Service charges: how procurement can help with recovery

By Alistair Gregory

Despite improvements generally in the way social landlords run their business, the collection of service charges frequently remains a weakness.

Unpaid charges can quickly rack up and the task of chasing payment soon becomes a drain on already stretched resources. Worse still, if proper procedures are not followed landlords can leave themselves open to legal challenge.

This is particularly the case when housing associations are involved in new developments, stock acquisitions and major maintenance projects because there are a number of chargeable areas to keep track of.

But there are some simple steps that organisations can follow to ensure their collection systems are transparent and fair for customers and to help staff stay on top of payments. In the long run it’s about ensuring that those systems are integrated into the way you go about your day-to-day business with procurement having a key role to play in ensuring that happens.

There are clear regulations detailing how landlords should approach the setting and collection of service charges – something my colleague Louise Hebborn will be discussing at PfH Live in Manchester on 28 June.

Proper consultation must be carried out with tenants and leaseholders before tendering for works otherwise a maximum of just £250 per household can be recovered for qualifying works or £100 for long term agreed jobs. Failure to do so could leave an organisation out of pocket to the tune of tens of thousands of pounds.

One thing that continues to surprise me is how many leases are still poorly written. Some are vague in terms of how charges will be organised while others omit details on charges altogether. Comprehensive, clearly written leases are part and parcel of good customer service and are more likely to lead to better collection rates.

For those tenants who are struggling to pay, landlords should – and many do – offer debt advice. Some housing associations also put residents in touch with agencies such as Citizens Advice to ensure they get the support they need. For those that are refusing to pay without good reason, do not let the situation drag on and become entrenched or even out of control. I’d advise leaving it no longer than two months before taking debt recovery action.

In the course of a major project, for example the refurbishment of a block of flats, it’s important that one-off jobs like repairing a lift are included among the service charges. Omitting items like this is an easy mistake to make and, as I mentioned earlier, highlights the essential role the procurement team can play in the process.

Given the importance of ensuring all charges are made clear to residents up front – no matter how complicated the works – it makes sense for procurement staff to be involved at an early stage. They should be involved in the consultation process when landlords respond to feedback from tenants on proposed suppliers and submitted bids. Procurement staff will be able to ensure that every chargeable area is covered amongst the many services used by a housing association.

It’s important to note that charges must be recovered within 18 months. Again, procurement has an important role to play in ensuring that contract delivery and payment demands fit within this timeframe.

No landlord wants to be embroiled in legal action with a resident over unpaid service charges. Equally, at a time when social landlords are under greater financial pressure than ever, they can ill afford to forego thousands of pounds as a result of a failure to follow correct procedures.

By taking an integrated approach that involves procurement from the outset, landlords are more likely to avoid such issues.

Alistair Gregory is a partner at law firm Stephensons. His colleague Louise Hebborn will be discussing the recovery of service charges at PfH Live in Manchester on 28 June.