Sharp practice?

Over the past few months, I have been analysing PCC’s method of accounting for de-pooled service charges in council house rents.

For new readers I should explain that, until a few years ago, service charges were bundled together (pooled) and shared out between tenants regardless of whether or not they enjoyed the service in question.

So, for example, a young family in a three-bed property contributed to the cost of warden services to older persons’ accommodation and people with no grass in front of their properties paid towards grass cutting.

As part of a shake up of council house rent-setting policy Welsh Government decreed that service charges should be de-pooled, i.e. the cost should fall exclusively on those who benefitted from the service.

It seemed clear to me that, in order to avoid charging twice for the same service when this de-pooling exercise took place, there should be a corresponding reduction in all rents to compensate for the amount now being charged to individual tenants. This is a view shared by local authorities up and down the land with the exception of PCC and Anglesey CC (see Doubles all round).

PCC relied on a statement in the council resolution bringing in these changes to the effect 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”.

As I have explained in previous posts this is based on a misconception of what is meant by base rent. PCC is claiming that “base rent” equals the actual rent paid, while I claim that the actual rent equals base rent + service charges.

The proposition that rents and service charges are two separate entities is supported by the fact that they are treated separately by legislation; that they are accounted for under separate headings in PCC’s accounts; and that the Wales Audit Office in an email purporting to support the council’s stance refers to “…the service charges element [emphasis added] included as part of rent for the prior year for all tenants would not be deducted from all rents for the coming year but would be absorbed in all base rents going forward.”

It seems clear to me, as a matter of logic, that this “service charge element” couldn’t be “absorbed in all base rents going forward” if it was part of base rent already.

And as S19 of the Landlord and Tenant act 1985 says:

Limitation of service charges: reasonableness.

(1) Relevant costs shall be taken into account in determining the amount of a service charge payable for a period —

(a) only to the extent that they are reasonably incurred.

Clearly, some adjustment has to be made otherwise these service charge costs will have been levied twice – once under the pooled scheme and again as a de-pooled cost.

My contention is that no amount of verbal gymnastics can get you to a situation where these costs can be “reasonably incurred” twice.

As I have dealt with this at some length in a previous post (Superchargers) I will not labour the point any further.

However, to some extent this is all by the bye, because the council has a statutory duty to inform tenants of variations in their tenancy agreement – including changes to their rent.

Housing Act 1985
103 Notice of variation of periodic tenancy.
(1)The terms of a secure tenancy which is a periodic tenancy may be varied by the landlord by a notice of variation served on the tenant.

Below are copies of a particular tenant’s rent increase notifications for the years 2014-2017, from which I have removed some of the details to protect the tenant’s identity.

As can be seen from these letters, rather than being insufficiently “explicit”, they were completely silent on the matter of the de-pooled service charges.

You will notice that for the year 2014/2015 (the year prior to the commencement of de-pooling of service charges) the information is presented in the form which shows the tenant both their present rent and future rent.

This allows the tenant to calculate their rent increase by simple subtraction.

However, from 2015/2016 onwards only the future rent is given.

So, whether by accident or design, the true nature of the rent increase is concealed from the tenant who would then have to go back to the previous year’s rent letter and the council’s minutes recording the rent setting resolution to determine whether they were being correctly charged.

Had these letters been more explicit i.e. if both the current and future year’s rent had been specified as in the previous year, then the previous year’s base rent would have had to be restated to take account of the removal of service charges.

So the letter for 2015/16 would have stated current rent as £62.82 (the rent for 2014/15 (£63.02) minus 20p (commuted service charge)) and that for 2015/16 £65.63 (66.35 (the rent for 2014/15 ) minus 77p (commuted service charge)).

Had the information then been presented as in the earlier year, the tenant would have been able to calculate their rent increase for 2015/16 by simple subtraction.

And, of course, they would have noticed that it was different than that arrived at by simply comparing the new rent with the old.

For anyone interested I have attached the precise calculations at the end of this piece.

Section 133 (6) of the Act gives the tenant certain rights:

“If after the service of a notice of variation the tenant, before the date on which the variation is to take effect, gives a valid notice to quit, the notice of variation shall not take effect unless the tenant, with the written agreement of the landlord, withdraws his notice to quit before that date.”

Without going too deeply into the weeds, it seems to me that, before tenants can be said to exercise their right to respond to the variations, those variations must be conveyed to them in the clearest possible terms.


[TENANT’S NAME AND PROPERTY REDACTED]
HAKIN
MILFORD HAVEN
PEMBROKESHIRE
SA73

Dear Tenant

HOUSING ACT 1985 – NOTICE OF RENT INCREASE

Re: Hakin, Milford Haven, Pembrokeshire, SA73

In accordance with the provisions of Section 103 of the above Act, I write to advise you that the current rent of your dwelling will increase from £61.48 to £63.02 exclusive of water and any other charges from the week commencing 7 April 2014.

The rent quoted is inclusive of any garage within the curtilage of the dwelling occupied by you.

Under the terms of the Act, you have the right to terminate your tenancy, and if you wish to do so, you must serve notice on this authority within two weeks following the date on which this notice of increase is given.

Yours faithfully
Director of Finance and Leisure


26th February 2015

[TENANT’S NAME AND PROPERTY REDACTED]
HAKIN
MILFORD HAVEN
SA73

Revenue Services

Dear Tenant

HOUSING ACT 1985 – NOTICE OF RENT INCREASE

Re: Hakin, Milford Haven, Pembrokeshire, SA73

In accordance with the provisions of Section 103 of the above Act, I write to advise you that the current rent of your dwelling will increase from week commencing 6 April 2015.

Rent………………………………………………………………….£66.35

Warden Costs:

Warden Salary……………………………………………………£3.86

Supporting People Grant (see separate leaflet) …….-£ 2.46

Warden Travel……………………………………………………£0.02

Total Rent………………………………………………………….£67.77

The rent quoted is inclusive of any garage within the curtilage of the dwelling occupied by you, but excludes water rates which will be shown on your rent card if you pay them with your rent.

Charges for warden costs are now shown separately and the enclosed leaflet gives further information.

Yours faithfully
Head of Revenues and Assurance


10 March 2016

[TENANT’S NAME AND PROPERTY REDACTED]
Hakin
Milford Haven
Pembrokeshire
SA73

Dear Tenant

HOUSING ACT 1985 – NOTICE OF RENT INCREASE

Re: Hakin, Milford Haven, Pembrokeshire, SA73

In accordance with the provisions of Section 103 of the above Act, I write to advise you that the current rent of your dwelling will increase from week commencing 4th April 2016 as shown below. The rent quoted is inclusive of any garage within the curtilage of the dwelling occupied by you.

RENT………………………………………………..£68.36

*Water / Sewerage Charge…………………..£9.65

*Alarm costs……………………………………….£3.61

Warden salary costs…………………………….£3.23

Warden supervisor salary costs…………….£1.03

Warden relief costs……………………………..£0.83

*Administration charge……………………….£0.62

*Warden administrative costs………………£0.09

Supporting People Grant……………………-£2.60

Total Rent………………………………………..£84.80

* these charges are not eligible for Housing Benefit if you receive it.

Termination of Tenancy

Under the terms of the Act, you have the right to terminate your tenancy, and if you wish to do so, you must serve notice on this authority within two weeks following the date on which this notice of increase is given.

Yours faithfully
Head of Revenues and Assurance


If you do the calculations for 2015/16 based on the rent increases agreed by council (+2.7% + £1.50)  you arrive at the following:

Rent for 2014/15 x 2.7% + £1.50 = rent for 2015/16.

So, £63.02 (see previous year’s letter) x 2.7% = £64.72 + £1.50 = £66.22, which, when the £1.50 increase is adjusted to take account of the fact that tenants pay their rent over 48 weeks rather than 52, gives the £66.35 specified in the 2015 rent letter.

And rent for 2015/16 x 1.4% + £1.00 = rent for 2016/17.

So £66.35 (see previous year’s letter) x 1.4% = £67.28+ £1.00 = 68.28 which once adjusted for 48 weeks = £68.36 – the amount specified in the letter of 10 March 2016.

However, during these two years, as a result of de-pooling of service charges (wardens’ salaries, charges for communal areas, etc) the equivalent of 97p on all rents “…the service charges element [emphasis added] included as part of rent for the prior year for all tenants would not be deducted from all rents for the coming year but would be absorbed in all base rents going forward” was transferred to the direct payment of service charges by individual tenants.

It is understandable why the council is unwilling to accept my analysis because, if I am right, it means that, for the past seven years, ALL 5500 tenants have been paying some one pound per week more than they should have been – equal to roughly £350 per tenant or getting on for £2 million overall.