Bad debt and Voids charges

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  • #285912
    NicolaStallard
    Participant

    Please could someone give me some advice around this as i feel like i may be over complicating the situation.

    We have a CIC providing exempt accommodation and within their rent they are charging voids at 10% and a bad debt charge at 5%. The voids are for the usual loss of revenue if the rooms are empty. Thy have advised that the bad debt charge is to allow them to support the tenant should they have difficulty paying their rent, and they have included it within their rent as the charge is a standard allowance by other exempt accommodation providers.

    I have allowed the voids at 10% but i’m unsure of allowing the bad debt charge. I know housing providers do have bad debt charges within their rent, but with what the CIC have advised it will be used for, would this been seen as support which is not covered in HB?

    Should i allow both void and bad debt or only allow for the voids? Any advice would be gratefully received.
    Thanks

    #285916
    Alistair Costelloe
    Participant

    Void cover and bad debt cover is essentially the same thing – an allowance to cover loss of income occurring in the course of normal operations.

    Support to manage debts and ensure the payment of rent is a proper housing management function which would ordinarily be covered from management charges, and which may also comprise support for the purposes of Exempt Accommodation depending on the level at which it is performed. My view (from the provider side) is that it should be allowable, but it is unorthodox to describe bad debt cover as funding to provide debt-related support to tenants. In a similar vein, I have seen void cover described as money used to complete void works rather than to fund the lease rent/finance cost during such periods, which suggests duplication of charges.

    We charge a combined void and bad debt cover at 7% – seems this provider has gone in for double that which may be perfectly reasonable depending on the circumstances of the scheme.

    #285917
    Peter Barker
    Keymaster

    I think it is a fair question to ask how exactly bad debts might arise in a scheme where everyone is probably getting full HB, voids are separately funded, and part of the support offering probably involves engaging with tenants to ensure they budget for and pay their personal service charges (that seems to be implied in their reply).

    The stock answer is that bad debts arise when things go wrong with HB awards: absence in excess of 13/52 weeks, queries about income that never get resolved for the odd period when, say, DWP “passport” benefits are disrupted, a mix-up means that HB isn’t claimed until it’s too late to backdate to the start of the tenancy etc. That might not have happened yet, but sooner or later it will and they need income to cover it when it does. Fair enough, but I think you should make them say that.

    If the bad debts are for uncollected personal service charges, which is also a possibility based on what they have said, what is the amount of the bad debt provision compared with the amount of the personal charges? I’ve seen schemes where they were dangerously close to providing ineligible services for free, funded by the bad debt provision in the eligible rent. HB Schedule 1.3(1) won’t allow that. You can get into a spiral: “We’ll keep reducing until you start collecting”.

    #285921
    NicolaStallard
    Participant

    They are charging bad debt at 5% of core rent and eligible charges so it is currently £9.67 a week. The personal ineligible charges are £13.67 a week.

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