Right to compensation for tenants improvements

Housing Associations are required to have a compensation scheme and make it known to all their secure tenants.

Background/introduction

Article 34 of the Housing (NI) Order 1983 gives secure tenants the right to improve their accommodation with the landlords’ written consent. Article 35 permits the landlord to make a payment to the out-going tenant for such an approved improvement.

In 2001 the Department introduced a Right to Compensation for Tenants Improvements Scheme, the purpose of which is to provide compensation for tenants who have paid for improvements but leave before they gain the full benefit of their investment.

Each Registered Housing Association is required to have a compensation scheme and make it known to all their secure tenants. The compensation scheme must satisfy the requirements of this guidance.

The scheme applies to all secure tenants of an Association with compensation for eligible improvements being paid to qualifying persons when the secure tenancy ends. Compensation shall be calculated as a depreciated sum based on the original costs, less any adjustments or deductions permitted by this guidance.

Qualifying improvements

To qualify for compensation under the scheme, the improvement must be on the list of eligible items listed in Qualifying Improvements and Notional Lives – Model Housing Association Scheme

Tenants must receive prior approval from their Housing Association for the works carried out and compensation will be mandatory for items listed as qualifying improvements. The improvements must have materially added to the property. Repair works or the provision of luxury items do not qualify.

In order to maintain parity within the social rented sector in Northern Ireland the notional lives of these items are based on life expectancies which are applied by the NIHE to activities such as improvements.

The scheme will exclude security measures. In the Northern Ireland context, giving effect to increased personal security to any individual is deemed to rest with the NIO who have policies relating to such circumstances.

Qualifying tenants and tenancies

Qualifying persons must be secure tenants of the Housing Association.

The following persons are considered eligible to apply for compensation when their tenancy ends:

• the tenant who made the improvement or, in the case of a joint tenancy at the time the improvement was made, any of the tenants at that time
• a person who became a tenant jointly with the improving tenant
• a person in whom the tenancy was vested or to whom the tenancy was disposed of on the death of the improving tenants, or in the course of the administration of his estate
• a person to whom the tenancy was assigned by the improving tenant and who would have qualified to succeed him if he had died immediately before assignment
• a person to whom the tenancy was assigned by the improving tenant in pursuance of a property adjustment order in connection with matrimonial proceedings
• a spouse or former spouse of the improving tenant to whom the tenancy has been transferred by an order arising out of matrimonial proceedings

Tenants will not be eligible to apply for compensation under the scheme in any of the following circumstances:

• the tenant is purchasing his or her home (but in such cases the improvement is not taken into account in the valuation process);
• the tenancy is terminated as a result of:
  (i) the Association issuing a Notice seeking Possession
  (ii) a Court issuing an Order for Possession or
  (iii) the Association issuing an Abandonment Notice
• a new tenancy for the same property is granted to the qualifying tenant, or all the joint tenants, whether or not with anyone else.

Consent

To qualify for compensation the improvement must have the written consent of the Association. Consent should be obtained prior to carrying out the improvement, although in certain circumstances the Association may grant consent retrospectively. If retrospective consent is not granted the improvement is ineligible for compensation.

Under this scheme, the Association can impose reasonable conditions when granting consent although it cannot refuse consent without good reason. Reasonable conditions for the improvement could relate to matters such as the following:

• design
• materials (eg complying with British Standards or equivalent)
• standard of workmanship
• use of contractors with particular qualifications
• the Association being given at least three working days' written notice of the commencement of work
• the Association being given written notice within three working days of completion of the work in order that post inspection can be arranged
• the Association being allowed access at reasonable times to inspect the property before, during and after completion of the work
• the 'improving' tenant providing the Association with invoices for the improvement work, distinguishing between the cost of materials and labour.

Breach of any conditions of consent shall render the improvement ineligible for compensation and the Association shall have no compensation responsibility.

When granting consent tenants should be reminded that, if they intend claiming compensation for the improvement in the event of terminating their tenancy, they should retain all invoices relating to the work as these will be required to determine the amount of reimbursement. Details relating to start date and completion date of works should also be retained.

The Association may impose reasonable conditions but it can not refuse consent without good reason. Consent may be withheld for one of the following reasons:

• the proposed improvement could create future letting problems
• the proposed improvement could create unacceptable annoyance or nuisance to neighbours
• the proposed improvement could detract from the general appearance of the property or development
• it could create health and safety problems

Procedure for Claiming Compensation

Qualifying tenants may claim compensation when their secure tenancy ends (e.g. if they transfer to another property owned by the Association, move into accommodation owned by another landlord or purchase their own home. Please note, however, that the tenancy is not ended if a tenant exchanges his or her home by way of mutual assignment).

When the Association receives notice of a secure tenant's intention to vacate, it should remind the tenant that he or she may be entitled to compensation for improvements and that any claim must be lodged during the last 28 days of the tenancy or 14 days after the tenancy ends.

Recommended Claims and Appeals Procedure outlines the procedure and timetable for assessing claims and whilst none of the time limits are at present statutory they are considered reasonable. Tenants should be asked to provide invoices, covering both materials and labour, but where these are not available they should provide an estimate of the original costs and details of the dates the work began and was completed.

Calculation of compensation

Calculation of Compensation Payable outlines the procedures for calculating compensation. Compensation is not payable for professional fees, statutory approvals or the tenant's own labour. Any financial assistance from the public purse which contributed to the cost of the improvement is deducted. The net cost of the improvement is then depreciated on a straight line basis.

The Association may adjust the amount of compensation payable if any or all of the factors specified in Adjustments and deductions below.

To avoid disproportionate administrative costs there will be a lower threshold of £50 per improvement to avoid minor claims whilst the upper limit will be £3,000 per item. Both limits may be revised from time to time and any outstanding debts will be deducted from the compensation payable.

The upper limit on the scheme is £3,000.

Worked example

A tenant has completed an improvement costing £2,000 with a notional life of 20 years but has left the property 5 years after completion.

Cost (£2,000) less grants or assistance towards work (nil) = £2,000

Notional life (20 years) less number of years lapsed since completion (5) = 15

Compensation payment = Cost x percentage of notional life remaining
= £2,000 x 15/20 x 100% = £1,500

Adjustments and deductions

The Association can make adjustments to the amount payable if it considers that:

• the initial cost outlay by the tenant for the improvement was excessive
• the improvement was of a higher standard than the Association would normally install
• the improvement has deteriorated at a greater or lesser rate than normal wear and tear
• the Association had incurred excessive inspection and administrative costs in connection with the improvement

Any sums which the outgoing tenant owes the Association (eg rent/heating arrears or recoverable charges) may be deducted from any compensation payable.

Appeals

Tenants may appeal a decision in relation to:

• a refusal to grant consent to undertake works
• the improvement being judged to fall outside the qualifying list
• the amount of compensation offered

It is expected that most appeals will be resolved in the first instance by reference to the Association's own internal complaints procedure. Where a tenant has a complaint of injustice as a result of maladministration and the Association's own complaints procedure has been exhausted, they may refer the case to the Northern Ireland Ombudsman.

Payment

Payment will be made to the qualifying tenant or tenants. In the case of joint tenancies where one of the qualifying persons cannot be traced (after the Association has made reasonable effort to do so), payment will be made to the other qualifying tenant(s) and it will be up to the missing tenant to recover his/her share from the others.

Maintenance

Once an improvement has been made, the Association will normally be responsible for its maintenance. It is important, therefore, when granting consent that it is made conditional upon the tenant carrying out the work to the applicable British Standard or equivalent and to facilitating a post inspection.

Rent levels

The Association cannot increase the tenant’s rent as a result of the improvement. However, when the tenancy ends and the property is being re-let the rent level can be increased to reflect the additional amenity for the incoming tenant.