service charges already demanded and paid so as to permit non-enforcement, i.e. the writing off of sums demanded and indeed to permit refunds to lessees who may already have made a payment.

Social landlords will have to ensure that they have processes and policies in place to consider any requests made by a lessee for a discretionary waiver. It would be good practice to ensure that there are clear notes of the decision taken and the evidence and factors taken into account when exercising discretion.

The Jurisdiction of the First Tier Tribunal (Property Chamber)

It will be interesting to see whether or not the First Tier Tribunal will consider that they have jurisdiction under Section 27A of the Landlord and Tenant Act 1985 (as amended) when being asked to determine whether a service charge is payable.

If a lessee contends that the service charge should be capped under the mandatory directions then it is likely that a Tribunal will consider that the determination of whether or not the lessee was a qualifying lessee at the date that the works commenced and further, whether works were undertaken with relevant assistance, are matters of fact which should be determined in determining whether a service charge, in excess of £15,000, is payable.

It is less likely that a Tribunal will consider the exercise of a discretion under the discretionary directions as a challenge to the exercise of a discretion by a public body is a matter of public law and therefore should be challenged by way of a judicial review. It should be noted that a challenge to a decision of a public body usually has to be made within three months from the date of the decision which is to be challenged. It is to be hoped that a Tribunal will proceed to determine the usual issues as to whether a service charge is payable and if so the amount. This would determine the amount of the service charge in question. The lessee can then ask the landlord to make a discretionary reduction or challenge any refusal in an independent process.