Offering deferred payment arrangements to leaseholders while remaining compliant with FCA regulation


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Last month, Michael Gove, Secretary of State for Levelling Up, Housing and Communities announced the latest measures aimed at tackling the building safety crisis.  Key amongst these was the unveiling of a plan for £4 billion of the costs of removal of dangerous cladding on buildings over 11 metres in height to be met by developers, contractors and manufacturers rather than leaseholders. 

The announcement will be welcome news to the leaseholders affected, who will no longer be facing ruinous bills to meet their share of the costs of cladding removal. The announcement did however only relate to the cladding issue, and did not include mention of help in meeting the costs of other aspects of fire or building safety.

With the Government currently saying that no further money will be forthcoming, many leaseholders therefore still face the prospect of having to pay service charge bills that they simply cannot afford. This being the case, some social housing providers will consider offering their leaseholders a longer period over which to pay their share of the remediation costs. RPs that are minded to do this should be aware of the possibility of such deferred payment arrangements being regulated by financial services legislation.

Deferring service charge payments until a later date is regarded as giving a form of credit, and therefore may require authorisation from the FCA under consumer credit legislation. Many social housing providers s already have authorisations from the FCA to enable them to do things like provide regulated debt advice, hire equipment to users of telecare services and/or administer back books of shared equity mortgages. Some already have the authorisations that would enable them to offer deferred payment arrangements to leaseholders.

For social housing providers that are considering offering deferred payment arrangements to leaseholders, authorisation to do so will be required from the FCA unless one of the following exemptions applies:

  • the deferred payment is an informal arrangement under which the leaseholder is given additional time to pay and is not charged interest or other fees. The FCA regards this as the landlord exercising unilateral forbearance, which it does not regulate. The difficulty here is that it's not always clear where informal arrangements end and formal arrangements (that may require FCA regulation) begin. Generally, if the leaseholder is being asked to sign up to a written agreement, then the arrangements can be regarded as formal. Given the likely sums involved, an informal arrangement is unlikely to be suitable in this context;
  • the repayment plan lasts for no longer than 12 months, involves no more than 12 repayments and involves no interest or other charges. Again, given the likely sums involved, it will not be a realistic proposition for most leaseholders to repay within this period; or
  • the deferred amount is secured by a charge and is interest free. The charge document could either require regular repayments, or that the deferred amount becomes repayable in full if the property is sold. This latter option can be helpful for leaseholders who do not have a regular income but do have equity in their property.

In order to enter into deferred payment arrangements that do not fall within the above exceptions social housing providers are – as things stand - very likely to need authorisations from the FCA.

FCA authorisation does involve some rigmarole, both in terms of obtaining authorisation in the first place, and thereafter in ongoing compliance with FCA regulation. This rigmarole can however be worthwhile, given that it can prevent social housing providers from committing the criminal offence of engaging in FCA regulated activity without having the correct authorisations in place, and allows them to offer the widest range of repayment options to hard pressed leaseholders.

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