The Vale of Glamorgan Council

Cabinet Meeting: 15 June, 2015

Report of the Cabinet Member for Housing, Building Maintenance and Community Safety

Leaseholders Major Works and Payment Options Policy

Purpose of the Report

1.    To update Cabinet on issues related to Major Works to leasehold properties under the Welsh Housing Quality Standard (WHQS) Housing Improvement Programme and the recharging of those works, and to seek Cabinet approval for the proposed Major Works Payment Options Policy including the Discretionary Loan Scheme.


1.    That Cabinet agrees to the Major Works Payment Options Policy (Appendix 1) and the proposed Discretionary Loan Scheme.


2.    That Cabinet note that Option 5 of Appendix , may not be available to those leaseholders who have existing mortgages or do not have sufficient equity in their property.


3.    That Cabinet note that works deemed to be 'improvements' such as external wall insulation (EWI) are not rechargeable to leaseholders, and the full cost will be borne by the Housing Revenue Account.


4.    That Cabinet grants delegated authority to the Head of Housing and Building Services in consultation with the Head of Finance and Head of Legal Services to recharge a reasonable amount to leaseholders for repairs where it is identified that delay in commencement of the external works programme has resulted in additional repair costs.


5.    That Cabinet grant delegated authority to the Head of Housing and Building Services in consultation with the Head of Finance and Head of Legal Services to levy a charge to leaseholders based on the lowest unit cost quoted by the framework contractors for external works where practicable.


6.    Where it is identified that the lack of repair has caused consequential damages to leaseholders' own fixtures and fittings, delegated authority should be given to the Head of Housing and Building Services in consultation with the Head of Finance and Head of Legal Services to undertake works at no cost to the leaseholder.

Reasons for the Recommendations

1.    To ensure that leaseholders are able to meet the obligations of their lease by contributing towards the cost of Major Works, and to ensure that the Council fully maximises its income potential towards the cost of works.


2.    For Cabinet to note.


3.    For Cabinet to note.


4.    To enable a reasonable repair charge to be levied on leaseholders; this will vary in some cases from the actual cost of works related to leaseholder properties.


5.    So that all leaseholders are recharged broadly the same rate in relation to external elements of WHQS, regardless of locality within the Vale of Glamorgan.


6.    To fulfil the Council's legal obligations in terms of consequential damages. 


2.    Cabinet agreed at their meeting of 27th January 2014, (minute no C2175 refers) to approve the suggested process for loans to leaseholders where Major Works are recharged, and to receive progress reports.


3.    Whilst a small amount of external work has been undertaken during 2014/2015, no leaseholders have yet expressed a wish to take out a Council loan.  The more extensive external work programme commenced in April 2015, and it is anticipated that some leaseholders will look to the Council for payment options, in particular where they have no other means of payment.


4.    Tenants who exercise their "Right to Buy" on flats do so under a leasehold agreement (or ‘lease’) with the Council.  The lease sets out, amongst other things, those costs incurred by the Council which can be recovered from the leaseholder, in respect of service charges, repairs, major works and improvements.  UK law in relation to this area is explicit in that ‘improvements’ can only be recovered where there is an express term in the lease.  A proportion of external works required to Council blocks of flats in order to meet WHQS are ‘improvements’, for example external wall insulation (EWI).  Council lawyers have confirmed that there is no express term in relation to ‘improvements’ in the Council’s standard leases.   A recent leasehold valuation tribunal (LVT) involving a Welsh housing association has reaffirmed this position.


5.    A number of leaseholders have raised concerns during leaseholder forums and other consultation events that a lack of investment in previous years has exaggerated the costs of repair and replacement at this stage.

Relevant Issues and Options

Discretionary Loans

6.    The discretionary loan scheme is in the process of being developed in consultation with Finance and Legal Services officers.  The main criteria of the loan are likely to be:-


(a)    Only available to owner occupiers,


(b)    Interest payable at the Council’s mortgage rate, which is currently 5.73%


(c)    A minimum term of 12 months (1 year) and a maximum term of 120 months (10 years).


(d)    Monthly repayment instalments will be required.


(e)    The loan will be secured against the property; this will involve placing a charge via land registry.


(f)    An administration fee of £150 can be added to the loan amount or paid in full when signing the loan agreement.


The full payment options policy is attached as Appendix 1 to this report.

Repairs and Improvements

7.    The Council aims to meet the Welsh Housing Quality Standard by 2017 and to achieve this standard the Council will have to undertake works which are an improvement not just a repair.  For example under the standard, there is a requirement for each home to achieve a SAP score of 65 in terms of thermal efficiency (SAP 2005) for each dwelling and in some cases a "thermal improvement" will be required to meet the standard.  EWI work is categorised as an improvement, and therefore, under the Council’s standard lease will not be recoverable from the leaseholder.


8.    The Council has recently embarked on the external work elements of WHQS, of which approximately £4.2million relates to external wall insulation (EWI). As this is deemed to be an improvement, the HRA will bear the full cost of these works.

Reasonable Charging

9.    The Landlord and Tenant Act 1985 sets out the basic ground rules for service charges, defining what is considered a service charge, setting out requirements for reasonableness and for prior consultation of leaseholders.  Section 18 (1) of the Act defines a service charge as ‘an amount payable by a tenant of a dwelling as part of or in addition to the rent:


•    Which is payable, directly or indirectly , for service, repairs, maintenance, improvements or insurance or the landlord’s costs of management ; and


•    The whole or part of which varies or may vary according to the relevant costs’


Service charges are required to be reasonable and on which a Tribunal may make a determination of reasonableness.  Section 18(1) does not however overrule the lease. The item or service charge must still be included in the lease in order to be chargeable.


10.    In addition the Chartered Institute of Public Finance and Accountancy (CIPFA) on billing for Major Works, states that in terms of reasonable repairs, ‘the administering body must not refrain from seeking sums that are properly due to it on the basis of improper or ulterior motives, such as desire to avoid criticism, or to be generous to its lessees.  However, the administering body is not obliged to pursue every sum due to it, irrespective of amount, the cost of doing so and the likelihood of success.  It is entitled to take into account, relevant issues such as whether there will be resistance from lessees, and whether litigation is likely to be involved’.


11.    In England, the Social Landlords Mandatory Reduction of Service Charges (England) Directions 2014 came into force on 12th August 2014.  Under these new regulations, the maximum amount for Major Works which leaseholders can be charged, for certain Major Works programmes is subject to a cap of £10,000 (£15,000 in London).  The cap applies to the total amount charged for works of repair, maintenance or improvement over a 5 year period on leaseholder charges for works, where central government funding for repair, maintenance or improvement has been received.   Leaseholders whose landlord receives no Government funding for the works carried out are not affected.  The downside of this is that tenants will ultimately subsidise such bills.  There has been no indication as yet that Welsh Government seek to bring in a similar directive, but it should be noted that leaseholder charges and their reasonableness are very much in the spotlight.


12.    In circumstances where a historic repair issue has not been carried out, and which has potentially exaggerated the repair or replacement cost, the council will consider each case separately to determine the reasonableness of any recharge to the leaseholder.  For example, a repair carried out a number of years ago, may have prevented the cost of full replacement now.


13.    A further issue relating to reasonableness is the varying unit costs applied by the Council appointed framework Contractors. Unfortunately, there is a wide divergence in the rates charged by each contractor for work undertaken. Therefore, to avoid a ‘post code lottery’ in the charges applied, leasehold charges must be reasonable. If practicable the charge levied to all leaseholders will be based on the lowest average unit cost quoted by the framework contractors for external works.

Consequential Damages

14.    A small number of cases in the Vale have come to light to date where a lack of repair to external elements by the Council, has resulted in further damage to a leaseholder’s own fixtures and fittings.  Where it is found that this is the case the Council has a legal obligation to undertake consequential repairs at no cost to the leaseholder.

Resource Implications (Financial and Employment)

15.    Providing payment options will not only ensure maximisation of income towards the cost of the improvement works but will also assist leaseholders in meeting their legal obligations.


16.    The latest Business Plan (December 2014) assumes a worse-case scenario in terms of rechargeable works to leaseholders.


17.    The cost of managing and administering loans will be met from existing resources.  To help mitigate the increased workload in terms of Housing Management the recent restructure has increased the staff resource within the Housing Income team. 


18.    An additional resource of £50,000 per annum for years 2015/2016, 2016/2017, and 2017/2018 has been identified in the Housing Business Plan to meet the cost of any consequential damage liability.

Sustainability and Climate Change Implications

19.    Achievement of WHQS by 2017 will mean that all Council owned dwellings meet the requirements in terms of climate change.  In addition a decision to carry out Major Works is assessed against sustainability test criteria.

Legal Implications (to Include Human Rights Implications)

20.    The Council is obliged to offer statutory loans under the Housing (Service Charge Loans) Regulations 1992 (as amended) and is permitted to offer discretionary loans by virtue of Sections 450A and B Housing Act 1985.  Legal input will be required to draw up the formal loan agreements and in order to register charges at the land registry in order to protect any loans.

Crime and Disorder Implications

21.    Many requirements of the WHQS contribute to the crime and disorder agenda, in particular, the requirements of safe and secure dwellings located in safe and attractive environments.

Equal Opportunities Implications (to include Welsh Language issues)

22.    Council loans are a measure of ensuring that all leaseholders have access to loans to meet their Major Works recharges in relation to the Council's requirement to meet WHQS.

Corporate/Service Objectives

23.    Meeting the WHQS and the Housing Improvement Programme contributes to the Council's corporate priority that the Vale of Glamorgan residents have access to affordable, good quality suitable housing and housing advice and support.

Policy Framework and Budget

24.    This is a matter for Executive decision.

Consultation (including Ward Member Consultation)

25.    As this is a Vale wide issue there has been no individual Ward Member consultation.

Relevant Scrutiny Committee

26.    Corporate Resources.

Background Papers

Housing Business Plan December 2014

Housing (Service Charge Loans) Regulations, 1992

Section 450A and 450B of the Housing Act 1985

Contact Officer

Hayley Selway - Head of Housing and Building Services

Officers Consulted

Accountant (Housing)

Operational Manager (Public Housing Services)

Operational Manager (Building Services)

Operational Manager Accountancy

Committee Reports - Legal

Responsible Officer:

Miles Punter - Director of Visible Services and Housing