Private Sector Leasing and Housing Association Lease Schemes for Landlords A Story of Guaranteed Rent and No Voids

Do you want to know a secret?

Well, it’s not actually a secret at all but it’s something that’s been kept a bit quiet up to now. (And true to form the mainstream press has not reported it.)

So what’s the story?

Well, from October 2011, Housing Benefit / Local Housing Allowance rates will be set at the 30th percentile of local market rents, not at the 50th (median) percentile as at present.

When this was announced and ever since, there has been much leaping about in the media with everyone from Ken Livingstone to Boris Johnson and even renowned Housing and Benefit Experts like the venerable Archbishop of Canterbury putting in their penny worth about rapacious private landlords – though to be fair much of the hysteria comes not from the cut to the 30th percentile of local rents but from the maximum caps on Housing Benefit and the effect of these on London.

So, if you are an outsider to the confused world of Housing Benefits, you may be thinking everyone will move onto the 30th percentile rate, then?

Way Out

Well, er, not exactly, because a rather big “Work Around” has been allowed by the Government for the local authorities to use.

Smart landlords already know that the councils and housing associations of our land use a number of what are called “Private Sector Leasing” (or PSL) Schemes (PSLS) including a variant called “Housing Association Leasing Schemes” (HALS) to provide provision for homeless households and potentially homeless households. They can also be used as what’s called “Move On” accommodation for people in supported housing schemes.

Sometimes they are run direct by councils, sometimes by housing associations and often by the likes of private providers of which Orchard and Shipman are one of the biggest players. Often more than one scheme will be operated in a single borough (yes, plenty of duplication – we know!) and clever landlords have long been in the game of picking and choosing among the various schemes on offer.

Guaranteed Rent

These Private Lease Schemes are used to provide temporary accommodation for priority homeless or potentially homeless households and the leases set up with private landlords usually run from 2 up to 5 years and provide guaranteed rental incomes for landlords.

So, if you are a landlord the good news is that with these schemes you can get a gold plated guaranteed rent (paid for by the taxpayer) for that period of time with no void periods, usually no need to provide moveable furnishings, no agent fees to pay and in some cases some basic management will even be provided too. (There are only two real downsides: 1) You lose control of who is in your property – so think hard about this if the neighbours at your let property are sensitive types. and 2) Though any damage will be fixed, you’ll probably need to redecorate fully and replace carpets at the end of the period.)

With these schemes it is “happy days” for landlords or, at least it is for those who know about these schemes. (By the way, if you are a landlord and if this is the first you have read about this and are cursing that you have missed out all these years on a guaranteed rent, you are not alone, the marketing of these crazily duplicated and competing schemes by councils et al could be a whole bunch better. Some of our work with the public sector involves working with councils to show them how to market them better.)

But enough of the digression.

50th Percentile or 30th Percentile

Anyway, when the proposed cut in LHA from the 50th percentile of local rent values to 30th percentile was announced, there were concerns this would have a major impact on private sector initiatives like these.

However, pretty early on, the Department for Works and Pensions (DWP) announced that Housing Benefit rates payable in respect of temporary accommodation provided by the Council to households who are homeless or at risk of homelessness will in effect be exempted from these changes until the middle of 2013. (The “at risk of homelessness” term is pretty important because we expect that definition to be stretched a long way in the future.)

This means that all leased schemes, be they Private Sector Leasing or Housing Association Leasing Schemes and used for temporary accommodation or prevention, will continue to be set at an LHA figure calculated on the 50th percentile, and this will be preserved for at least two years.

As the other changes outlined in the June 2010 budget (especially the new caps) are likely to have a significant impact in increasing homeless demand and reducing supply through “Direct Lets to LHA Schemes”, this little “Work Around” should give councils a great way of increasing the supply of leased accommodation to make up for anticipated shortfalls.

Increase in Private Leasing and Housing Association Leasing

We expect the councils to significantly increase the numbers of households placed in temporary accommodation. So, expect to also see a huge growth in the use of these schemes and a much wider use of the term “at risk of homelessness.”

At the moment the existence of this work around and out of the Great Housing Benefits Cuts Quandary has been kept quite quiet – which is fair enough when you consider that the likes of the London councils and the landlord associations all want to get more out of Housing Minister, Mr. Shapps to ameliorate the effect of the Housing Benefit shake up. (Good luck to them too, though we think they are wasting their time.)

Mr. Shapps hasn’t pointed to the existence of this work around either because he probably doesn’t want to tacitly admit that there could be more homelessness as a result of the Housing Benefit / Local Housing Allowance changes he’s bought in. And to be a backstop against homelessness is, of course, what these schemes were originally designed for!

Perhaps he is watching to see how things settle down.

If you are reading this Mr. Shapps, we must salute the clever game you are  playing.

We also rather enjoy the way no one “in the know” is talking about this great work around the current conundrum. Having just got back from Moscow and a  country where for many years and still today  “some things just could not be said”, we find the politics of this rather fascinating.

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3 comments

  • As a landlord of student properties myself, I found this to be a useful and informative post particularly the Private Sector Leasing aspect. Will subscribe.

  • This is all very well but it is not good news for the beleagured leasehold sector.

    In my personal experience it’s always been a problem getting tenancy information from our individual landlords and getting them to advise when they have entered into a separate contract with the council has been nigh on impossible.

    When our RTM Directors wanted to know which flats came under the jurisdiction of the council (we were at the time guessing which ones, using rapid tenancy turnover as a guide!) I approached the council on their behalf. I was left in no doubt that the RTM company was not part of the equation because they told me they didn’t need to know anything about it. So I asked if they would divulge the information to our managing agent who at the time was acting as the freeholder landlord (the original landlord was deceased). They didn’t need to know about them eitherand they also quoted Data Protection as a means by which to not divulge anything.

    To make matters more confusing I also found out that the Temporary Accommodation Team, the Social Services Mental Health Team and the Learning Disabilities Team were also entitled to use properties that signed up for the PSL.

    Additionally when one council runs out of accommodation, they may well place tenants from their boroughs in other boroughs under a reciprocal arrangement. This is an important distinction, especially when it comes to dealing with anti-social tenants, of which I have had first hand experience.

    Currently a private block of flats may have a landlord, managing agent, a resident management company or a right to manage company, individual landlords, their letting agents, a local authority, (sometimes more) and their letting agents.

    If my experience of the lack of communication from landlords and the council is mirrored right across the board, then the already complicated area of leasehold management is set to become even more so.

    Sharon

    • I fully agree Sharon and can certainly appreciate the potential problems that these arrangements already bring.
      As I said in the piece, in my view, the use of these schemes will only grow and the problem will get worse.
      As regards the endless quoting of Data Protection, this, like the “Elf and Safety” is also going too far at the councils – often people don’t understand the DPA and what they can and cannot say.
      If a private landlord goes into a PSL arrangement they should, under the terms of the lease, be required to tell the freeholder / managing agent so the managing agent can manage the block and do their job.
      However, often leases are so badly written that there is no facility for this (unfortunately old lease docs especially where property has been converted into flats are often very badly written indeed.)

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