City council to repay £4.3m+ to tenants after discovering rent and service charge errors
Cambridge City Council has estimated that it will cost more than £4.3m to rectify two historical errors in how it set rent and service charges.
The local authority sought legal advice in late 2023 on how it had historically set those charges.
In its latest update it said work undertaken in March to produce a reasonable estimate of the rent overpayments had arrived at a total of £4.369m.
The report said the first error related to not correctly applying the 1% rent reduction under The Welfare Reform and Work Act 2016 to its affordable rented homes. The legal advice confirmed the reduction should be retrospectively applied and refunds of any overpayments made by tenants should be given back to them.
The second error related to how rent and service charges were displayed on rent accounts since the introduction of rent restructuring from April 2002 and the subsequent separation out of the service charges from April 2004.
“The authority displayed gas and electrical and mechanical maintenance charges separately from the rent, which has now been confirmed as incorrect. The legal advice received confirmed that these charges have always been part of the rent and that the authority needed to combine these charges back into the rent ensuring that the total didn’t breach the formula rent,” the report said.
“If the formula rent has been breached, the difference needs to be refunded and if charges were added on top of the rent, these need to be removed and refunded.”
The city council set up a Project Team to manage the task, which involved assessing more than 23,000 tenancies during the 20 years to see whether they have been affected.
The report revealed that Cambridge is in the process of completing the following objectives:
- recruit Project Manager April 2024
- calculate and validate individual refund values
- determine methodology for repaying overpaid Housing Benefit
- determine approach for repaying overpaid Universal Credit
- provide update to affected current tenants
- design processes to manage application of credits and resulting refunds.
It also sets out future targets to be completed by Summer 2025:
- apply credits and refund any overpayment for affected current affordable rented tenants
- apply credits and refund any overpayment for affected former affordable rented tenants
- apply credits and refund any overpayment for affected current social rented tenants
- apply credits and refund any overpayment for affected former social rented tenants
The council referred the issues to the Regulator of Social Housing (RSH) in early December 2023.
Additional information was provided between January and March 2024 as officers identified the affected tenants.
The report said the RSH is considering issuing a regulatory judgment due to the number of tenants affected and the financial implications.
However, the Regulator is said to have acknowledged that the council was proactive in reporting the breach and in efforts to address it. The Regulator has held several meetings with the council and continues to meet with officers bi-monthly.
A Cambridge City Council spokesperson said: “When we identified these historical rent-setting errors – going back 20 years – we worked quickly to inform current tenants and correct rents from April onwards. The next step is to put a process in place to calculate how much tenants may be owed, including working with the Department for Work and Pensions, and then to process refunds. We really appreciate tenants’ patience so far, and plan to write to all affected current tenants again later this summer with an update on the refund process. We will then begin to contact former tenants where we hold contact details.
“Our intention had always been to make what tenants pay transparent and to set rents as low as possible, and at the time the second of these policies was created, we could have set rents higher than we did without breaching government guidance. However, because of misinterpreting the government guidance about how we calculated rents, we have unfortunately overcharged some tenants, and are working to put this right as soon as we can.
“I would urge tenants to remain vigilant to scams and remember that when we start to process refunds, we will write to affected tenants to request payment details, and will never ask for a payment to be made in order to receive your refund. Visit cambridge.gov.uk/rent-corrections for the latest information or to seek support.”
Harry Rodd
