LEASEHOLD MANAGEMENT & SHARED OWNERSHIP; INCLUDING SERVICE CHARGES

Transcription

1 LEASEHOLD MANAGEMENT & SHARED OWNERSHIP; INCLUDING SERVICE CHARGES Final Distribution Director of Housing Services Home Ownership Manager Insurance Risk Manager Head of Finance Audit Manager, Audit Commission Member with Portfolio, Housing Lynda Baker Audit Manager Lucy Lumb - Auditor OCTOBER 2006

2 EXECUTIVE SUMMARY 1 INTRODUCTION 1.1 Background Milton Keynes Council manages 1506 properties that are sold on a leasehold basis, the majority of which were originally purchased by tenants through the Right to Buy scheme. The Authority is the landlord for the blocks of flats within the borough of Milton Keynes which were previously owned by either the Milton Keynes Development Corporation or the Council. It is the Council's responsibility to maintain the structure, exterior and common parts of these blocks, including carrying out repairs and maintenance. The costs that are incurred in respect of leasehold properties, such as for cleaning, electricity, general maintenance and building insurance are recharged to the leaseholder through quarterly service charges. The first three quarterly charges are based on estimates and the final service charge details the actual costs incurred throughout the year and the final payment required by leaseholders. Major works (repairs and/or improvements) are often required for leasehold property blocks. Before they commence, a consultation process must be followed if the estimated cost of the works will exceed a prescribed amount. The Home Ownership team must act in accordance with the Commonhold and Leasehold Reform Act properties have been sold as shared ownership, whereby the council and the shared owner each own a percentage of the property. Shared owners can purchase further shares of their property from the Council in multiples of 10% and staircase up to owning 100%, thus in the majority of cases becoming a freeholder. Some shared ownership properties incur service charges which are contained within the terms of the lease. AUDIT REPORT E152/07 1 OCTOBER 2006

3 1.2 Objectives and Scope The objectives of the audit were to ensure that: a) Income due to the service is accurately received in relation to leaseholders and shared owners. (Income from Leaseholders/Shared Owners) b) Arrears are promptly followed up or written-off appropriately. (Arrears) c) The service complies with the Commonhold and Leasehold Reform Act (Commonhold & Leasehold Reform Act) d) Appropriate building insurance has been arranged for leasehold and shared ownership properties. (Building Insurance) Key: 1 = Poor, 3 = Good AUDIT REPORT E152/07 2 OCTOBER 2006

4 2 AUDIT OPINION Satisfactory - Controls are considered adequate with some areas of weakness that are not major risk areas. 3 CONCLUSIONS 3.1 Leasehold and shared ownership properties are effectively managed. Collection of income has been especially good within shared ownership, with collection of rent and service charges from 03/04 to 05/06 being above the 98% statistical target at year-end. 3.2 In relation to leasehold properties, service charges have reflected the true costs incurred and leaseholders have been accurately charged. 3.3 The most significant financial risk identified (although low probability) relates to the arrangement of building insurance in the case where it is the responsibility of the shared owner. In these cases checks are not made to ensure appropriate building insurance has been arranged. The consequence of this could be loss of a property with no insurance to cover the cost. 4 WAY FORWARD 4.1 All recommendations are in the Management Action Plan (Page 5). Good controls are shown in section 5, overleaf. 4.2 The arrangement of appropriate building insurance should be checked for all properties that are not insured by MKC's Insurance department. AUDIT REPORT E152/07 3 OCTOBER 2006

5 FINDINGS SUMMARY 5 GOOD INTERNAL CONTROLS The following areas were tested and confirmed as having good internal controls with no problems to report:- 5.1 Income from Leaseholders/Shared Owners Service charges to leaseholders reflect actual costs and are accurately billed to include the management fee. Rent accounts have been updated correctly and promptly when shared ownership details have changed. Discount for 100% sales of shared ownership properties has been applied and calculated according to the "Shared Ownership Further Share Procedure". 5.2 Commonhold & Leasehold Reform Act Monitoring systems of consultation for major works are in place. AUDIT REPORT E152/07 4 OCTOBER 2006

6 The recommendations are categorised on the following basis: MANAGEMENT ACTION PLAN Essential - Implementation is required with immediate effect to address a weakness that fundamentally undermines the control of that system. Important - Implementation is required within a short period of time to address weaknesses that seriously undermine the control of that system. Standard - Management need to take recommended action within a reasonable period to address weaknesses that may undermine system control. Ref Findings Risk/ Implication Recommendation Management Comments Manager Responsible & Target Date 1 Building Insurance The existence and adequacy of building insurance is not checked for shared ownership properties when it is the owners' responsibility to arrange the insurance. 2 Income from Leaseholders/Shared Owners Under the Landlord and Tenant Act 1985, major works must be invoiced for within 18 months from the date the costs were incurred, unless a Section 20B notice is served, otherwise income cannot be collected. The date that major works begin (when the costs are incurred) are not recorded and so it is difficult for the Leasehold Management Officer to establish when the 18 month period ends. In circumstances the value of a building could be lost at the council's expense if the tenant left the scene. extreme Important Income may not Standard be received for major works carried out. A standard letter should be agreed and sent to the leaseholders/shareholders for who MKC does not arrange insurance. This letter should inform shared owners that it is their responsibility to arrange adequate building insurance and request that evidence of current insurance received. The regularity of this exercise should be reviewed following the first check. The date that costs are first incurred for major works should be recorded and used to ensure either an invoice or Section 20B notice is issued within 18 months. is Agreed. Agreed. Access to the database has been requested for surveyors and the start date will now be captured. Home Ownership Manager & Insurance Risk Manager 30/03/2007 Home Ownership Manager 30/10/2006 NB Any cost implications arising from implementation of the recommendations by HBS must be agreed in advance with the appropriate Client Officer and the Partnership Delivery Manager AUDIT REPORT E152/07 5 OCTOBER 2006