Poor data quality and incorrect calculations: regulator sets out key rent compliance issues

Formula rent

The regulator noted that the failure to accurately calculate and record formula rents over time is a specific risk to compliance, and said that it will be “particularly acute” as providers transition to the new standard. Formula rents are the foundation for setting the majority of rents, and getting it wrong has been the “root cause of a number of cases of regulatory non-compliance”, the addendum stated.

Exempted rent

“We have seen evidence of some providers taking an overly simplistic approach to interpreting definitions of excepted stock categories, which increases the risk of them being applied inappropriately,” the regulator said.

Organisations are expected to have internal controls in place to ensure that exceptions are applied appropriately, and that boards or councillors receive assurance on the adequacy and effectiveness of those controls, at intervals “proportionate to the risks”, it said.

“Overcharging rent puts the reputation of the whole sector at risk,” the regulator said.

Specialised supported housing (SSH) and temporary social housing presents “a particularly high risk of being applied inappropriately”, it added.

Providers should, when asked, be able to evidence that the rental charge for SSH has been agreed by the commissioning body, ie the local authority or health service, in accordance with the definition, the regulator said.

Affordable rent

Another specific area of risk on rents compliance is the conversion of properties from social rent to affordable rent, the regulator noted. Social rent properties may be converted to other forms of rent only in very limited circumstances, under the specific agreement of Homes England, the Greater London Authority or in some cases the secretary of state for housing.

“Boards and councillors need to be assured that any properties reported and charged as affordable rent, whether converted or not, are subject to the requisite agreements as required by the [Welfare Reform and Work Act 2016] or the Rent Standard, as applicable.”

Services charges present a further compliance risk in relation to affordable rent. Providers need to assure themselves that, inclusive of service charges, the rent is at or below 80 per cent of the market rent.

Service charges

The regulator noted that annual service charge increases have been above inflation for a number of years, with last year’s SDR data showing a seven per cent increase year on year.

It pointed to regulation that in practice means that service charges can cover actual costs only, and must be accounted for to ensure they are transparent.

It also emphasised that the regulator considers the impact of service charges when assessing whether a property is rented below market rent and therefore meets the definition of social housing.

It added: “It is a misconception held by some in the sector that service charges are discounted for market comparison purposes which increases the risk that excepted properties do not meet relevant definitions.”

New rental products

The regulator said that providers must ensure that any innovation in rent setting is compatible with the relevant regulatory and legal requirements. It points to an example of providers seeking to set social housing rents based on LHA rates (from the private sector).

“While in some parts of the country setting rents at the LHA rate will be compatible with regulatory requirements (eg because it falls below formula rent), this is not the case nationally.

“Boards and councillors must be assured that any bespoke social housing schemes are compliant with all relevant rent requirements. This remains true when agreements have been reached with other public bodies such as local authorities.”

Data quality

The regulator said that while the accuracy of rents data has increased in recent years, it “continue[s] to identify providers with poor quality rents data, both in terms of the data they rely on internally to set rents, and the data submitted to the RSH”.

It added: “It is difficult to see how providers can assure themselves that rents are set correctly without data which accurately record and track formula rents and the rents charged to tenants over time.”