Table 1: Data which shows the average rents per week per tenancy (Endnote 10).
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By applying the average £60 per week rent figure to the 260,000 rental cases per year, the potential total benefits might be in the order of £15,600,000. The average should not be envisaged as a real assessment of savings that accrue during court proceedings but taken as a guide to the potential size of financial benefits. Caution should be attached to the methodology outlined in paragraphs 6 and 7 above, which is included in this Regulatory Impact Assessment to illustrate that there is a potential for large financial benefits, though a more precise forecast is not available.
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The proposals may have social benefits which are not quantifiable in financial terms. For example, in the private rented sector where a case is resolved sooner properties will become available for rent rather than remaining out of the rented market. It may also be the case that more certainty about possession proceedings may positively influence the supply of privately rented housing. Difficulties in dealing with the complex law in this area may have contributed to private landlords withdrawing properties from the market. The withdrawal of properties would have a negative impact on statutory and voluntary agencies regarding the supply of housing which would introduce an adverse cost: "to offer everyone with the opportunity of a decent home and so promote social cohesion, well-being and self-dependence" (Endnote 11).
Compliance costs
Business sectors affected
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Any landlord, whether of residential, commercial or mortgaged property or land, along with tenants and mortgage borrowers, will be affected if they are involved in proceedings for the recovery of property, land, rent/mortgage arrears, or disrepair claims. There are over 300,000 cases annually, which can provide a maximum proxy for the number of businesses involved. Other sectors affected will be the legal profession, insurers, and housing experts.
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The allocation fee might be an additional cost, where cases are subject to allocation. The fee is £80 for claims subject to allocation which have a financial value of £1,000 or more. The fee is normally paid by the claimant and included in the costs recovered from the losing party. We anticipate that any cost incurred should be offset against the benefits to be gained from the way in which proceedings are resolved. The proposals should reduce the level of arrears of rent or mortgage that accrue during proceedings. If an order for possession allows the landlord or mortgage lender to either obtain their rent/mortgage arrears, or re-let a property sooner than at present, that party will also gain if the case is concluded in a shorter period, which allows them to earn income that otherwise would not be received.
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To quantify the potential impact of the allocation fee, we have made a number of assumptions. Based on the figures stated in paragraph 6 above, we have identified the number of possession or recovery of land cases. In mortgage possession or Accelerated Possession claims allocation is unlikely to occur. These cases are likely to be decided at the initial hearing without the need for allocation to track. For the purposes of assessing the regulatory impact on the allocation fee, it has been assumed that the fee will not feature as a new cost in these types of case. In other types of possession or recovery of land claim, attendance by the defendant at the court hearing is rare. If this trend continues, the vast majority of these cases should be decided at the initial hearing without recourse to allocation. We have assumed that 70% of cases will not be subject to an allocation fee. The costs rules in the Civil Procedure Rules affecting housing and land cases will not be changed as a result of the proposed reforms.
- The number of claims concerning recovery of land (mortgage and APP claims excluded due to our assumption that allocation is unlikely for these cases): 243,264
- The estimated number of claims where allocation might be a requirement (30% of the total number of recovery of land cases): 72,979
- Allocation Fee per case: £80
- Total cost: £5,838,320
Compliance costs for a "typical" business
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There should only be compliance costs in cases where an allocation fee would become a new requirement. For the majority of businesses this will be a negligible impact, especially if they are involved in cases not subject to allocation. The policy cost of £5,838,320 has been identified and it should be assumed that this cost would be a recurring cost. Non-recurring costs, mainly due to the one-off implementation of the new reforms, have been quantified based on information supplied in response to the Consultation and separately from the Local Government Association (LGA), Council of Mortgage Lenders (CML) and the Court Service (CS), as well as statistical date from DETR.
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The LGA estimate that IT changes will cost £1,500 per Local Authority, plus an ongoing printing cost of £100 per week per authority for additional one-off printing costs. The one-off implementation cost per Authority would be £1,500 per year, plus £5,200 per year in recurring printing costs. There are 400 Local Authorities (Endnote 12), with one-off implementation cost of £600,000 with annual recurring costs of £2,080,000. Table 1 shows that there are 3.36m tenancies, which when divided by the number of Local Authorities averages at 8,400 tenancies per authority. This estimates at 17.8p per tenancy for one-off costs and 61.9p per tenancy for recurring costs. The costs per tenancy will be used to extrapolate for other types of tenancy with similar implementation costs in the following paragraph.
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Table 1 shows that there are 1.05m Registered Social Tenancies and we approximate the number of Registered Social Landlords to be 2,000 (Endnote 13). We also estimate that RSL's would incur similar costs to Local Authority tenancies. Using the figures of 17.8p per tenancy and 61.9p per tenancy identified in paragraph 14 the RSL tenancies would have an estimated one-off implementation cost of £186,900 and recurring costs of £649,950. Applying the same assumptions of cost per tenancy to private sector tenancies and using the Table 1 data which show that these comprise of 36 per cent of all tenancies, then there are approximately 2.4 million tenancies of this type. Using the cost assumptions for implementation described above, the one-off implementation cost will be £427,200 with recurring costs of £1,485,600.
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In mortgage cases, the Council of Mortgage Lenders has identified an estimated £500,000 implementation cost for changing IT generated forms.
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Additionally, the Court Service estimate implementation costs to be in the region of £906,000, with an additional £250,000 cost for changes to forms. Those landlords who make use of the Accelerated Possession Procedure should not incur costs for new forms, as the forms for use with this procedure are produced by the Court Service.
Total compliance costs
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Table 2 below, sets out the total costs identified as part of this Regulatory Impact Assessment. The final column of the table includes reference to the estimated benefits derived from the assumptions in paragraphs 6 to 9 above.