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Major Works’ Costs (Leaseholders)

Volume 458: debated on Thursday 29 March 2007

This statement reports progress on the Government’s review of the complex issues raised by the high major works bills now faced by some owners of ex-council flats (‘leaseholders’). It sets out progress and further steps that the Government will take to address these issues, while looking for other sustainable solutions in the longer term.

Background

Tenants who buy flats from local authorities, and people who buy flats formerly owned by local authorities, are responsible for contributing towards the cost of repairing, maintaining and improving the properties in which those flats are situated.

Some current works of repair, maintenance and improvement to local authority properties are generating high major works bills, particularly in London. We have commissioned research into the impact on leaseholders, and have published the results on our website, at: http://www.communities.gov.uk/index.asp?id:=l504262.

The Government’s Review

We recognise that substantial major works bills may cause difficulties for some leaseholders and have consulted widely on the implications with all the stakeholders.

Our review has mainly focused on the range of ways in which local authorities can help leaseholders to pay their bills. It has also considered how landlords currently communicate with leaseholders on scheduled major works and their costs.

Capping of Service Charges

Leaseholders do not always have to pay the full amount that their lease requires. Major works charges are capped to no more than £10,000 in any five-year period when the works are funded by specified Government grants.

Ways of Helping Leaseholders Pay Their Bills

Local authorities can already help leaseholders to pay their bills in a number of ways.

They may reduce bills to no more than £10,000 in any five-year period if the leaseholder would not benefit from the works financially or would face exceptional hardship in paying it.

They must offer loans to leaseholders who have bought their flats under the right-to-buy scheme, if they apply within a specified time, and they may give loans to leaseholders under other circumstances.

They may allow leaseholders to pay their bills by monthly instalments and over an extended period, or defer payment until the property is sold.

They can buy back properties from owners who are in financial difficulties. When doing so, they receive financial assistance from the Government.

Some local authorities offer leaseholders the HouseProud equity release scheme managed by the Home Improvement Trust. A number of lenders also offer other equity release products that can be tailored to people’s needs.

Taken together, these offer leaseholders a wide range of options. But we have found that these are not all available in all areas.

What the Government Will Do

We think more can be done in the short term to help leaseholders to deal with high major works bills by means of these existing options, with enhancements and additions in the longer term.

But the alternative of simply extending the existing scheme for capping bills would bring severe problems. Capping all major works bills to £10,000 while taking no account of ability to pay would be very expensive—in London, this could, on current figures, cost more than £40 million.

But we recognise that there may be people whose financial resources are so squeezed that more targeted action may be needed. So we will do the following:

We will make it clear to local authorities that they should:

i. inform and advise all leaseholders who face particularly high major works bills about the available payment options;

ii. offer the full range of available payment options to help leaseholders pay their bills, and share best practice to ensure that this happens everywhere;

iii. use existing resources, such as for private sector renewal which they are already expected to target towards those in need and on low incomes, to assist leaseholders in hardship;

we have in addition increased funding for LEASE so that social sector leaseholders can obtain authoritative advice and help at an early stage and LEASE can expand its alternative dispute resolution and mediation role in respect of social sector service charge disputes that arise;

we will work urgently with lenders and independent financial advisers, landlords and leaseholder representatives to develop the use of existing equity release/equity loan schemes (including ‘HouseProud’);

in the longer term, we intend to legislate to enable local authorities to offer equity loans to leaseholders, and to buy back shares in properties so that leaseholders in difficulties do not have to revert to being tenants.

We are continuing to look further at ways to address this complex and sensitive issue. These actions represent work in progress. We will also actively monitor developments, to ensure that all concerned focus on the best ways of tackling these issues both now and in the future.