Housing Associations / Financial

Housing Benefit for Non Housing Revenue Account Rent Rebate Subsidy

Summary

One type of leasing scheme is where a local authority can take a sub-lease from a housing association who then manages the property on the authority’s behalf. For this type of scheme non-Housing Revenue rent rebates apply and this page gives further information on this issue.

Further Information

Under section 112 of the Housing Act 1985 a local authority may lease a dwelling for a period not exceeding 10 years for the purpose of providing accommodation pursuant to its functions under part VII of the Housing Act 1996 (homelessness functions). Leases can be taken on for any period up to one day short of ten years although it is more usual to grant leases for up to 6 years.

For this type of scheme ‘non Housing Revenue Account rent rebates’ apply in relation to the amount of housing benefit subsidy recovered by the local authority from central Government via the Department for Work and Pensions. The determining factor is that they apply where the local authority hold an interest in the lease and account for this in their General Fund. Even so there is nothing to stop a housing association from holding the ‘head lease’ and then sub leasing to a local authority. The Council would then hold the legal interest in the dwelling and enter into a non secure tenancy agreement with the homeless household. The housing association could manage all aspects of the tenancy including letting, maintenance, repairs, rent collection etc. Where the original landlord is responsible for aspects such as external repairs the HA would arrange for these to be carried out by the landlord as they will still have the responsibility for the Head lease with the landlord. The only issue that the local authority would need to consider in this respect is whether OJEC tendering regulations would apply in respect of the managing arrangements from an RSL. Currently service costs of above £160,000 for the whole contract may fall into OJEC regulations. (See page on EU Procurement Arrangements for a Private Sector Leasing Scheme). A local authority should check carefully.

The amount of rent charged by the council would be collected by the managing RSL and would be used to cover both the rent payable to the landlord and the organisations’ management costs.

Under a PSL scheme where the local authority holds the interest in the lease the costs and financial risks for all parties under this regime are reduced for both the local authority and the RSL.

Under this type of scheme the local authority claim housing benefit non HRA rent rebate subsidy from the DWP for any homeless people in such short term accommodation. The claim form is MPF 720A. This subsidy operates under the ‘caps and thresholds’ subsidy regime. Where the non-secure tenant is entitled to full housing benefit 100% subsidy can be claimed by the council up to an individual local authority subsidy cap. In Councils outside of London a relatively generous figure of £196 a week or more may be available. In London a figure of £375 plus may be available. The subsidy is generous enough for a council to be able to develop with an RSL partner a leasing scheme which is cost neutral to the local authority despite providing them with any additional risk guarantees such as those relating to nominations, bad debts and voids.

What are the Disadvantages of such a Scheme?                   

Housing Benefit subsidy on this type of scheme is only payable to a local authority on rents up to the non HRA rent rebate cap. Even though these are relatively generous, for larger properties or properties in a higher rented location the rents may be above the threshold. One possible way is to charge out rents on larger or higher value area properties at the cap limit and make up any loss by charging a slightly higher rent for smaller properties to ensure the costs balance out.

Setting up a PSL Scheme can take time and cause delays. Given that the local authority would hold the lease there may be delays while its housing, estates, valuation and legal services sort out the issues.

If a local authority does not sub-contract out the managing arrangements they will have to employ additional staff to manage the scheme including marketing, procurement and management of properties.    

Downloads

Department for Work and Pensions - HB/CTB S2/2007 For Housing Benefit and Council Tax Benefit Circulars

External Links

Department for Work and Pensions - HB/CTB S3/2006 For the Non Housing Revenue Account (HRA) rent rebate subsidy thresholds and caps 2007/08