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Welfare Reform and Work Act: Regulations and Guidance 01/04/2016

Following enactment, DCLG has issued Regulations and Guidance on the mandatory rent reductions under the Welfare Reform and Work Act 2016.

 

The Bill completed its passage through Parliament and received Royal Assent on 16 March 2016 and the subsequent Regulations relating to the four year 1% mandatory reduction in social housing rents have been laid.

 

The rent reduction applies from 1 April 2016 and in each of the four 'relevant years' registered providers of social housing must reduce the total rent payable by a tenant in the year by 1% (though the Act is not prescriptive regarding how this 1% rent reduction is implemented, it could be by a 1% reduction from the beginning of a year, or a larger reduction later in the year). If a tenancy starts or ends during the year, the reduction would be on a pro-rata basis.

 

For social rent properties, the reduction applies to the rent element and not to service charges.

 

For most Affordable Rent properties, the reduction applies to the total amount, inclusive of service charges. Where the social rent is used as a rent 'floor' for an Affordable Rent property, the reduction applies to the rent element only.

 

The Regulations under the Act set out exceptions from the rent reduction together with additional criteria for granting exemptions and impose alternative requirements on certain categories of housing excepted from the basic provisions.

 

The Secretary of State has also issued a general consent which permits providers who had not implemented rent increases for 2015/16 by 8 July 2015, to use a different review date for the baseline rent from which the reduction is to be made.

 

The DCLG has published 'Guidance on the Welfare Reform and Work Act 2016 social rent reduction'. This sets out in "plain English" information on the requirements of the Act and the Regulations, explaining how providers are to apply these requirements. The DCLG Guide sets out exemptions to the 1% mandatory rent reduction under three distinct categories:

 

Full exceptions

 

  • low cost home ownership or shared ownership homes 
  • where the property is subject to a mortgage or other security arrangement, and the mortgagee or other security holder is in possession of the property; a receiver is appointed to receive the rents and profits of that property; or where a person is appointed to administer or sell the property for the purpose of enforcing security; in the unlikely event that a property has to be sold to enforce a mortgage or other security arrangement, it would no longer be subject to the reduction; this is intended to protect the loan security valuation 
  • properties let on Intermediate rent terms, this will include those provided under government programmes and those provided without public capital subsidy 
  • specialised supported housing fitting certain criteria - supported housing developed in partnership with councils, local health or social services offering a high level of support for clients, for whom the only alternative options are care homes 
  • all PFI-funded housing, both HRA and non-HRA 
  • temporary social housing and short-life leasing schemes for the homeless 
  • residential care homes or nursing homes 
  • student accommodation 
  • legacy social housing under the Housing Act 1996 that is not low cost rental accommodation as defined by section 69 of the Housing and Regeneration Act 2008.

 

Exceptions with alternative provision

 

  • properties let to high income social tenants with earnings above £60,000 - as currently defined under the Rent Standard 2015 and Guidance On Rents for Social Housing from April 2015; provisions relating to high income social tenants will be amended when Regulations under the Housing & Planning Bill come into effect under which the "high income" threshold will be reduced to £30,000 per household (£40,000 in London)
  • Certain Rent Act 1977 tenancies - a landlord does not have to reduce rents if the 'fair rent' set by the rent officer is lower than the social rent rate; if that changes the maximum rent would then be the social rent rate
  • an exception applies if in the previous year the tenant's rent was temporarily reduced or waived; that period should be disregarded when calculating the rent due
  • a provider may choose to implement the required total reduction more quickly, and where this applies the provider is not required to reduce rent further (though must not increase it)
  • supported housing is excepted from Schedule 2 to allow providers to continue to set rents for social rent supported housing at 10% above the social rent rate; see 'rent setting for supported housing section' below.

 

One year exceptions

 

The following types of accommodation are excepted from the rent reduction requirements during the first relevant year, but alternative provision applies restricting any rent increases to CPI + 1% (in effect 0.9% for the first year):

 

  • all supported housing (that is not specialised supported housing) provided by local authorities and private registered providers - these include though are not necessarily limited to:
    • sheltered accommodation for older people
    • extra care housing
    • domestic violence refuges and other specialist accommodation based support for domestic violence victims
    • hostels and other supported accommodation for the homeless
    • supported accommodation for people with drug or alcohol problems
    • supported accommodation for people with mental health issues
    • supported accommodation for ex-offenders and people at risk of offending
    • supported accommodation for people with disabilities
    • supported accommodation for people with learning disabilities
    • supported accommodation for young people
    • supported accommodation for teenage parents
  • almshouses
  • community land trusts
  • fully mutual and co-operative housing associations

 

The Regulations and Guidance also provide for increases in rents for properties whose rents are below formula rents as they become vacant. In these cases, providers will - should they wish - be able to bring the rents up to the 'social rent rate' on re-let to a new tenant, similar to re-lets at formula rent under the existing rent policy. 

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