Housing Benefit and Service Charges

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  • #44027
    Anonymous
    Guest

    I have been to see a claimant today who has some queries regarding her HB and service charges.

    Any comments/ opinions on this would be appreciated.

     

    She part rents/ part owns a property from a Housing Association.

    The HA estimate her service charges at the beginning of the financial year and review them throughout the year. If the services have gone up, they issue a bill to the tenant.

     

    We have assessed the claim using the figure given to us at the beginning of the financial year. The tenant has since received 3 bills from the HA for outstanding service charges.

     

    Has anyone come across anything like this before? If so, how have you dealt with it?

     

    Thanks

    #125104
    peterdelamothe
    Keymaster

    As far as I am aware, the service charge element applies to the part the claimant owns and not to the rental side. All leaseholders (non freeholders) have to pay such a charge. As such it is not eligible for HB. DWP may be able to help (I think). It is charged for the management and upkeep of the property. Private landlords (of a flat for instance) would charge a rent that would include such costs. Many years ago, floating service charges used to be common with registered rents and such; I remember the RO hated them and vowed to get rid of them.

    Problems with service charges and shared ownership is quite common.

    http://forums.moneysavingexpert.com/showthread.php?t=2761176

    is an interesting read.

    #125109
    Anonymous
    Guest

    I don’t think there are two “halves” to a shared ownership lease – there isn’t an “owned” half and “rented” half. There is one lease, under which rent and service charges are payable, and it is eligible for HB because of the exception in Reg 12(2)(a). Remember that the payments excluded from HB by Reg 12(2) are a subset of the eligible payments in Reg 12(1).

    The reasoning goes like this:

    – is the claimant liable to make payments in respect of a dwelling that are in princple eligible for HB under Reg 12(1)? Answer – yes – both rent and service charges in the case of a shared ownership lease

    – but are those payments then excluded under Reg 12(2)? – on the face of it yes because this is a long tenancy … oh hang on, there is a special rule for shared ownership tenancies, they are not excluded from HB after all even though they are long tenancies.

    Therefore both the rent and the service charges are eligble.

    The nature of a shared ownership tenancy (or lease – the ternms are interchangeable for these purposes) is that when the freeholder grants the original lease, the premium paid up front and the rent charged going forward are adjusted according to a notional percentage that the tenant/leaseholder “owns” – the more you “own” the higher the premium and the lower the rent, the less you “own” the lower the premium and the higher the rent. But there is only one tenancy and the rent and service charges are both payable under that one tenancy.

    #125111
    peterdelamothe
    Keymaster

    Here are the full rules. The service charge is not split up per se…I did not say that in my post. The service charge applies to the part the claimant owns.

    DWP guidance is rather puzzling: they conclude “if the claimant is not entitled to HB, they could then be entitled to help from IS, JSA(IB), ESA(IR) or Pension Credit with those same eligible service charges”.

    It makes me wonder how many are getting paid by HB AND DWP for such charges? Happy to accept PB’s view and that such charges can normally be met by HB if the service charges are within the shared ownership agreement.

    What are the differences between a shared ownership lease and an ordinary long residential lease?

    There are a number of important differences between a shared ownership lease and other residential leases; the most important are listed below:

    1.A shared ownership lease is not regarded as a long residential lease for the purposes of exercising a statutory collective right to purchase the freehold of a building containing flats (see Section 7(1) (d) Leasehold Reform Housing and Urban Development Act 1993).

    2.A shared ownership lease is not regarded as a long residential lease for the purposes of exercising a statutory collective right to manage a building containing flats (see Section 76(2) (e) Commonhold and Leasehold Reform Act 2002).

    3.A shared ownership lease of a house does not qualify for the right to purchase the freehold under the provisions of the Leasehold Reform Act 1967 if there is a provision in the lease for the freehold to be transferred on the purchase by the leaseholder of the remaining share in the property (referred to as the final staircasing). Other exemptions apply if the leasehold house was provided for the elderly or within a designated area referred to as a protected area (see Schedule 4A Leasehold Reform Act 1967).

    4.As rent is paid on that part of the equity not owned by the leaseholder, a landlord can take action to repossess the property for rent arrears in the county court in the same way that a landlord of an assured shorthold tenancy can under the provisions of the Housing Act 1988. If the property is repossessed in these circumstances no compensation is payable to the leaseholder to take into account the balance, between the leaseholder’s debt and the market value of the leaseholder’s share in the property.

    5.HCA approved shared ownership leases must contain eight core clauses. They are listed below:
    a.Restrictions on Sales and Prohibition on Subletting (Alienation Clauses):
    ■HCA approved shared ownership leases do not allow subletting in any circumstances.
    ■Under a shared ownership lease the landlord nominates a purchaser and the purchase price is determined by an independent surveyor appointed by the landlord.
    ■Some versions of shared ownership leases provide that the landlord has a right of pre-emption (right of first refusal) if the property is sold, even though the leaseholder may have purchased 100% of the property under the staircasing provisions of the lease.

    b.Rent Review Clause:
    ■In buying a proportion of the equity in a property the owner of a shared ownership lease must pay rent on that share of the property retained by the landlord. The lease will have an initial rent, usually based on a sum equivalent to 3% of the outstanding equity retained by the landlord. The rent increases annually in line with increases to the Retail Price Index (RPI), plus an amount, typically ranging between 0.5% and 2%.

    Example:
    Market value of the property on first purchase = £250,000
    Initial share purchased by leaseholder 25% = £62,500
    Share retained by the landlord 75% = £187,500
    Market rent @3% of market value of property = £7,500 per year = £625 per month
    Initial rent @ 3% of outstanding equity = £5,625 per year = £468.75 per month
    Assuming the RPI increases in the following year by 3.5% and the lease allows for an increase by reference to the upward movement of the RPI plus 2% then the rent paid by the leaseholder will increase by 5.5% to £5,934.38 per annum (£494.54 per month).
    If the leaseholder purchases additional shares in the property the rent paid will reduce proportionally until 100% is acquired no rent is payable.

    c.Service Charge Clause:
    ■All shared ownership leases must contain a clause providing for the payment of a service charge. In the case of shared ownership flats this will be in the same terms as any other lease of a flat. The shared ownership leaseholder needs to be aware that they will pay the full service charge and not a proportion in accordance with their equity share. Where there is a shared ownership lease of a house, the leaseholder will be responsible for maintaining and repairing the property and the only service charge payable will be in respect of buildings insurance.

    There is an exception to this general rule where a leasehold house is located on a private estate, in this case a service charge may be payable for the maintenance of the common parts of the estate such as pathways private roads and other amenity areas. An obligation to pay towards these costs would typically continue if the leaseholder acquired the freehold of the house.

    d.Mortgage Protection Clause:
    ■This clause is designed to protect a mortgage lender’s security and to encourage mortgage lenders to advance loans on shared ownership leasehold properties. A lender under the mortgage protection clause is entitled to acquire and dispose of 100% of the equity in the property and must be informed by the landlord if they intend to take possession or initiate forfeiture proceedings. If the lease does not contain a mortgage protection clause, a borrower will find it extremely difficult to obtain a mortgage. The conveyancing solicitor acting on behalf of the buyer is required to forward a copy of the mortgage to the landlord for approval and must obtain and deposit with the title deeds after completion of the purchase an undertaking from the landlord to the mortgage lender confirming that they will notify the mortgage lender if they intend to repossess the property or forfeit the lease. Because of this requirement, earlier shared ownership leases, typically granted by local authorities, which do not contain a mortgage protection clause, are difficult to sell. This is because mortgage lenders appear reluctant to lend in the absence of a mortgage protection clause. If you own such a property you should consider asking the landlord to provide a deed of variation to include a mortgage protection clause in the lease. If they refuse, a leaseholder should consider contacting the HCA who may bring pressure to bear on the social sector landlord to provide the deed of variation.

    e.Purchasing Additional Shares (Staircasing Clause):
    ■The majority of shared ownership leases must contain a clause allowing the leaseholder to purchase additional shares in the property until they own 100% of the equity. This is known as staircasing. In the majority of shared ownership leases the leaseholder is allowed to make 3 such applications and the last application must result in the purchase of the remaining shares. Since September 2011 there is no restriction on the number of staircasing applications that can be made. There are some shared ownership leases that restrict the right of the leaseholder to purchase shares to 80% for shared ownership leasehold houses in protected rural areas or where the leaseholder is allowed to staircase to 100% of the equity/he is under an obligation to sell the property back to the landlord or nominated purchaser, which may be another housing association (see Paragraph 8 (Shared Ownership Leases) (Exclusion from Leasehold Reform Act 1967) (England) Regulations 2009(SI 2009/2097). In addition to the rural area exception a shared ownership leasehold property for older persons can limit the equity share to 75%.

    f.Right of First Refusal (Right of Pre-emption):
    ■Some versions of shared ownership leases provide that the landlord has a right of pre-emption (right of first refusal) if the property is sold, even though the leaseholder may have purchased 100% of the property under the staircasing provisions of the lease.

    g.Clawback for Key Worker Shared Ownership Clauses:
    ■Some shared ownership properties are exclusively provided for public sector workers. If the owner ceases to be a public sector worker the lease requires that they relinquish their ownership within a specified time. However since 1 April 2008 such clauses are no longer allowed and this clause will no longer be enforced in earlier leases.

    h.Stamp Duty Clause:
    ■The payment of stamp duty land tax (SDLT) is somewhat unusual for brand new shared ownership leasehold properties. On a resale of an existing lease, SDLT is paid on the premium (sale price). However, on the grant of a new lease, SDLT is paid on a formula based on the premium and the annual rent if the annual rent exceeds £600. Therefore SDLT may be payable even though the threshold for paying SDLT is above the initial sale price. Because of this the shared ownership lease must provide a clause giving the leaseholder an option to pay SDLT on either the initial sale price and the rent or on the full market value of the property. The thresholds for payment of SDLT change on a regular basis and any prospective purchaser of a new shared ownership property should take advice from their conveyancer or use the HM Revenue and Customs online SDLT calculator.
    Please be aware that the Leasehold Advisory Service cannot advise on taxation matters.

    #125113
    Anonymous
    Guest

    Ah – I can explain that passage from the guidance and I will do in a sec.

    The service charge is payable as a condition of the lease as the material above says – this makes it eligible for HB. There isn’t any doubt about this at all. Here is the full relevant extract from the HBGM:
    ____________________________________

    [b]Shared ownership schemes[/b]

    4.130 If a claimant occupies accommodation under a shared ownership lease or tenancy … any rent [b]or service charges [/b]paid for the accommodation are eligible for HB …

    4.131 Assess the charges as normal. Do not apportion service charges according to the percentage of the accommodation bought under a long lease, and the percentage which is rented.

    4132 When the claimant is entitled to HB, with the eligible rent including eligible service charges, they are not entitled to help with those same charges from either IS, JSA(IR) or Pension Credit. [i]However, if the claimant is not entitled to HB, they could then be entitled to help from IS, JSA(IB), ESA(IR) or Pension Credit with those same eligible service charges[/i]
    __________________________________________________

    This last bit that Peter D mentioned above is referring to the anti-double counting provision in the DWP benefits – basically you cannot get IS/JSA/ESA/SPC to cover housing costs that are also “housing benefit expenditure” – in other words you cannot have the same costs included in both an HB claim and a DWP claim. Otherwise shared ownership could fall in both because it is a long tenancy as defined in the DWP Regs. The passage in italics above applies eqyually to rent and service charges.

    Perhaps that is the most important point, actually – there is no reason for treating shared ownership rent and shared ownership service charges any differently from one another: both are Reg 12(1) eligible payments and neither is excluded by Reg 12(2)(a).

    #125116
    peterdelamothe
    Keymaster

    Yes although one is rent and the other is paid by an “owner” (actually a long leaseholder but the term owner is used very loosely – usually by estate agents).

    Looking at some social landlord posts, some seem to have decided to get their shared ownership tenants to apply to DWP for these service charge payment and NOT to HB, especially if the person is a pensioner. I dont know why….I presume it is easier to get paid

    So I do wonder how many claimants are actually getting the same service charges paid by both DWP and local authorities? Not so easy to spot because of the likely mortgage charges. Does anyone check or are there any checks to ensure this “anti-double counting provision” applies in practice I wonder?

    Finally, sorry to Carly. This is your first post I see.

    #125117
    John Boxall
    Participant

    Carly,

    For a first post you have got the ‘Big Guns’ of HB out in force!

    Welcome aboard

    🙂

    Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. The blossom is blighted, the leaf is withered, the god of day goes down upon the dreary scene, and—and in short you are for ever floored.

    Wilkins Micawber, Ch12 David Copperfield

    #125118
    Anonymous
    Guest

    It is not paid by an “owner” (the definition of that term emphatically DOES NOT apply to leaseholders in England and Wales), but even if it was paid by an owner the same would apply equally to the rent. There is only one lease under which both the rent and service charge are paid – you cannot separate them and treat them differently from one another.

    #125120
    peterdelamothe
    Keymaster

    I accept that Peter and I have amended my post above…”owner” is used in a very loose way especially in relation to flats and shared ownership…”own your own home” scream the adverts.

    #125125
    Anonymous
    Guest

    I see where you are coming from Peter. You were thinking: “but surely this is a kind of ownership in the everyday sense of that term – most long leaseholders think of themselves as owning property – and HB doesn’t cover payments made by owner occupiers of any kind, whether they own the freehold or a long lease”. That’s true, and in the case of a long leaseholder it is true by virtue of Reg 12(2)(a): that is the provision that keeps them out of HB. However, Reg 12(2)(a) makes an exception for shared ownership, and I cannot see anything else that would prevent any payments under a shared ownership lease from being met by HB – both rent and service charges. The only thing that might be a problem would be where the DWP has got there first and awarded housing costs in one of their benefits, then Reg 11(2) prevents HB from making a duplicate award. But there is a waiting period for DWP housing costs in the working age schemes so in practice HB should get there first.

    There is a bigger risk of duplicate provision for pensioners. But again, the issue applies in exactly the same way to rent and service charges: they are both eligible for both schemes in principle.

    #125151
    Andy Thurman
    Keymaster

    So Carly, the charges are definitely eligible if you believe Peter and possibly ineligible if you believe Peter!! :O
    I’m with Peter B – the charges are eligible but your original post seems to suggest you do too and are more querying the modifications to the service charges that don’t fit with the usual approach.

    I would still say that they are eligible (and I assume they are very well costed in order to justify the invoices) but would check the terms of the tenancy agreement re amendments to sums payable – are the HA right in taking this approach?

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