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Rent setting, service charges and sinking funds policy

We are committed to setting and recovering rents effectively to support our vision to ‘Create Great Homes Together’ and deliver quality services to customers.

Who this policy applies to and what it covers

This policy applies to:

  • Residential properties and garages (excluding commercial leases)
  • All customers who pay a service charge
  • All customers who contribute or may be required to contribute to a sinking fund.

The policy covers:

  • Our approach to rent setting, service charges and sinking funds.

Our rent setting, service charge and sinking fund policy

This policy complies with the Rent Standard (part of the regulatory framework for social housing in England) and the Government’s policy statement on rents for social housing.

It also covers properties excluded from the Rent Standard, such as market rented accommodation and shared ownership properties.

If a tenancy agreement prescribes a different method of setting or reviewing rent, the terms of the tenancy agreement will be followed. An example of this situation might be where Magna has acquired homes from another landlord and the residents of those homes have chosen not to sign a new tenancy agreement with Magna and have remained on their original tenancy agreement.

Garage charges are reviewed annually based on local market conditions.

We aim to ensure the following when applying services charges:

  • Our approach is fair, open, and transparent
  • We cover our costs and aim to ensure value for money and affordable charges when procuring and managing services and contracts
  • The services provided help to keep customers safe in their homes.

We are committed to supporting our customers to sustain their contractual obligations with Magna to pay their rent and service charges, through our customer and community teams.

Rent setting

Social rents

In accordance with the Rent Standard, the underlying principles of our policy are:

  • Rents reflect the size (specifically, the number of bedrooms), condition and location of properties and local earnings.
  • A ‘formula rent’ is to be calculated for each property according to a formula using the factors above.
  • Rents on individual properties will normally be within a band of 5% higher or lower than the formula rent. For sheltered and supported housing, the band is 10% higher or lower than the formula rent. More information about this is set out in paragraph 5.5 below.

Application of formula rents

Property Valuation

An essential feature of our policy is that local property values are assessed against the national average, using a January 1999 valuation date.

Rent Calculation

In accordance with the Rent Standard, a formula rent will be established for each property, using the following formula:

  • 30% of the property’s rent is to be based on relative property values
  • 70% of the property’s rent is to be based on relative local earnings
  • A bedroom factor is applied so that, other things being equal, smaller properties have lower rents.

The government has provided the bedroom factor and the data necessary to calculate formula rents.

Rent is due weekly in advance on Monday of each week, except for most tenants there are four Mondays in each financial year on which no rent is charged (commonly known as “rent free weeks”). This policy assumes weekly rent. Accordingly, where rent is not payable every Monday, we will multiply the weekly rent by the number of Mondays in the financial year (52 or 53) and then divide this by the number of chargeable Mondays in the same period (48 or 49). From April 2020 new tenants, and those existing tenants who have converted from weekly tenancies, have monthly tenancies and rent is due monthly in advance.

Rent Setting Flexibility

The Rent Standard allows an upward tolerance on individual formula rents of 5% on general needs and 10% on sheltered and supported housing. This is the limit of the rent flexibility level.

We will apply this flexibility in full on the majority of our properties and our formula rents will be 5% higher for general needs and 10% higher for sheltered and supported housing than the level established under the prescribed calculation where local conditions allow.

We will not apply the full flexibility on the following rents:

  • We will apply 5% flexibility (instead of 10%) on sheltered housing properties where we provide a low-level warden service; and
  • We will apply 0% flexibility on bedsits in general needs, sheltered and supported housing.

Annual Rent Setting

Rent levels will be reviewed and agreed by the Board annually.

The formula rent will be changed from the first applicable rent week in the new financial year.

Formula rents will increase by no more than CPI plus 1% per annum and will apply to all new social rented customers as per 5.13. The exception to this is where the level of rent is above the formula rent level, in which case, an increase of CPI only will be applied, as set out in the formula rent guidance. Exempt properties, listed in section 7 are excluded from this provision.

Formula Rent Caps

There are maximum limits for rents payable, published each year by the Regulator of Social Housing. For 2025/26, these limits are:

  • 6 or more bedrooms - £251.10 per week
  • 5 bedrooms - £239.69 per week
  • 4 bedrooms - £228.27 per week
  • 3 bedrooms - £216.87 per week
  • 2 bedrooms - £205.46 per week
  • 1 bedroom and bedsit - £194.06 per week

These limits currently change each year at the rate of CPI plus 1.5%.

Rent Variations for Improvements

If a major improvement such as an extension which results in one or more additional bedrooms is undertaken to a dwelling and funded by Magna, then the property will be revalued to establish a new formula rent.

If a major improvement is undertaken and funded by a tenant, or by another body on behalf of the tenant, then no adjustment will be made to the formula rent until the property becomes empty.

Rent Levels on Re-let and New Build Properties

General needs, sheltered, and supported properties will generally be re-let at the formula rent level applicable at the time of advert/letting. However, there are exceptions to this general rule as outlined below.

  • Properties Advertised in January: Properties advertised in January will generally be let at the current year’s formula rent level. These properties will be let at the most recent advertised rent level, even if they are let in the new financial year, although we expect these time lags to be rare. Therefore, the rent will not increase due to the timing of the let.
  • Properties Advertised in February and March: Properties advertised after the approval of the following years rent increase, will be let at the new year’s rent level. If a property is advertised in February or March, it will be subject to the new year’s formula rent. This means the property will be let at the updated rent level for the new financial year even where it is let before April.

The initial rent on a new-build property will be set at a level that is no higher than formula rent, subject to the rent flexibility level and the rent cap.

Rents on properties subject to ‘Affordable Rent’ terms will be set in accordance with the information below regarding Affordable Rent (AR).

Notification to customers

We will provide information to customers that explains how their rent and any service charges are set and how they are changed.

Each year we will publish information on how our average rents compare with other housing associations operating within our operating area.

We will also notify tenants of the revised rent that will be payable at least one month prior to the implementation date.

When we communicate with customers about rent changes, we will include in our communications information on how to access support with rent payments and advice on claiming benefits.

Properties exempt from formula rent and/or the rent standard

For properties and other assets not subject to formula rent and/or the Rent Standard, the following changes will apply from the first applicable rent period each year. Before implementing any rent increases, properties listed as exempt from the rent standard will be reviewed and confirmed with the data owner to ensure no changes have occurred that would affect their exempt status. For the purpose of calculation, the CPI for September will be used:

  • Market rented properties: the rents will be changed to a level that the local market will support, subject to any contractual obligations.
  • Garages: the fees will be changed to a level that the local market will support, subject to any contractual obligations.
  • Shared ownership properties: rents will be set and changed in accordance with the lease.
  • Intermediate and other submarket rented properties: rents will initially be set at up to 80% of local market rents and will thereafter be changed by CPI + 1% unless market conditions indicate that higher or lower rents may be appropriate. All intermediate and other submarket rents will be reviewed and calculated afresh every three years or more frequently if circumstances dictate this. This review will usually consist of our own research using property websites such as Rightmove and/or Zoopla to establish what 80% of market rent would be. If this is significantly different to current rents, we may also seek a desktop valuation.
  • Temporary Social Housing: rents will be set at formula rent or at some other level in agreement with the relevant local authority and will be changed by CPI + 1%.
  • Affordable Rent (AR): rents on homes identified on our housing management systems as ‘Affordable Rent’ have been developed under a specific set of circumstances and housing supply delivery agreement with initial rents set at up to 80% of gross market rent for an equivalent property of that size and location and in accordance with the development scheme appraisal policy. The ceiling of 80% is inclusive of service charges (where applicable). Valuations for initial rent setting will be in accordance with a Royal Institution of Chartered Surveyors (RICS) recognised method. We will consider local market circumstances, lettings criteria and scheme approval criteria. We will also establish and record the equivalent formula rent level for AR properties.

The maximum annual rent increase will normally be CPI + 1%. On each occasion that an AR tenancy is issued to a new tenant, we will rebase the rent to ensure it remains no more than 80% of the relevant market rent. If the formula rent plus service charges exceed 80% of the market value, the total charge will be capped at 80% of the market value inclusive of service charges. An affordable rent should not be lower than the formula rent for the property, which serves as the minimum rent to be charged.

Mobility scooter storage and charging: Charges will be reviewed and set annually and may include costs for repair, replacement, and the use of communal electricity.

Garages

In accordance with HMRC rules on VAT, Magna tenants of rented homes, shared owners and leaseholders pay no VAT on the first or only garage they rent. Non-Magna tenants will be charged VAT on all garage rentals. Magna tenants who rent more than one garage will be charged VAT on their second and any subsequent garages.

We will use any surplus arising from letting garages to non-Magna customers for charitable purposes.

Service charges

A service charge is a charge made to tenants, leaseholders, and freeholders towards the cost of services and benefits provided for them beyond the benefits of enjoying occupation of their own home. Service charges arise from the cost of providing and maintaining such services and may be specific to a building, estate, area, or individual home.

Magna operates a system of variable service charges.

We will levy a service charge wherever a service is provided that is capable of being lawfully service charged and where it is value for money to apply that charge.

We are required to meet our financial, legal, health and safety and other commitments, whilst making proper provision for future repairs.

We aim to ensure that service charges cover the cost of providing services.

We will add a management fee of up to 20% to most service charges towards the cost of calculating and administering service charges. There are some service charges to which we do not generally add a management fee; these include most personal charges, the cost of building insurance charged to leaseholders and management fees charged by external management companies.

We will consult customers about proposed changes to existing services or the introduction of new or additional services before their implementation.

Service charges are reviewed annually with the revised level payable from April each year.

We will calculate an estimated service charge with the intention of recovering the cost of services provided from those who benefit. We will give all customers full information about what makes up their estimated service charge and the cost of each service they are expected to pay for, in February each year.

We will send service charge statements showing the actual costs for the previous financial year to customers annually in September.

Service charges will be separately identified within the gross amount of rent payable by customers.

Sewage Treatment Facilities

We will compare our costs and proposed charges with water suppliers annually and aim to keep costs to customers living in a Magna home broadly in line with what they would pay if their home was connected to mains drainage network. We will use this figure as a guide limit for the total of the weekly service charge and sinking fund contribution and cap at this level. We will increase this figure in April by the preceding September’s CPI figure +1%. Customers living in homes not owned by Magna will be charged the full cost of the services.

Sinking funds

The purpose of a sinking fund is to make provision for the future costs of structural repairs and the maintenance and/or replacement of capital items, works, services or facilities which are not provided for in the net rent charge or standard service charge.

Magna will set up, maintain, and collect contributions to sinking funds from customers in line with our occupancy agreements and from leaseholders where the lease permits it. Where a lease does not require such contributions, Magna will seek a voluntary agreement with leaseholders.

Magna will set contributions to sinking funds at a level which aims to recover the full maintenance and/or replacement costs considering the forecast life of the item and the estimated cost.

Sinking funds for communal car parks will be set up when a new car park is created or when an existing car park is resurfaced or improved substantially.

Sinking funds for sheltered and supported communal facilities will not be used for structural work or for installations for water, gas, oil, electricity, heating, or hot water.

Sinking funds will be established for all schemes with sewage facilities to build up financial provision for major works such as replacements and improvements to the equipment.

Where major works are undertaken but the sinking funds are insufficient, freeholders will be invoiced for their share of the difference where their conveyance of sale allows it.

A review of all funds’ liabilities will be made at least every five years.

Sinking fund balances will be held in trust and will be kept in a separate bank account. Any interest earned on the account will be apportioned to the individual sinking funds.

We will provide current contributors to sinking funds with annual statements showing the amount of money held, as at the end of the previous financial year, in any sinking funds into which they have paid.

If a sinking fund is no longer required, the balance will be refunded to all current contributors in proportion to their respective liabilities. If there are no current contributors, the sinking fund will be dissolved as at the date of the termination of the tenancy or lease of the last of the contributors and the balance of the fund shall be retained by Magna. If we transfer a building with current contributors to a new landlord, we will transfer the sinking fund(s) to that new landlord.

Responsibilities

The Director of Customer Operations is accountable for rent setting, service charges and sinking funds at Magna and is responsible for the development and review of this policy annually, ensuring that this meets all regulatory requirements and guidance.

The Head of Finance is accountable for ensuring the accurate calculation, account reconciliation and application and billing of rents and service charges annually and at times in between as necessary and the review of sinking fund liabilities.

The Head of Customer and Community Support is accountable for agreeing the application of rent flexibility, review of service charges levels, the approval of rent and service charges notification letters and targeted customer support where necessary.