Section 20 Dispensation – how to leverage a QLTA (qualifying long term agreement) to help manage costs in a challenging energy market
How to leverage a longer-term energy contracts by gaining dispensation from the requirement to consult under Section 20 and what benefits it may bring to housing associations?
Housing associations, like many other organisations, are facing challenges in securing energy contracts in the rising market. Historically housing associations have secured 12-month energy contracts, which means that they are not obligated to comply with the consultation requirements of Section 20 of the Landlord and Tenant Act 1985.
We’re going to look at how they can leverage a longer-term energy contract by gaining dispensation from the requirement to consult under Section 20 and what benefits it may bring to housing associations, their tenants and dreaded service charges.
What is Section 20 of the Landlord and Tenant Act?
Under the Section 20 of the Landlord and Tenant Act, housing associations who operated variable service charges must consult leaseholders if they wish to enter into contracts of more than 12 months (QLTA’s) if the contract contributes more than £250 for a works contract or more than £100 for a service contract.
How to leverage a longer-term contract and it’s benefits
For housing associations to benefit from longer-term energy contracts (QLTA’s), whilst complying with the requirements of Section 20, they would have to go through consultation. This is a process of communicating the intention with tenants and discussing potential implications, whilst also inviting pushback. They must conduct the discussion with tenants before entering into the contract. In this scenario, the energy prices would need to be valid for acceptance for the 56 days of the consultation process. With energy markets being highly volatile, prices are rarely valid for more than the same day and as such a 56 day consultation window is not possible.
It is however possible to get dispensation from the requirements to consult by applying to the first-tier tribunal. Whilst this may seem like more administrative work on the surface, there are many benefits to obtaining a longer-term contract for housing associations and their tenants.
To help provide future price transparency, the commodity element of gas and power contracts can be traded on the wholesale market anywhere up to three-years (but it can be five or six) ahead — allowing for better budgeting and service charge stability.
By applying for dispensation from Section 20 consultation, housing associations can take advantage of longer-term energy contracts and a wider range of procurement options. Energy contracts longer than 12 months allow for improved risk management and hedging options. Accessing more energy procurement options means housing associations can unlock further potential value for them and their tenants.
Tackling rising energy costs with help from Procurement for Housing (PfH) partners Inspired PLC
The current market pricing has been volatile and many organisations looking to renew are trying to find the best procurement contract possible. Being able to secure a longer-term contract can help housing associations to tackle today’s energy prices and mitigate some of the costs increases.
Fixed procurement contracts, particularly for high churn sites, can mean housing associations are at the mercy of the market rate at the time of bringing on the stock. With a flexible procurement approach, any new sites brought on will benefit from hedges already made.
To learn more about how your housing association could benefit from longer-term procurement contracts, please get in touch with our experts on 01772 689250 or email [email protected].