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Government helps local authority leaseholders to pay major works bills

COMMUNITIES AND LOCAL GOVERNMENT News Release (66) issued by The Government News Network on 29 March 2007

The Government is working with local authorities and lenders to make it easier for their leaseholders - people who own former council flats - to pay their share of the cost of bringing them up to modern standards, such as with new roofs and windows.

Currently there are several ways in which leaseholders can be helped to pay bills for major works to their blocks, such as through loans, extended and deferred payment schemes, and equity release. Where works are funded by specified Government grants, bills are capped to no more than £10,000 in any five years, and local authorities have discretion to reduce bills to this level if they consider this is justified.

Housing Minister Baroness Andrews said the Government was working with councils and lenders to ensure leaseholders understood what help was available so they can pay their major works bills.

'Although the vast majority of leaseholders are able to manage their bills for repairs and refurbishment, which in turn can increase the value of their home, we know in that in a minority of cases families are facing particularly high bills which they can find hard to meet. That is why the Government is working with local councils to provide a wider range of support, including developing options for equity release and equity loans, which will help leaseholders with particular problems.'

Baroness Andrews added that the Government was also funding the development of an advice and dispute resolution and mediation service, and intended to legislate to improve the flexibility of loans and make it easier for leaseholders to raise cash by selling shares in their homes back to their landlords.

Notes for Editors

1. Social tenants who buy flats from local authorities and people who buy flats formerly owned by local authorities on the open market ('council leaseholders'), are responsible under their leases for contributing towards the cost of repairing, maintaining and improving the properties in which those flats are situated.

2. Works of repair, maintenance and improvement now being undertaken by local authorities and by their associated arms length management organisations (ALMOs) are generating substantial major works bills - some recent ones for as much as £58,000. However, the number of such bills should not be exaggerated. A recent survey by London Councils showed that of 143,000 council leaseholders in 26 London Boroughs, just over 9,000 (6.3 per cent) were facing major works bills of £10,000 or more.

3. The results of research commissioned by the Government and published on the Department for Communities and Local Government website at: http://www.communities.gov.uk/index.asp?id=1504262 found that:

* the scale of the problem, in terms of the number of leaseholders faced with bills in excess of £10,000 and those faced with hardship as a result, was modest

* the Government's Decent Homes policy and other regeneration activities have helped local authorities to address the backlog of repairs to their stock

* but the Decent Homes standard is not the key driver of the level of improvements

* especially in relation to large blocks of flats it would be much more expensive to carry out piecemeal repairs (which involve erecting, taking down and re-erecting scaffolding) than to carry out comprehensive repairs and improvements at one time

* in the short term major works bills will be higher, but in the longer term the quality of work is likely to be higher, resulting in lower maintenance costs in future.

4. The Department for Communities and Local Government has reviewed the issues, obtaining the views of all the stakeholders. It has also taken account of information provided by individual Members of Parliament and of the recommendations of a report by the Social Sector Working Party of leaseholder and landlord representatives.

5. The review has mainly focused on the range of ways in which leaseholders can be helped to pay their bills. But it has also considered how landlords currently communicate with leaseholders on scheduled major works and their costs.

6. Major works charges are capped to no more than £10,000 in any five-year period when the works are being funded by specified Government grants.

7. Local authorities can help leaseholders to pay their bills in a number of ways. Firstly, they have discretion to reduce bills to no more than £10,000 in any five year period if specified criteria are met, including whether the purchase price took account of the estimates of the costs of works given to the leaseholder before he or she bought their flat, whether the leaseholder will benefit from the works (eg, whether the value of their flat will increase, and whether energy efficiency or security will be improved), and whether the leaseholder would face exceptional hardship in paying the bill. In assessing hardship, the landlord must consider the leaseholder's ability to pay, including the funds available to them and their ability to borrow to meet the cost.

8. Secondly, local authorities must offer loans to leaseholders who have bought their flats under the Right to Buy scheme, provided that they apply within a specified time. The terms of such loans are specified in legislation. Local authorities may also give loans to leaseholders under other circumstances, and may then specify the terms themselves.

9. Thirdly, local authorities may allow leaseholders to pay their bills by monthly instalments over an extended period (sometimes 3-5 years and including an interest-free period), or they may defer payment (while charging interest) until the property is sold.

10. Fourthly, local authorities have powers to buy back properties from owners who are in financial difficulties. Since 1999, we have given them financial assistance if they do this. In effect, the Government meets 35 per cent of the cost of buy backs where this exceeds £50,000 in any year.

11. Finally, some local authorities offer leaseholders the HouseProud equity release scheme managed by the Home Improvement Trust. A number of lenders also offer a variety of separate equity release products that can be tailored to the needs of, in particular, older leaseholders.

12. The Government considers that more can be done to help leaseholders to deal with high major works bills through these payment options, with minor enhancements and additions - if they are managed sensitively and flexibly. It has therefore decided to do the following:

* make it clear to local authorities that they should:

a. have a strategy for identifying and offering advice to leaseholders who face particularly high major works bills

b. offer the full range of payment options already available and share best practice to ensure that this happens everywhere

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

* work with lenders and independent financial advisers, landlords and leaseholder representatives to develop the use of existing equity release / equity loan schemes (including the 'HouseProud' scheme managed by the Home Improvement Trust)

* increase funding for LEASE to enable it to increase its role in the area of alternative dispute resolution and mediation in respect of social sector service charge disputes

* legislate at a suitable opportunity to enable local authorities to offer equity loans to leaseholders (ie, when deferring payment until the property is sold, to take a proportion of the proceeds instead of charging interest during the deferral period), and to buy back shares in properties so that leaseholders in difficulties do not have to revert to being tenants.

13. This is a complex and sensitive issue, and these actions represent work in progress. The Government 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.

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