Rent setting, service charges and sinking funds policy

This policy outlines how our rent is calculated, set, and reviewed, and what service charges and sinking funds are, how we calculate and apply them, and our responsibilities surrounding them.

Introduction

Income from rent is Magna's principal income stream and so ensuring that we set and recover rents effectively is key to delivering our vision to 'Create Great Homes Together' and the continued development of customer services and good quality affordable homes fit for our current and future customers.

Scope of this policy

This policy sets out Magna's approach to rent setting for residential properties and garages. It doesn't cover commercial leases.

This policy also includes our approach to service charges and sinking funds and applies to all customers who pay a service charge as well as to all customers who contribute or may be required to contribute to a sinking fund.

Policy statement

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.

Properties excluded from the Rent Standard, such as market rented accommodation and shared ownership properties, are also covered by this policy.

Where the tenancy agreement for an individual property prescribes a method of setting and / or reviewing rent which isn't in accordance with the Rent Standard, the rent will be set and / or reviewed in accordance with the terms of the tenancy agreement.

We will charge Affordable Rents on homes subject to a housing supply and delivery agreement with Homes England and built or acquired under our 2017 - 2021 supply and investment plan and our financial plan but at the equivalent social rent level, or as near to it as possible.

We review garage charges annually with reference to local market conditions.

We aim to ensure when applying service charges:

• Our approach is fair, open, and transparent
• We cover our costs and ensure value for money when procuring services
• We deliver services that help to ensure our properties meet the Magna Standard
• The services provided help to keep customers safe in their homes
• Costs are affordable

We're 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 below under Rent Setting Flexibility.

Application of formula rents

Property Valuation

An essential feature of our rent setting, service charges, and sinking funds policy is that the 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"). The rent setting, service charges, and sinking funds policy assumes weekly rent.

Accordingly, where rent is not payable every Monday, we'll 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 won't 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 we'll apply to all new social rented customers as set out below under Rent Levels on Re-let and New Build Properties.

Formula Rent Caps

There are maximum limits for rents payable, published each year by the Regulator of Social Housing. For 2024 / 25, these limits are:

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 be re-let at the formula rent rate, subject to the rent flexibility level and the rent cap.

The initial rent on a new build property will be set at a level that's 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 outlined below under Properties exempt from formula rent and / or the Rent Standard.

Notification to customers

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

Each year we'll publish information on how our average rents compare with other housing associations operating within the local authority area. We'll 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'll 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. For the purpose of the 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 dwellings

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 plus 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.

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 plus 1%.

Affordable Rent (AR)

Rents will be 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'll consider local market circumstances, lettings criteria and scheme approval criteria.

The maximum annual rent increase will normally be CPI plus 1%. On each occasion that an AR tenancy is issued to a new tenant, we'll rebase the rent to ensure it remains no more than 80% of the relevant market rent.

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

Service charges and sinking funds

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's capable of being lawfully service charged and where it's value for money to apply that charge.

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

We'll 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'll 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'd pay if their home was connected to mains drainage network.

We'll 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'll increase this figure in April by the preceding September's CPI figure plus 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 aren't 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 doesn't 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 won't 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'll 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've 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'll transfer the sinking fund(s) to that new landlord.

Responsibilities

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

The Head of Finance is the accountable person 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 the accountable person responsible 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.

Governance, performance management and review

This policy will be reviewed annually by the Director of Customer Operations in line with the policy review timetable.