Chartered Institute of Housing Home Ownership and Leasehold Management Conference Workshop: The Right to Buy : Some Complex Issues Wednesday 4 th February 2015 Crowne Plaza Nottingham
1. Postponements Can occur during RTB process Section 156 Housing Act (1985) (as amended) discount repayment charge is second charge immediately after any advance made by an approved lending institution Note: indexation of RTB discount Exception: if landlord issues letter postponing discount charge approved purpose mandatory e.g. works of improvement Note: approved lending institution now = approved mortgage lender (body operating under Part IV Financial Services Marketing Act 2000 onus on landlord) Landlord s discretion in non approved purposes Fee can be charged Sufficient Equity value changes from offer to completion Slide 1
2. Cost Floor Determination Cannot discount purchase price to a level below what it cost to build acquire or maintain the property in past 10 years (Housing RTB) (CF) (England) Determination 1999 Note: preserved RTB SI 1213/1999 15/16 years How to calculate : how to apportion building works / maintenance costs : fees/prof costs : opportunity cost of land owned Slide 2
3. Demolition Notices Rules Schedule 5 Housing Act 1985 set out exceptions to the RTB. Section 182 adds paragraphs 13-16 inclusive to schedule 5 and excepts dwelling houses due to be demolished within 24 months. The RTB does not arise if a Final Demolition Notice (FDN) is in force FDN must (a) state the landlord intends to demolish the building (b) the reasons (c) date by which demolition will occur (d) date which FDN ceases to be in force (e) stating whether the demolition is part of a wider scheme (i.e. one of the conditions A B or C set out in paragraph 14) (f) stating the RTB does not arise while FDN is in force Slide 3
3. Demolition Notices Cont For existing RTB applicants the FDN must also include: (g) statement that RTB application ceases to be effective (h) that there is a right to compensation The FDN last for 24 months so long as: (i) if a block is to be demolished an FDN is served on all occupiers (ii) a notice has been published in the local paper and the landlord s newsletter and on the website which identifies the premises gives reasons for the demolition proposed date of demolition date FDN ceases to be effective RTB does not arise right of compensation for existing applicants Slide 4
3. Demolition Notices Cont The 24 month FDN period may be extended by the Secretary of State (who can set any conditions to the extension) so long as the FDN is still in force. If the landlord decides not to demolish he must serve a revocation notice which the Secretary of State can also serve if he thinks the landlord has no intention of demolishing (the secretary of States has to first notify the landlord of his intention) The FDN ceases to be in force from the date of the Revocation notice. Once a FDN ceases to be in force for any reason, no further FDN may be served for 5 years unless served with the Secretary of States consent (he can set any conditions) These provisions only apply to RTB1s served after the 18 th Jan 2005 Slide 5
3. Demolition Notices Cont The landlord is not bound to complete as per section 138 Housing Act 1985 if a demolition notice is served before completion but the tenant is entitled to compensation for abortive costs incurred. Demolition notice means a FDN as described in the section 182 notice notes or an initial demolition notice which is a notice as set out in schedule 9 HA 2004 (which inserted schedule 5A into the HA 1985). Slide 6
3. Demolition Notices Cont Contains much the same information as FDN but also that IDN does not stop the tenant from making a RTB application and that the RTB application will be processed but completion will not happen. The IDN period is up to 7 years. Compensation is payable if a RTB application is live when a IDN is served (the IDN must inform existing applicants of this) Note: FDNs following IDNs must state that the FDNs is replacing the IDN. Slide 7
3. Demolition Notices Cont Compensation payable where: (a) the RTB2 is before the demolition notice date and (b) within 3 months of the operative date of the IDN or FDN the tenant serves a notice claiming compensation and (c) compensation claimed is expenditure reasonably incurred by tenant before operative date in connection with RTB application and (d) receipts and documents are provided by tenant as evidence This section only applies to applications made after 18 th January 2005 Slide 8
4. Deferred Resale Agreements Cont Deferred resale agreements (DRAs) are part and parcel of the way company abuses work. A DRA seeks to avoid repayment of discount it is an agreement between parties to sell the property at a later date (after the discount repayment period has ended) usually on pre agreed terms. This section makes it clear (there were legal arguments before) that the DRA is a relevant disposal (and it cannot be exempted so discount is repayable) taken to have happened when (a) The agreement was made or (b) (if the DRA was made before the discount repayment period started), on the first day of the discount repayment period Slide 9
4. Deferred Resale Agreements Cont A DRA is defined as an agreement between the secure tenant or his successor in title (i.e. the person/persons who exercises the RTB) and another person:- (a) which is made as part of a RTB sale AND (b) is made before the end of the discount repayment period AND (c) is an agreement under which a relevant disposal is or may be required to be made after the end of the discount repayment period. Slide 10
4. Deferred Resale Agreements Cont The DRA does not have to specify a date on which the subsequent disposal is to take place and is a DRA notwithstanding the subsequent disposal is subject to any conditions being met first. The Secretary of State can make orders in future that dictate that any specified agreement is or is not a DRA. This section only applies to agreements (this term includes arrangements) made on or after 18 th January 05. Slide 11
5. Valuation / Redetermination S. 127 Housing Act 1985 valuation is at date of RTB1 OMV willing buyer and seller disregard tenant implications All rights etc. conveyed Max ground rent 10pa (flats) S4 HPA 1986 S125 service charge estimates S. 128 - tenant can request redetermination by DV within 3 months of offer S. 128A - landlord or tenant has 28 days to ask DV to review valuation Slide 12
6. Discount Repayment For Right to Buy applications made on or after 18 th January 05: (a) the discount repayment period is increased from 3 years to 5 years (b) the maximum amount to be repaid is the percentage of the resale price* that reflects the percentage that the discount was of the original RTB valuation (c) but for each complete year after the RTB sale the maximum amount to be repaid is reduced by 20% Slide 13
6. Discount Repayment Cont RTB1 Valuation 100,000 Discount 16,000 Purchase Price 84,000 (discount = 16% of value) Sold 2 ½ years later 150,000 @ 16% = 24,000 (maximum amount) reduced by 40% so: 24,000 x 60% 14,400 repayable. Slide 14
6. Discount Repayment Cont * a loophole has been created here. The owner can minimise his liability by selling the property on for 1.00 (so any percentage of 1.00 is a few pennies discount repayment) to an intermediary before it is then sold on at full value. The wording would have been better stated as the value on the first disposal rather than the price. ** this section is not subject to the normal RTB1 made after 18 th January 2005 rule. The ODPM argue that council s/rsls have always had discretion and this is simply now clarified the clarification applies to cases where the first relevant disposal was made after 18 th January 2005. Slide 15
6. Discount Repayment Cont According to the previous section the amount of discount to be repaid is calculated as a percentage of the resale value. But what if the resale value of the property is higher due to improvements carried out by, or (in the case of service charges) paid for by, the owner? This section says the extra value added to the property shall be disregarded (a) the amount of the value to be disregarded is the amount agreed by the parties (b) but if the parties cannot agree the matter is referred (as with RTB re-determinations) to the District Valuer. However the DV does not have to make a determination if either: it s not practicable for him to do so (.i.e. the value is so small) the owner has not paid their costs (c) If the DV has not made a determination (and the parties have not come to an agreement) then nothing is to be disregarded Slide 16
7. Other Issues Offer Notices (s125 HA 1985 as amended) - Current value of future repairs (i.e. not budget estimates) - Get the reference period starting at the right time (i.e. to end when initial periods ends) Discount - Indexed S1 2014/1378-102,700 and 77,000 - Explanatory memo : 9.3 revised amounts Slide 17