Regulator downgrades major housing and care RP following ‘£3m overcharge’ on rents

In setting out its conclusions regarding H21 today, the RSH said that one of the issues identified related to the implementation of the government-imposed rent cut, which ended this year after four years.

Annual rent regulation, which started in December 2018, identfied that instead of reducing its gross rents by one per cent annually, H21 reduced its net affordable rent – exclusive of service charges.

This, the regulator said, resulted in an overcharge to tenants of approximately £3m.

At a sector level, the RSH has previously flagged incorrect calculations of affordable rents and or service charges as one of a number of key issues increasing the risk of non-compliance on rents, as it outlined learnings from its past engagement with providers in March.  

Responding to its downgrade in a press statement today, H21 said that it had maintained variable service charges when imposing the rent cut, which “reflected the true cost of the services provided”.

But it acknowledged that, over three years, these were “in total £2.8m higher than was permitted if these were also required to be reduced by one per cent per annum”.

It said: “Housing 21’s considered position had been that setting a net rent and applying a variable service charge provided better value for money and greater accountability than applying a fixed combined rent and service charge.     

“Housing 21 had not sought to charge the maximum affordable rent it is permitted to and in many cases the net rent set by Housing 21 for affordable rent properties was lower than the social or formula rent that would have maintained a variable service charge.”

However it said that it recognised its approach and application of variable service charges to affordable rent properties was not consistent with the Welfare Reform and Work Act 2016 and “is committed to working with the regulator to agree the basis for future rent-setting”.

The board has now pledged to credit this sum of the overpayment back to the service charge accounts of the schemes affected, it added.

Elsewhere, the regulator identified that Housing 21 had charged rents “above the rent cap on a number of extra care schemes”.

According to Housing 21, this issue relates to 17 of its older extra care schemes, including five schemes provided under a 30-year public-private partnership contract. The rents for these 17 schemes had been “agreed and set” by the Housing Corporation, H21 said, and “had initially been set above the then ‘target’ rent when they were commissioned to reflect the higher costs of developing extra care and limited grant funding applied”.

The provider said that it has now agreed to reduce the rents on these properties to the formula rent levels “notwithstanding that this does have implications for the financial assumptions on which the developments were undertaken”.

It added: “None of the issues raised and steps Housing 21 has agreed to take as a consequence with the regulator affect Housing 21’s V1 financial status.”

Regular review

The regulator said that it lacks assurance that H21’s board regularly reviews its processes and fully understands its compliance and policy positions on rents in relation to updated regulatory and legislative requirements.

The judgement added: “H21 needs to strengthen its rent-setting process, controls and board assurance to ensure it can deliver and sustain legally and regulatory compliant rent and service charges.

“Although H21 has co-operated with the regulator on this matter, the regulator has not been able to establish easily the depth of non-compliance or to understand H21’s response to it.

“H21 is now fully engaging with the regulator and is taking the necessary steps to reach and sustain compliance with rent requirements.”

Commenting on the regulatory publication, Bruce Moore, chief executive at H21, said: “While we are naturally disappointed with the downgrade, we are engaging fully with the regulator and taking decisive action to resolve the situation to ensure that future rents and charges are set and adjusted in a manner that demonstrates full compliance.    

“We remain committed to doing the right thing for our residents and providing them with a quality service with rents and service charges that represent value for money. Our focus is now working collaboratively with the regulator and to restoring our G1 status as soon as possible.”

He added: “Despite the downgrade, Housing 21 is confident and committed to continuing to fulfil its mission of providing more and better high-quality extra care and retirement housing for older people of modest means and playing a vital role in keeping more than 20,000 older people safe during the continuing challenge of the COVID-19 crisis.”