Local authority guidance for formal applications to disapply government rent policy
Guidance for local authorities
Applies to England
Documents
Details
Purpose of this document
1. This document sets out the arrangements for a local authority to apply to the Secretary of State for agreement that it would be inappropriate for the Government’s Policy Statement on Rents for Social Housing (“Government Rent Policy”) to apply to specified accommodation because this would cause the authority unavoidable and serious financial difficulty. If the Secretary of State agrees to a local authority’s application, the effect would be that the Rent Standard would no longer apply to the accommodation in question.
Context
2. The following arrangements are based on the arrangements whereby a local authority could apply for an exemption in respect of the provisions in the Welfare Reform and Work Act 2016.
Legislative background
3. The Regulator of Social Housing’s Rent Standard for registered providers of social housing applies to all low cost rental accommodation other than that provided to high income social tenants or to which the Government Rent Policy does not apply
4. The Government Rent Policy specifies various categories of low cost rental accommodation (as defined by section 69 of the Housing and Regeneration Act 2008) to which the policy does not apply, including relevant local authority accommodation.
5. “Relevant local authority accommodation” is defined as follows in the Government Rent Policy:
Accommodation is ‘relevant local authority accommodation’ if it is accommodation provided by a local authority and the Secretary of State has agreed that it would be inappropriate to apply this rent policy to the accommodation because this would cause the authority unavoidable and serious financial difficulty.
6. The process for local authorities to apply to the Secretary of State for accommodation to be classed as relevant local authority accommodation (to which Government Rent Policy, and, accordingly, the Rent Standard does not apply) is set out below.
Unavoidable and serious financial difficulty
7. In considering whether the application of the Government Rent Policy would cause unavoidable and serious financial difficulty, the Secretary of State will expect to be provided with evidence that:
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the local authority’s Housing Revenue Account (HRA) is at risk of a deficit in either the current or subsequent financial year
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complying with the requirements set out in the Rent Standard would jeopardise the local authority’s ability to meet legal requirements/obligations, including ensuring the health and safety of its residents
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all possible steps have been taken to avoid the need for an application to the Secretary of State, including reviewing services and commitments and taking action to minimise costs and curtailing non-essential commitments
8. Applications will not be agreed where a local authority is seeking to increase rents above current Government Rent Policy simply because it now wishes to make up time following a period of applying a lower increase than that permitted prior to 2016, or because its rents did not reach formula rent prior to 2016.
9. The threshold for unavoidable and serious financial difficulty is demanding and it is anticipated that few applications would be made. Normally, short-term cashflow issues would not be considered appropriate to justify an application to the Secretary of State in accordance with this document. The expectation would be that a local authority experiencing a short-term cash flow issue would look at its contractual commitments and non-essential services and take appropriate action, without recourse to government.
Making an application
10. Applications should be made to the Department for Levelling Up, Housing and Communities (DLUHC) at the contact address below. There is no prescribed format, but applications should outline:
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the financial and non-financial effects on the local authority of implementing the requirements set out in the Rents Standard
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the steps that the local authority has taken to resolve the situation and mitigate the need for an application to the Secretary of State
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details of the local authority’s HRA financial position including income, expenditure, reserves, commitment, debts (now and in the future) after all possible mitigating action have been undertaken and/or fully reflected in financial forecasts
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details of the underlying assumptions, including current and future inflation and interest rates, future rent levels, expected Right to Buy sales, and other relevant factors
11. The above information should be accompanied by a declaration from the local authorities’ Section 151 Officer, confirming that the local authority has exhausted other options and without a disapplication of Government Rent Policy the LA would face serious and unavoidable financial difficulty.
12. Additionally, applications may be asked to provide HRA financial forecasts and an accompanying narrative based on:
(i) a baseline scenario on the requirements placed on the local authority as set out in the Rent Standard
(ii) a revised scenario incorporating the local authority’s proposals to mitigate the impact of those requirements on the HRA. This should include steps being taken to examine all financial commitments and consider options for extricating the local authority from such commitments where possible to improve the financial viability of the HRA. It should also demonstrate the extent to which any mitigations fall short of avoiding serious financial difficulties, supported by a narrative outlining the alternative strategies that had been considered
(iii) a proposed resolution scenario, incorporating proposed mitigation measures setting out the necessary accommodation to be classified as relevant local authority accommodation and included in the application for agreement from the Secretary of State. This will demonstrate the local authority’s financial viability and ability to meet its legal requirements/obligations as a social landlord, if the application were to be granted
13. Further evidence may be requested in support of applications.
Application assessment and decision
14. After considering all the information, the Secretary of State will make a decision about whether the local authority’s accommodation should be classified as relevant local authority accommodation, and the local authority will be notified. The Regulator of Social Housing will also be notified.
15. If the Secretary of State agrees the local authority’s application, a Memorandum of Understanding will be agreed with the local authority. This will include:
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the accommodation that will be classified as relevant local authority accommodation
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the period for which that classification will apply
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the limit on annual rent increases that will apply during that period
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the information to be provided to government during that period
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the arrangements for making a fresh application to the Secretary of State if unavoidable and serious financial difficulty continues to be experienced
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the arrangements for charging rents after that period
16. A template for the Memorandum of Understanding is at Annex A.
17. A copy of the Memorandum of Understanding will be sent to the Regulator of Social Housing for information. The Regulator of Social Housing will not regulate the rents on local authority accommodation during the period in which it is classified as relevant local authority accommodation.
Local authority reorganisation
18. If it is expected that a new local authority will be created, following the re-organisation of 2 or more local authorities, and as a result it will become responsible for housing that had previously been classified as relevant local authority accommodation, it should provide evidence about the expected financial position of the new organisation. If, after considering all the information, the Secretary of State is satisfied that it would be inappropriate for the Government Rent Policy to apply to the new local authority’s housing, it will be notified of the accommodation that will be classified as relevant local authority accommodation. The Regulator of Social Housing will also be notified.
19. If the new local authority wishes to vary the terms of the agreement with the Secretary of State to the relevant local authority accommodation classification, a fresh application will need to be made to the Secretary of State, in line with the approach above.
Contact details
20. Applications for agreement that it would be inappropriate to apply the government’s rent policy to accommodation should be made to: HRAqueries@levellingup.gov.uk.
Annex A: Memorandum of Understanding template
Memorandum of Understanding between the Department for Levelling Up, Housing and Communities (DLUHC) and [name of local authority] in relation to the rents to be charged for [its accommodation/or if not all of its accommodation specify the accommodation]
Purpose
1. This Memorandum of Understanding sets out various issues pertaining to the Secretary of State’s agreement to the application from [name of local authority] to [its accommodation/or if not all of its accommodation specify the accommodation] being classified as relevant local authority accommodation to which it is inappropriate to apply Government Rent Policy (and to which, accordingly, the Rent Standard, does not apply).
Context
2. On 14 December 2022 government published the updated “Local authority guidance for formal applications to disapply government rent policy”.
3. In line with that document, [name of local authority] has applied to the Secretary of State for [X accommodation] to be classified as relevant local authority accommodation, because application of Government Rent Policy would cause unavoidable and serious financial difficulty.
4. Following consideration of all the information provided, the Secretary of State has agreed to that application.
5. In accordance with paragraph 14 of the “Local authority guidance for formal applications to disapply government rent policy”, this Memorandum of Understanding specifies:
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the accommodation that will be classified as relevant local authority accommodation
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the period for which that classification will apply
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the limit on annual rent increases that will apply during that period
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the information to be provided to government during that period
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the arrangements for making a fresh application to the Secretary of State if unavoidable and serious financial difficulty continue to be experienced
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the arrangements for charging rents after that period
The accommodation that will be classified as relevant local authority accommodation
6. [All of the local authority’s social housing accommodation is classified as relevant local authority accommodation] or [The local authority’s social housing accommodation that is classified as relevant local authority accommodation is as follows: ].
The period for which the classification will apply
7. The Secretary of State agrees the application from [name of local authority] for [the accommodation] to be classified as relevant local authority accommodation (“the specified accommodation”) between [date] and [date].
The limit on annual rent increases that will apply
8. For the period specified above, [name of local authority] agrees that the level of annual rent increases that will apply to the specified accommodation above will not exceed [the specified percentage].
The information to be provided to government
9. During the period specified above, [name of local authority] agrees to provide the following data to DLUHC to monitor the local authority’s progress in addressing its unavoidable and serious financial difficulty, and in understanding the impact that the limit on annual rent increases is having in respect of the specified accommodation:
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quarterly narrative assessment of the impact of the classification of the accommodation as relevant local authority accommodation on the unavoidable and serious financial difficulties that the [name of local authority] is experiencing. This should include analysis of the extent to which the local authority is meeting its legal requirements/obligations, including ensuring the health and safety of its residents
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Housing Revenue Account income and expenditure on a local authority basis. As far as possible, this should include quarterly outturn figures as well as projections going forward. Additionally, income and expenditure information may be sought in respect of certain specified accommodation or certain specified geographic areas.
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During the period that the specified accommodation is classified as relevant local authority accommodation, [name of local authority] agrees to provide any additional information requested by DLUHC, and to participate in any progress meetings with DLUHC, as necessary. It also agrees to continue to provide the annual Local Authority Data Return to the Regulator of Social Housing.
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The [name of local authority] will notify DLUHC as soon as possible if the financial circumstances of its Housing Revenue Account change or if information emerges that materially affects the Secretary of State’s agreement to classify the accommodation as relevant local authority accommodation.
The arrangements for making a fresh application to the Secretary of State if unavoidable and serious financial difficulty continue to be experienced
12. If [name of local authority] expects to continue to experience unavoidable and serious financial difficulty beyond the duration of the period identified above, it will submit a fresh application to the Secretary of State.
13. Any such application will be made 3 months in advance of the expiry of the period identified above, and [name of local authority] will inform DLUHC officials in advance of submitting such an application.
The arrangements for charging rents after the classification period
14. Before the end of the classification period specified above, DLUHC and [name of authority] will consider the rents to be charged by the authority after the expiry of the classification period. The Regulator of Social Housing will regulate the local authority’s rents at the end of the classification period.