Cambridge City Council has identified an error in how some of its tenants’ rents have been calculated in the past, in relation to some service charges, meaning that affected tenants’ rents will need to be corrected and any overpayments that tenants have made will need to be refunded.
All current council tenants will receive a rent notification letter this week (week commencing 26 February), as happens each year when tenants are notified about their rent amount for the coming year following any rent increases which would come into effect each April.
Current tenants who have been financially affected by the service charge error will also receive an additional letter this week confirming they have been affected, with further information about how the rent has been corrected.
The council has been working to urgently correct tenants’ rents so that rents charged for the financial year starting in April 2024 would be correct. Now that this has been achieved, the next priority is to start calculating how much affected tenants have overpaid so that refunds can be calculated.
This may take some time as each tenant’s account needs to be individually assessed, looking at previous years’ charges, and recalculating what the rent should have been each year. Until this work has been completed, it won’t be possible to tell tenants how much any refund will be. Tenants will be written to again in the summer with further information about refunds.
A separate rent-setting issue had previously been identified by the council as part of the same internal process that brought this service charging issue to light. The earlier issue related to a small number of tenants who have ‘Affordable Rent’ tenancies. Tenants affected by this issue were contacted in early January, and will also receive two letters this week: the rent notification letter received by all tenants; and a letter explaining the corrections made to their accounts from April onwards.
Cllr Gerri Bird, Executive Cllr for Housing and Homelessness, said: “We sincerely apologise for these errors and any concern they may cause. Our intention has always been to set rents as low as possible for tenants and to be transparent in what tenants were paying for. These errors were both made due to misinterpreting government guidance on setting rents.
“We identified both errors through our own internal checks and have been working around the clock to make sure we could correct tenants’ rent accounts in time for the annual rent notification letters that have gone out this week informing tenants how much their rent will be from April onwards.
“I would like to reassure affected tenants that correcting these errors will not cause your rent to increase. However, your corrected rent for the coming year may not be lower than your current rent, because once we corrected and reduced your rent we also added the annual rent increase on top for April onwards. It will be lower than it otherwise would have been from April.
“We ask for tenants’ patience while we work through the next phase of work to calculate refunds, which may take some months.
“Please be aware that we will not ‘cold call’ tenants to request any financial information and we will never ask you to make a payment of any amount in order to receive your refund.”
How this happened
Service charges: From April 2002 councils were encouraged by Government to show service charges – such as for cleaning in communal areas or grounds maintenance – separately from rent, to make it easier for tenants to see how their overall housing costs were being calculated.
When implementing this change, the council included gas maintenance and electrical and mechanical maintenance charges as separate charges because not all homes had gas central heating or electrical and mechanical services, so not all tenants were being charged for these services.
Having recently sought legal advice on this, the council now understands these service charges – for gas maintenance and electrical and mechanical maintenance – should have been left within the amount charged for rent.
When these charges were first separated out, tenants’ rents were reduced by the amount of the service charge(s), meaning the overall amount charged was the same and tenants were not being overcharged.
However, in subsequent years as any annual rent increases were applied, the calculations would not have been correct because of one or both of these service charges being separate to, rather than included within, the core rent. As a result of these charges being shown separately, the council cannot be certain that some tenants may not have been accidentally overcharged. They would have been overcharged if the amount of the service charge(s) and rent combined took them over their ‘formula rent’ or if the charge was added after 2004 and in the middle of a tenancy.
The council needs to revisit tenants’ previous years’ rents and remove or reincorporate the service charges into the rent. The new total needs to be compared to the formula rent for the property. Where any recalculated rents are found to have gone over and above ‘formula rent’ for the property, this will mean tenants have been overcharged by that amount.
Affordable Rents: The Affordable Rents error relates to misinterpreting government guidance on decreasing rents by 1% per year between 2016 and 2019. At the time, the council was creating a policy for setting affordable rents for new-build homes for the first time, and wanted to set these first-time rents as low as possible from the outset, at around 50 to 55% of market rents.
The council could have set new rents far higher than it did, and then reduce them by 1% each year, but chose instead to set rents as low as possible from the outset, and increase them over time, making rents more affordable at the outset. Having recently sought legal advice on this, the council now understands that the policy was non-compliant.
The council’s Rent Corrections webpage has information for tenants concerned about the impact of any refund on benefits, more detail about why these errors occurred, and more.
