Doubles all round

In my most recent post, I promised to provide an analysis of the rent letters provided to Pembrokeshire County Council’s tenants under S103 Housing Act 1985.

However, before venturing into that particular thicket, I should try to explain where my disagreement with the council arises.

I have maintained from day one that, when service charges were de-pooled by the council and allocated directly to individual tenants’ rents, there should have been a corresponding decrease in ALL rents to avoid charging twice for the same service.

It’s a bit like the pub that sticks 50p on the price of a pint on Friday nights in order to pay for the live music.

As a regular ten-pint-a-night man, you complain that you are being penalised because some patrons sit all night enjoying the music while sipping a half.

The landlord agrees and begins to charge a £3 entry fee.

Would you be happy if he failed to remove the 50p surcharge?

Well, in effect, that is the trick that PCC has pulled off.

My view on this is supported by many local authorities up and down the land.

I have emboldened the relevant words.

Here is Northamptonshire County Council:

“Although at the point of de-pooling, rents are reduced by the amount of the service charge, ensuring that there is no initial increase, there may be an increase over the coming years due to the way the rent increase formula is applied. For example, if the target rent for a property is £80 and the actual rent is £75, the rent only has to increase by £5 over the following years to reach the target. However, if the rent is reduced to £70 because of depooling, it has to increase by £10 to reach the target.”

And a bit closer to home, Monmouthshire County Council:

“De-pooling will not result in overall increases in rents as the service charge element will be extracted from the current gross rent (resulting in a reduction in the rent element)”

And Denbighshire County Council:

“In addition, in year one, our recommendation is that through depooling we reduce an individual’s rent by the amount of chargeable services they receive. For example, current rent of £70 per week of which we can attribute £5 of service chargeable costs.

For 2015/2016 the rent and other charges to the tenant would be shown as:

£65 Rent
£5 Service Charges
£70 Total Payable”

Charnwood Borough Council:

“The amount of additional income generated would be a gradual increase, rather than all of the additional income in year one. This is because the majority of the tenants incurring the service charge would have their rents reduced by the same amount so it would only be new tenants who generated the additional income.”

The only exceptions I have come across are Pembrokeshire and Anglesey.

Here is what Anglesey County Council had to say about it:

Proposed approach to de-pooling
Although tenants will receive a separate demand for the cost of the service charge as a result of this “de-pooling” exercise, it is proposed that we do not reduce the current gross rent by the equivalent amount. As can be seen at 2.3 above, our average current rent is considerably below the Policy Rent levels for similar sized properties.

These proposals would therefore see the current gross rent amounts being retained as the new core rent figure, with the annual rent increase being applied when appropriate.

This makes it perfectly clear that the “gross rent” (i.e. base (core) rent + service charges) will become the new base (core) rent to which future percentage rent increases will be applies i.e. you will pay £3.00 at the door AND an extra 50p a pint.

While it might be true that Anglesey’s rents are, on average, “considerably below the Policy Rent levels for similar sized properties [in other authorities]” that is no excuse for chiselling their tenants.

Of course, provided tenants were clearly informed of this rent increase in the S103 letter (see below) that would be fine.

As you might expect, PCC was a little more circumspect, or deceptive – whichever takes your fancy:

“That the base rent of individual properties remains the same and there is no corresponding reduction in rents as a result of the de-pooling exercise”.

Whether by accident or design this statement is rather confusing.

Anglesey council is, at least, drawing a distinction between base [core] rent and gross rent [base rent + service charges] while PCC is treating “base rent” and”gross rent” as synonymous whereas they are clearly distinct.

My view is supported by guidance authored by the Welsh Government, which explained how this adjustment should be made:

“10. Where rent pooling currently applies and tenants do not receive, or are not eligible to receive, services, it will be for each social landlord to determine whether the weekly rent for those tenants should be reduced or held on a marked time basis.”

So, the tenant of a three-bed family home that does not benefit from either warden services, or the communal areas in older persons’ accommodation, should either have their rent reduced by an amount equal to the de-pooled cost of these services, or have their rent held on “a marked time basis”.

The concept of marking time will be familiar to anyone with a military background, but in this context it usually refers to a situation where someone has been moved from a higher paid to a lower paid post within an organisation.

Usually, they will retain their previous higher salary but it will “mark time” until pay rises allow the salary for their lower paid position to catch up and overtake their enhanced salary at which point the normal pay rise regime will resume.

So, if the actual rent of £100 was made up of base rent of £95 + £5 pooled charges for services, the choice would be to reduce the weekly rent to £95 and add any future increases to that, or maintain the rent at £100 until such time as any increases on top of the £95 base rent took you beyond the £100, at which point the usual increases would be applied.

When charges for communal areas were de-pooled in 2016/17, PCC calculated that the amount now allocated directly to those tenants in receipt of the service was the equivalent of 77p when distributed across the estate as pooled charges.

My contention has been all along that either this 77p should have been deducted from gross rent before any further increase were applied, or the further increases should have included the 77p (marking time).

So, supposing the intention was to impose a £1.00 rent increase on the present gross rent of £100 the council could either have reduced the rent to £99.23 (£100.00 gross rent – 77p de-pooled service charge = £99.23 base rent) before adding the £1.00 increase, or it could have “marked time”, in which case the first 77p of the rent increase would be discounted to take account of the depooled amount.

In the present example, because the depooled amount is less than the rent increase, the final rent would be £100.23 in both cases.

However if the de-pooled amount had been, say, £5.00 the two possible revised rents would have been £96.00 (100 – 5 + 1) or £100.00 (including £4.00 of marking time still to come).

And, as the great Danish physicist Niels Bohr said of quantum mechanics, if you’re not confused by all that, you are nowhere near to understanding it.

It is interesting to understand the difference in attitude between the English authorities and the likes of PCC and Anglesey.

That stems from the different government imposed rent setting regimes in England and Wales.

Welsh Government required council house rents to rise by CPI + 1.5% with the discretion to add a further £2.00, while in order to curb the housing benefit bill, the then chancellor George Osborne had instructed English local authorities to reduce their rents by 1% per annum over a five year period.

So, it was in the interest of Welsh councils like PCC and Anglesey with low rent levels to keep their rents as high as possible by including service charges as part of base rent, while English councils were keen to keep the distinction between service charges and rents because the former were not subject to George Osborne’s 1% reduction.

As Charnwood Borough Council put it:

Advantages of de-pooling
Many local authorities have de pooled and the advantages are as follows:
Income streams would be protected and maximised – The 1% rent reduction incurred by the implementation of the central government rent scheme for council dwellings, would not apply to a service charge where the cost can be recovered in full.

So, whichever side of Offa’s Dyke you found yourself, your council’s aim was to screw as much cash out of you as was legally (or if necessary, illegally) possible.

However much of this is beside the point because what council rent-setting meetings decide is not the real issue.

By virtue of S103 Housing Act 1985, social landlords have a legal duty to notify tenants of any rent increases they intend to impose and, if they are not happy with the increase, tenants have the right to terminate the tenancy without the need to give notice etc.

It therefore seems obvious that this information should be in a form that is clear and easy to understand.

You can’t be expecting tenants to be poring over council minutes and reports in an attempt to work out the meaning of statements such as “the current gross rent amounts being retained as the new core rent figure” in order to work out how much extra they will have to pay.

My next post will seek to demonstrate that, with regard to these tenants’ rent letters, PCC failed to meet its statutory obligations.