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Housing Associations - three ways to maximise your income

The government expects Housing Associations to find new ways to improve their efficiency through savings.

Done properly, maximising service charge recovery can be a relatively quick win to help you do this - provided that your fundamental building blocks are in place.

Building block one - make sure that your legal documents work for you

You can have the best systems and the best software, but if your leases and your tenancy agreements don't give you a clear right to charge for the services that you are providing, you will have one hand tied behind your back in trying to maximise your service charge recovery.

This is because of the key legal principle that service charge provisions must clearly set out what services a tenant has to pay for, and that any uncertainties will be decided in favour of the tenant.

You might say that this is what you pay your lawyers for - and we agree.

Before instructing your lawyers to carry out a sale, check what your standard leases and tenancy agreements say about service charges. This is especially important if they have been drafted by different lawyers over the years, and where you have inherited leases from other organisations, such as following mergers and LSVT's.

In particular, ensure that your leases and tenancy agreements contain the following:

  • clear definitions of the property and the services to be provided;
  • an express right to recover legal costs in different scenarios;
  • a comprehensive sweeping-up clause;
  • an express sinking fund; and
  • flexibility to increase or reduce the services that you provide, if, for example, funding is withdrawn.

Further considerations:

  • Service charges are only applicable where you have tenants and leaseholders, but do your open market and RTB freehold transfers give you the right to recover the costs of grounds maintenance and other services? 
  • What happens if the layout of the development changes? Do you have a sweeping-up clause to cover this?

Building block two - have effective procedures and protocols in place when your tenant or leaseholder fails to pay on time

  • From our experience of working with banks that outsource their mortgage arrears recovery we know that the key to effective recovery is to take action quickly once a debt is outstanding. Review how quickly you act and the actions that you take. Are you relying on sending letters or do you pick up the phone the day after the money is due?
  • Make sure that your staff know what your procedures and protocols say and are following them. Be clear that failure to do so could invalidate your service charge claim. Although the case of Barber v Croydon LB concerned a possession case, it is a clear reminder of the consequences when a social landlord fails to follow its policies.
  • Have a clear flowchart in place which gives your staff guidance on what to do when a leaseholder has failed to respond to your calls and letters, and when you should contact their lender. In our experience, lenders are unlikely to pay up unless you have obtained default judgment or served a S146 notice, so the quicker you do this the better.

Building block three - practical training and training the right people

You may already have good training in place for your leasehold and service charge teams.

That is fine, but what training does your Income team receive on recovery from your leaseholders and do they understand the importance of forfeiture in your legal armoury, even just as a threat?

Review what training on drafting and negotiating service charge provisions your Development and Sales and Finance teams have received in the past six months. Were they in the same room as your leasehold and service charge teams when they received it? In our experience, training needs to be practical and joined up to get the most out of it.

Summary

We believe that these three fundamental building blocks can help make a positive difference to your bottom line and would be happy to discuss them further with you. We are also able to offer a number of options to help you achieve them, including fixed fee products to give you budget certainty, as well as sharing risk with you by agreeing payments by results.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at October 2015. Specific advice should be sought for specific cases. For more information see our terms & conditions on www.TLTsolicitors.com

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