Service Charges policy
Scope of policy
Service Charges are applied to all customers
receiving services from Genesis and/or external
supplies that are paid for by Genesis and then recharged.
Policy applicable to all Genesis customers.
Version number
One
Reason for review
As part of the Genesis Way Service Charges
Project (FL9)
Approved by
Policy Group
Approval date
11/2013
Effective from
04/2014
Accountable director
Elizabeth Froude, Executive Director of Finance
and Resources
Policy owner
Jonathan Khan, Head of Financial Services
Policy author
Paul Wooldridge, FL9 Service Charges Project
Manager
Gemma Walton, Business Process Analyst
Date of next review
04/2015
Staff consultation:
Service Charge Partners
Property Managers, Area Operation Managers
PMO
Customer consultation:
Resident forum
Equality Impact Assessment
(EIA)
Completion date
11/2013
Type of EIA
undertaken
Full
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1.
INTRODUCTION
Aim
Service charges are paid by Genesis Housing Association’s customers to meet the
cost of any services provided by us and/or our agents or the agents of superior
landlords.
Genesis will recover the cost of providing services to customers by charging a
variable (or fixed where appropriate) service charge. At the time of writing this policy
document there are some schemes that require us to operate fixed service charges
and Genesis will ensure that where required this will continue.
Objectives

Genesis facilitates the recovery of 100% of the costs of providing services
through the service charges and other charges paid by customers.

Variable service charges will be in compliance with relevant legislation
(currently the Landlord & Tenant Act 1985, (L&T Act 1985) and Commonhold
and Leasehold Reform Act 2002).

Existing secure tenants, who pay a Fair Rent, will be liable to pay a fixed
service charge set by the Rent Officer. When properties let on secure
tenancies become vacant they will be re-let on assured short hold fixed term
tenancies where the service charges will be priced into the rent.

Some forms of tenancy (commercial, supported, retirement) have varying
requirements according to specific agreement and legislative acts and this
policy confirms the application of the relevant standards and legislative
requirements of individual acts wholly related to specific tenures and tenure
types.

The services provided will be clearly identified to customers and set out in
agreements (which include licences, tenancy agreements, leases and any
other relevant documentation).

Estimated service charges are calculated with an understanding of previous
costs incurred and a forecast methodology applied to account for any known
charge increases or decreases.

The difference between estimated and actual costs will be identified in the
financial year end service charge accounts, and any balance to be accounted
for prior to the financial year end following the actual expenditure statements.
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Legislative context and background
The Landlord and Tenant Act 1985, as amended, sets out the basic ground rules for
service charges, defining what is considered a service charge, and setting out
requirements for reasonableness and for prior consultation.
Section 18 (1) of the Act defines a variable 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 services, 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
Examples of service charges may include:

Grounds maintenance

Cleaning, lighting & repairs for communal areas

Lift maintenance

Building funds for future major works

Management fee
2.
SCOPE
This policy applies to variable and fixed service charges under all tenures in Genesis
that sit under the Property Portfolio Grouping listed in Appendix 1.
3.
STANDARDS

Genesis recognises that the determining factors in the administration of
service charges are the terms of the tenancy agreement for tenants of rented
properties, the lease in the case of ownership and commercial customers, or
the transfer document in the case of freeholders.

Genesis is committed to collecting service charges in a timely and costeffective manner, in order to recover its incurred costs.

Genesis strives to operate all its service charges in accordance with
legislation and guidance issued by the HCA Regulator and will endeavour to
maintain highest of standards and reflect best practice within the industry.

Genesis recognises that customers may receive different types of services
and as such have different liabilities for service charges.
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4.

This policy is intended to explain how Genesis works in practice in the day to
day operations and administration of service charges.

Individual tenancy agreements, leases or transfer documents will give full
detail of services that are chargeable to each customer.

Genesis service charges will be based on actual costs of providing each
service or, where these are not available, for example on new developments,
Genesis will provide estimated costs based on evidence from comparable
estates or properties. We will prepare estimates annually and balance
accounts each year with a debit / surplus statement

Service charges will be apportioned between individual properties in
accordance with the terms of the tenancy agreement, lease or transfer
document. Where no apportionment is prescribed within the lease document,
Genesis will determine reasonable apportionment by adopting firstly a square
footage basis and thereafter where such information is not readily available,
by adopting a bedroom weighted method of apportionment. Genesis
recognises the need for reasonable and fair apportionment of charges to
customers and where none is prescribed has adopted a fair and reasonable
approach to apportionment. Please see Appendix 2 for calculation method.

Genesis is committed to ensuring that all its customers who pay service
charges have the opportunity for on-going involvement in deciding the type
and extent of services subject to our constitutional and legal requirements.

Disputed items: Genesis has a separate procedure in line with current best
practice for managing disputes. Please see Procedure on Disputed Items.

Genesis will guarantee there is clear guidance for residents on ground rent
and when it is applicable to a property. (Inclusive but not limited to retirement
properties, freeholds and shared ownership). Please see Appendix 3 for subpolicy details.
ADDITIONAL INFORMATION
Information, Consultation and Engagement
Genesis will consult and inform customers in line with statutory requirements as and
when required in the specified processes. A notable process where consultation is
required is when issuing a Section 20 for work to be complete. Please see Appendix
4 for details on when this is applied.
Wherever possible, Genesis will involve customers in assessing value for money and
will assist them in making informed judgements.
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In the case of a request to inspect documentation, Genesis will make such
information available for inspection or in the case of another provider holding such
information Genesis will supply the name and address of the freeholder or superior
landlord.
When requested, Genesis will endeavour to establish and assist the establishment of
Residents' Associations and other representative groups, that can (among other
things and not limited to) raise service charge issues so there is a benefit to those
who live in our properties and pay service charges.
New Developments
Genesis will aim to control new development services and charges to create the
lowest possible overall service charge by selecting facilities appropriate to the type of
development. This will include some items requiring regular maintenance and those
benefiting from a longer life cycle.
In the planning phase of new developments, those in Genesis responsible for new
development will liaise with internal colleagues to provide the highest possible
degree of accuracy in estimating service charges in order to assist potential
homeowners with planning their own domestic budgets.
Contributions to sinking funds or usage charges for new developments will be set by
estimating or calculating specific lifecycles and costs for applicable components.
In cases where Genesis is not the freeholder, Genesis will take all reasonable action
to comply efficiently with requests for information from customers or secretaries of
recognised Residents’ Associations.
Genesis will make a charge to cover our own reasonable costs of managing services
as long as we are permitted to do so.
Sinking funds or depreciation / usage charges may be in place to cover the
replacement or renewal of key facilities such as roofs, lifts or door entry systems.
Statements and Demands
An annual statement of account will be produced for each property where service
charges are payable, unless the lease, tenancy agreement, licence or other tenancy
/ title document provides for more frequent accounts or clearly in the case of fixed
service charges where this does not apply.
Genesis may seek agreement to standardise the frequency of accounts statements
in order to control administrative costs.
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Demands for service charges will be made in writing and will contain the landlord's
name and address and a summary of rights and obligations as per Section 47 & 48
of the Landlord & Tenant Act 1987.
In addition to rights under the lease or transfer document, Genesis will, where
appropriate and applicable:

Provide customers with an estimate of their service charge bill. This will include
statements of anticipated expenditure for services to which the customer
contributes.

Provide customers with a statement of actual service charge expenditure within
six months of the year end or as the binding agreement states.

Offer payment options for service charges for the year – including direct debit.

Provide customers with an annual statement of major works / sinking funds
charges.

Provide information on/ signpost customers to an organisation that can provide
debt advice for those finding payments difficult. Genesis Housing Association will
NOT provide debt advice.
Service charge accounts will be independently audited in accordance with statutory
requirements.
Surplus/ deficits
Any surplus or deficit on a customer's account for the financial year will be
determined by the calculation of actual costs in comparison to estimated costs.
These will be calculated by the end of September of the next financial year, i.e. costs
incurred between April 2013 to March 2014, will be calculated by the end of
September 2014.
If there is a matter that prevents Genesis from completing account calculations and
finalising surplus and deficit balances, in accordance with best practice and
legislation, Genesis will ensure customers are informed of potential costs as yet
unaccounted for, through provision of a formal notice.
The customer's surplus (credit) / deficit (debit) balance and overarching account
balance must be settled by the end of that financial year i.e. for the year 2013/14
when surplus / deficit is determined in September 2014, the balance must be settled
prior to the end of March 2015.
In the case of an annual surplus: where a customer has a surplus balance of up
to £150, this will be credited to the customer's account and their service charge
payments decreased accordingly, or if the surplus balance (credit) is over £150, the
monies will be returned to the customer.
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If the customer's account balance is in deficit, Genesis reserves the right to
offset any surplus against the existing customer balance.
In the case of a deficit balance: Genesis provide two options: (1) Customer can
choose to pay the deficit in one lump sum to Genesis, or (2) have their payments
increased to ensure the deficit is repaid by the end of that financial year, i.e. March
2015.
Miscellany
Genesis recognises that customers of all races, ages, religions, gender, sexual
orientation, literacy levels and disability should be treated equally and fairly.
All Genesis customers will have access to this policy document upon request or from
our Genesis website. This access will be electronic and provided in paper on
request.
This document and accompanying leaflet can be translated or provided in alternative
formats (e.g. Braille, large print, and audio) upon request.
Genesis publicises its policies and procedures to customers and staff in numerous
ways.
New Schemes
At this time all new agreements should reflect variable service charges calculated on
a square footage or weighted bedroom method of apportionment in line with any
requirement through deed, title or agreement.
Charging Arrangements
Genesis operates six separate schedules of charges: these are:

Estate – if the property forms part of an estate, then certain services that are
provided across the estate will be captured under this heading.

Block - if the property forms part of a block, then certain services that are
provided across the block will be captured under this heading.

Unit – if the property receives services that are unique to the property and not
directly connected to any other properties the charges will be captured under
this heading

Insurance – this heading covers charges for buildings insurance

Sinking funds & Usage – dependent on any specifics in Lease or Tenancy
Agreement, this will form charges for longer term replacement of major assets
to the property, block or estate.
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
Management Fees – this heading covers the charges Genesis incur providing
management services such as the accounting, contact centre, local officers
Documents for customers
Genesis is committed to keeping its administrative costs as low as possible
through efficiency and appropriate administration. As such, service charge
statements and demands will only be sent to customers who pay service charges
by separate demand; where tenants pay service charges through their rent,
Genesis will not provide service charge statements unless requested. Please
note: Genesis reserve the right to charge a fee for the provision of such
statements under request.
Genesis is committed to providing clear statements for all charges with
commentary on how the charges are calculated and what services they
represent. Customers will receive a covering letter determining the charge period
and confirming content of:

A demand for payment (demand is a legal term and we wish to affirm that we
use this term for legal purposes only)

A statement of expenditure; this will determine the overall sums spent on each
schedule, your contribution in percentage and in financial terms

A commentary: this will clearly explain the charge, in the case of an actual
charge it will compare and contrast with the estimate, in the case of an
estimate it will compare and contrast with the previous year’s estimate and an
explanation of any increase or decrease.
Sinking funds and Usage Charge
Please find an explanation of how Genesis manage and maintain sinking funds and
usage charges in Appendix 5.
Management Fees
Please find an explanation of how Genesis management fees in Appendix 6.
5.
RELATED DOCUMENTS
Internal

Service charges procedure and process maps
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APPENDIX 1 – PORTFOLIO GROUPINGS
List of Property Portfolio Groupings affected by this Policy
General Needs
Social Rented Housing
Affordable Rents
Staff Accommodation
Student accommodation
Key Workers Accommodation
Intermediate Rent
Intermediate Rent
Leasehold & Shared Ownership
Key Worker - Key Worker Housing for Sale
Leaseholder - Any Other Sales
Leaseholder - New build Homebuy
Leaseholder - Open Market Homebuy
Leaseholder - Other Social Leased Hsg
Leaseholder - Social Homebuy
Leaseholder - Under Right To Acquire
Low Cost - Any other Shared Ownership
Low Cost - Shared Ownership
Non-residential
Commercial - Other Non-Social Housing
Residential Letting
Residential Letting - Market rented
Supported
Designated Supported Housing For Older People
Housing for Older People
Leaseholder - Housing For Older People
Supported Housing - Designated Care
Supported Housing - Designated Supported
Supported Housing - Purpose Designed
Supported Housing - Staff Accommodation
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APPENDIX 2 – CALCULATION OF APPORTIONMENT
Genesis believes that the fairest method in apportioning charges where the tenancy
agreement, lease or title document does not prescribe is to apply square footage as
a principle for apportioning charges.
A typical block may consist (example) of 3 one bedroom flats and 3 two bedroom
flats
FLAT
Flat 1
Flat 2
Flat 3
Flat 4
Flat 5
Flat 6
BLOCK
No. of
Bedrooms
One
Two
One
Two
One
Two
N/A
Square
footage
67
83
72
89
72
89
472
The block in this example would have charges apportioned by percentage of the flats
square footage shown in the table below:
Flat 1
Flat 2
Flat 3
Flat 4
Flat 5
Flat 6
BLOCK
67 14.19%
83 17.58%
72 15.25%
89 18.86%
72 15.25%
89 18.86%
472 100.00%
If the square footage is not confirmed at the time of the property being developed,
Genesis will not re-measure. Therefore Genesis has adopted a secondary
methodology of weighted-bedrooms whereby the charge contribution to a block /
estate is determined by the number of bedrooms in the property, detailed below.
In apportioning charges Genesis will create a table for each block or estate based
upon the units within and giving a cumulative total.
An initial table of weighted units
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One Bedroom
Two Bedrooms
Three Bedrooms
Four Bedrooms
1.0
1.2
1.4
1.6
Example in a block of 8 units, (four with one bedroom and four with two bedrooms)
would give the following calculation.
4 x 1.0 = 4.0
4 x 1.2 = 4.8
The block has a “weight” of 8.8; therefore the rechargeable sum is divided by 8.8 to
give the base 1.0 charge and calculated accordingly thereafter.
Type of Flat
1-bed
1-bed
1-bed
1-bed
2-bed
2-bed
2-bed
2-bed
8 FLATS
Weighting
1.0
1.0
1.0
1.0
1.2
1.2
1.2
1.2
8.8
Percentage
conversion
11%
11%
11%
11%
14%
14%
14%
14%
100%
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APPENDIX 3 – GROUND RENT
SUMMARY
Ground rent, sometimes known as a rent charge, is rent paid under the terms of a
lease by the owner of a building to the owner of the land on which it is built. In
context of Genesis’ charges, ground rent will be charged to its customers (where
applicable) when Genesis own the land the property is built on.
APPLICATION
Genesis will apply ground rent as prescribed within the lease/ freehold or title
document and apply any rises in the manner prescribed or adopt methodology for
future calculations of any rises or increases prescribed. (Please see alternative
documentation or contact Genesis for details on the calculation of ground rent.)
Genesis will treat all customers fairly and act lawfully in accordance with the lease,
freehold or title document.
Genesis recognises the importance of collecting charges in a robust and timely
manner and will offer a variety of payment methods to make it easy for customers to
pay.
Genesis will expect customers to meet their obligation to pay charges lawfully due
and will work where appropriate with other agencies and individuals to assist in the
recovery of said charges.
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APPENDIX 4 – SECTION 20
SUMMARY
Genesis has an obligation to all its customers to maintain the buildings in which their
properties are located. It is of fundamental importance that full and meaningful
consultation with customers is undertaken prior to any major works to their buildings
commencing or long-term contracts are entered into.
There are three main benefits to the consultation process:



The customer is aware of and can have an input into the plans regarding
works to their building
The customer is aware that works are due to be undertaken that will have a
financial impact on them and can plan accordingly
Genesis is able to allocate to and recoup from the customer a fair percentage
of the costs incurred for undertaking the work.
This appendix sets out in what circumstances Genesis will consult with its customers
over qualifying works and qualifying long-term agreements and will define the
differences between repairs and improvements, making clear which can be
recharged for.



Genesis will be fully compliant with Section 20 requirements.
Genesis will treat all customers in a fair and equal manner in the
administration of all Section 20 related correspondence.
Genesis will publish all comments & observations received at each stage of
consultation in anonymous form so to protect the individual concerned and
respond to all comments and observations at each stage.
The Head of Leasehold Services retains the overall responsibility for the
implementation of this process and its operational delivery. This includes
responsibility for monitoring and review, staff awareness and training, policy
development and communication to customers.
Legislative context
This refers to Section 20 in the Landlord and Tenant Act 1985 and in the
Commonhold and Leasehold Reform Act 2002.
This piece of legislation sets out the specifics that Genesis must follow when
applying service charges, using them and what consultation with Residents is
required.
SCHEDULES
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There are four schedules for consultation under the legislation and the schedule
used will depend on the type of qualifying works or long-term agreement being
entered into. (Schedule 4 has two parts).
Schedule 1: Consultation requirements for qualifying long-term agreements
(QLTAs) not requiring a public notice.
Schedule 2: Consultation requirements for qualifying long-term agreements
(QLTAs) requiring a public notice.
Schedule 3: Consultation requirements for qualifying works undertaken under
the terms of a QLTA
Schedule 4: a) Qualifying works not covered by a QLTA and requiring a public
notice and b) qualifying works not covered by a QLTA and not requiring a
public notice
QUALIFYING WORKS
Qualifying works, are any provided to the building in which the leasehold property is
situated that will incur a cost of more than £250 to any one individual customer in
one financial year. If this is the case, Genesis must undertake ‘Section 20’
consultation. Failure to do so will mean that a maximum of £250 will be able to be
recovered against the cost of works from the customer. Qualifying works are works
to the building for repair or maintenance issues not improvements unless provision
for the recovery of costs for these has been made in the lease. For example, the
provision of a new pitched-roof to a building that previously had a worn-out flat roof
would count as a repair as the work would be replacing an existing item with a new
one using the latest materials and building techniques. If however, a door entry
system were to be fitted to a building that did not previously have one, this would be
counted as an improvement and therefore would not fall into the qualifying works
category unless provision for the recovery of costs has been made in the lease.
Qualifying Long-term Agreements
Qualifying long-term agreements are contracts entered into with a service provider
for the provision of goods and services that will affect the Customers property for a
period of more than 12 months. The value of the contract dictates whether or not it is
subject to a public notice. The values of contracts that require public notice is laid out
in the EU Public Procurement Rules and can be found in Genesis’s Procurement
Policy and toolkit.
Failure to follow the correct consultation procedure will mean that Genesis is only
able to recover £100 of the value of the contract from any one customer in any one
financial year.
Contracts that are exempt from consultation
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The following contracts are exempt from consultation even though costs against
them may be recovered through service charges. Some do not currently directly
affect customers of Genesis; however, mention of them should be made in case
there is a change in the future:





A contract between a local authority and an ALMO
A contract between a local authority and a tenant management organisation
A contract between a local authority and a holding company and or its’
subsidiaries
A contract of employment
A contract of 5 years or less in length entered into during a period when a
property was not tenanted by a customer.
DISPENSATION FROM CONSULTATION REQUIREMENTS
In some circumstances, it will not be possible to meet all the necessary consultation
requirements. For example:


very urgent works (on the grounds of safety etc)
works for which it is difficult to obtain more than one estimate
Genesis will seek advice from the “Lower Property Chamber” (previously known as
the LVT) on how to proceed with consultation if it is felt that any of the requirements
of the above schedules cannot be met. Applications for dispensation will be made
both in advance and retrospectively where necessary. (The Lower Property
Chamber provides an independent service for settling disputes involving private
rented and leasehold properties).
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APPENDIX 5 – SINKING FUND AND USAGE CHARGE
Summary
Setting up a sinking fund/usage charge ensures that all residents, irrespective of
when they live in the block/property, share the financial cost of major works and
replacements.
The sinking fund/usage charge maintains the value of the assets and circumvents or
offsets the need to pay large one-off sums when major works are required.
Aim and Objective
The aim of this policy is to ensure that Genesis abides by all legal requirements
when setting up, maintaining and using a sinking fund/usage charge.
The objective of this policy is to set out in clear terms all regulatory requirements and
what Genesis is legally required to do when using a block’s sinking fund/usage
charge.
Definitions
A sinking fund is a collection of funds taken from leaseholders over a set time period
in order to replace/ redecorate/ improve a major asset when required. Leaseholders
only will pay monies into a sinking fund.
A usage charge is an amount of money paid by a resident on set time periods e.g.
monthly, weekly etc. that covers the eventual replacement of the major assets
contained in the block. These payments ensure that Genesis is able to replace,
redecorate, or improve the asset when required. Residents renting a Genesis
property (e.g. general needs, care and support residents etc.) will pay a usage
charge for these purposes where the monies are not automatically taken from rent
revenues. If this is the case it will be detailed and explained to that resident.
A block is a collection of properties that share communal services.
Legislative context and background
Landlord and Tenant Act 1985, please see appendix 4 on Section 20 consultation
requirements for details.
CALCULATION OF SINKING FUND/ USAGE CHARGE
A calculation of the sinking fund/usage charge is required and therefore the monthly
payments to be made by residents are worked out using the following process:
1. Identification of assets that will require replacement or major work
2. Understand when the asset will need replacement or work completed
3. Calculate cost of replacing asset at set time
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4. Divide asset cost by number of years to confirm annual payment
5. Divide annual payment by number of residents
6. Divide individual resident’s payment to confirm monthly or weekly contribution
N.B. this is calculated per asset, all individual payments will be added together to
confirm the Leaseholder’s periodic payment.
USE OF SINKING FUND
If Genesis intends to use a sinking fund for any purpose we may be required to
formally consult with the relevant leaseholders about this. This is covered in
appendix 4 that details Section 20.
If a situation arises whereby works are required, leaseholders can collectively decide
what to use their sinking funds for but this is a collective fund and not individual. If
leaseholders choose not to use their sinking find for an item/s they will be billed
directly and expected to settle the charge in the financial year it is incurred by
Genesis. Decision is made collectively whereby the majority decision will rule. In
this circumstance the sinking fund calculation for monthly payments will be recalculated and reduced for customers, dependent on the current fund total in context
with required future works
USE OF USAGE CHARGE
As this is collected on a periodic basis from the residents, it is Genesis’s
responsibility to manage this fund so that when an asset is to be replaced or major
works completed, the funds are available to complete the works. This will be paid
from Genesis’ account.
NO WORKS REQUIRED
Payments into the Sinking fund/usage charge will continue even if the money is not
used at the scheduled time. If a circumstance arises where it is agreed the asset
does not require replacement at the agreed time, the works will be rescheduled and
the fund used at that time. No money will be extracted out of the Sinking fund/
usage charge unless it is to pay for the agreed major works. If this were to happen
then resident’s payments into the charge will be reviewed and potentially decreased,
however payments will continue to ensure that when the asset does require
replacement or work there is a sufficient fund to cover it.
LACK OF FUNDS
A situation may occur where the Sinking fund/usage charge balance is insufficient to
cover the cost of the major works. In this circumstance, Genesis may decide to
proceed with works as a necessity to protect its asset. If this is the case, full
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consultation with residents will be conducted, in line with Section 20 requirements
(where appropriate), on the action being taken and how the works will be paid for.
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APPENDIX 6 – MANAGEMENT FEE
Aim and Objective
The aim of this policy is to detail the principles around the calculation of a
management fee and its contents
The objective of this policy is to ensure that all Genesis staff and Customers
understand what a management fee is and why it is applied as a service charge to
customer accounts.
Definitions
A management fee is various overhead costs incurred by the business when
delivering support services to its customers. These are indirect costs contributing to
service delivery.
An overhead is an ongoing expense of operating a business, or a cost incurred in
delivering a service such as salaries, equipment costs, office facilities etc.
REVIEW
The costs included in the management fee will be decided upon by completing a full
investigation of what costs were incurred in the delivery of service to our Residents,
and what percentage of these costs should be re-charged. An itemised list of these
costs can be supplied on demand. The responsibility of approval of this cost
calculation sits with the Executive Board of Genesis. The value of these elements
may change from year to year, however what is included in the calculation will be set
using the below timescales.
N.B. The management fee is charged as an estimated expenditure and then
balanced using the actual costs incurred.
This list detailing what is included in the management fee will be reviewed every year
for the first 3 years, and a minimum of once every 3 years following that.
A cost can be removed by Genesis at any time, however if there is a request to
include an additional item onto the management fee calculation list, this must go
through appropriate levels of approval (including management from both Finance
and the Communities Directorate) if the cost implication is over £150 per year per
customer. In these instances relevant Resident’s panel will be consulted to review
the cost increase.
DOCUMENTATION
The service charge statement distributed to customers annually, detailing the actual
costs incurred will include a breakdown of all elements that are included to calculate
the management fee, ensuring visibility for the customer and accountability for
Genesis.
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