In late 2023 we identified a number of possible errors in how we historically calculated rent for some of our tenants, based on policies that were introduced in 2004 and 2016.
Unfortunately, some of our tenants were overcharged as a result, for which we sincerely apologise.
Rent being charged from April 2024 onwards have been corrected. We are now working towards refunding any overpayments tenants have made - please read more about this process below.
How we have been addressing the error
In early 2024 we wrote to all current tenants who were affected by the error, to inform them of this issue and to apologise.
All council tenants received a rent notification letter in the week commencing 26 February 2024 – this confirmed tenants’ new, corrected rents, which have now been in place since April 2024.
Any tenants who were financially affected by the historical errors also received a second letter that same week, explaining which issue they were affected by.
All current tenants who were financially affected by the errors are being kept updated by letter on a quarterly basis (having received a further letter in July and the latest in the week commencing 25 November) with updates on our work to calculate any refunds.
The refund process
Before making any refunds, we need to consider how much of your rent payments may have been paid by Housing Benefit or Universal Credit. Also, if any affected tenants’ accounts are in arrears, any refund amount would need to be reduced by the amount owed.
Since our last letter in July 2024, we have been working to calculate what individual tenants’ rents should have been for previous years of tenancy, and how much they may have been overcharged. We have verified this data and are ready to start the audit process to finalise this stage of the process.
Housing Benefit: We are responsible for processing the Housing Benefit claims, and so we have been able to test the Housing Benefit recalculation process. This will need to be in place before any refunds can be made. We are at the final stages of testing this process.
Universal Credit: The Government’s Department for Work and Pensions (DWP) is responsible for Universal Credit. They have not yet confirmed how they will recalculate the Universal Credit that may have been paid towards rents, or provide a process for any repayments that we need to make to them. This is the last step that needs to be in place before we can start to process any refunds. We are in regular contact with the DWP, and we will update tenants as soon as we know more from the DWP.
At the current time, our customer service advisors will not be able to tell you how much any refund will be. However, if you need immediate financial advice, call us and ask for Housing Management.
Email us if you have a question about your rent which is not covered in the content of the letter you receive.
Why this happened
Our intention has always been to make what tenants pay transparent and to set rents as low as possible for tenants. These errors were both made due to misinterpreting government guidance related to setting rents.
Affordable Rents error
When we created the policy for setting affordable rents for council properties in 2016, we wanted to set first-time rents as low as possible in our new-build homes, at around 50 to 55% of market rents. Around the same time, the government advised councils that they would need to bring affordable rents down by 1% per year for four years, from 2016 to 2019.
When creating our policy, we needed to make sure we did not set rents so low that when we reduced them by 1% per year the scheme was no longer financially viable for us.
We could have set new rents a little higher for the first three years – at up to 80% of market rent, which would have been compliant with government guidance – in order to end up with rents from year four that were as low as we could afford to charge.
But artificially inflating rents in this way didn’t feel like the right thing to do because it would have been less affordable for tenants at the outset. We chose instead to set rents as low as possible from the outset, increasing them annually, thinking this would be better for tenants, making rents more affordable.
We now know that misinterpreting the guidance in this way means the policy was non-compliant and that we also implemented this policy incorrectly – meaning we need to correct affected tenants’ rent accounts and pay refunds.
Social Rents error
From April 2002 councils were encouraged to show service charges separately from rent, to make it easier for tenants to see how their overall housing costs were being calculated. Different tenants would have been being charged different amounts due to paying for different services – such as grounds maintenance, or cleaning in communal areas.
When we separated service charges out on tenants’ accounts in April 2004, this included separating out gas maintenance and electrical and mechanical maintenance charges, because not all homes had gas central heating or electrical and mechanical services, so not all tenants were being charged for these services.
However, we now know that the service charges for gas maintenance and electrical and mechanical maintenance should have been left within the amount charged for rent.
Although shown separately, they have effectively always been part of the rent; when these charges were first separated out, we reduced the amount of rent being charged by the amount of the service charge(s).
This meant that when the new rent figure and service charge(s) were added together, the overall amount being charged for the property was the same as it was before we separated out the charges.
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.
We now need to put these charges back into the rent where they should always have been. When we add the gas maintenance or electrical and mechanical maintenance charges back into rent, the new total needs to be compared to the ‘formula’ rent for the property, which is the maximum we would charge.
'Formula rents' sometimes also referred to as ‘target rents’, are individually calculated rents for each property that follow a formula dictated by government. The formula rent is the rent which we intended to charge our tenants.
If we have charged an overall amount above the formula rent, we will refund the difference. This will apply to any tenant who has been in their home since April 2004, or who has moved into a property which already had these charges applied.
Tenants who have not overpaid will not be due a refund, but we will still need to correct rent accounts from April 2024 to ensure gas maintenance and electrical and mechanical maintenance charges are incorporated back into the amount shown for rent, rather than displayed separately.
We have also added separate gas maintenance charges to properties when gas central heating has been installed since April 2004. If this installation was carried out during someone’s tenancy, they will have had this charge added on top of their rent, and we will need to refund the full value of this service charge.
Why this has been discovered now
We have been proactively reviewing our policies and procedures in recent months.
As part of this work we identified the potential errors in our policies, and took legal advice to clarify whether we had interpreted government guidance correctly.
We have been advised that we were not compliant, and therefore need to correct these errors and refund affected tenants.
Working with the Regulator for Social Housing
We proactively referred ourselves to the Regulator of Social Housing when we identified these issues and have been engaging with the Regulator since then.
The Regulator has now issued a Regulatory Judgement.
Social housing rent types
There are two forms of rent charged in social housing.
Social rent is the rent most people will be more familiar with. People on the housing register are able to pay rent that is set at around 35% to 40% of the local market rent.
Affordable rent is a newer form of social housing rent. It can be set at no more than 80% of the local market rent. In Cambridge, in recognition of housing affordability challenges, we have until now only been setting affordable rents at up to around 60% of market rent.
Former tenants
Some former tenants will have been affected.
Initially we are contacting current tenants, to ensure that we correct their ongoing rent as a priority. But we will work through the detail as we calculate refunds, and will contact former tenants in due course where we have contact or forwarding details for them.
Refund effect on entitlement to benefits or Universal Credit
The amount of benefit or Universal Credit you are entitled to can be affected by the amount of savings you (and your partner) have.
Total savings of £6,000 or under – or for those of state pension age, £10,000 or under – will not affect benefit entitlement. Find out more about housing benefit thresholds.
You might be able to choose to keep your overpayment on your rent account for a period of time rather than receive a refund. Or you could consider paying off any other debt to us such as Council Tax arrears, or paying off any existing credit card, loans or car loans, or consider the purchase of essential household items.
Talk to us or to Citizens Advice for further information. When we write to you about your individual refund, we will provide you with information about your option related to your refund.
Avoiding scams
We will not be starting to process refunds for some months. When we start to process refunds, we will write to affected tenants to request payment details.
We will not ‘cold call’ tenants to request payment details and we will never ask tenants to make a payment of any amount in order to receive a refund.
