Sales to Tenants (including Equity Sharing)

The Housing (Northern Ireland) Order 2003 includes provisions which give the Department the power to draw up a House Sales Sheme for housing associations to offer for sale (including equity sharing) or lease to their secure tenants the dwelling houses occupied by those tenants.  It also places a statutory obligation on housing associations to operate the sales scheme.

The statutory House Sales Scheme (‘Scheme for the Sale of Dwelling-Houses by Registered Housing Associations’) came into effect on 11 October 2004. The Scheme sets out clearly the provisions which apply and this guidance is intended to supplement the scheme by providing some additional clarification on issues where there may be scope for ambiguity.

An extension to the House Sales Scheme to include equity sharing was introduced in January 2009 for those tenants who wish to buy their homes but are unable to afford the full cost. The extension allows tenants to buy part of their home in conjunction with their landlord. For the part of the dwelling that is still retained by the landlord a rent will be payable.

 

Eligibility to purchase

The Scheme sets out the category of tenants who are permitted to purchase and the type of dwellings which are eligible to be purchased. Tenants wishing to purchase must have a minimum of 5 years as a secure tenant. For the purposes of the Scheme, time spent as an introductory tenant will be taken into account. Squatters and those under investigation as regards anti-social behaviour are exempted.  Tenants who are in rent arrears will not be excluded on these grounds but their application will be allowed to proceed to completion stage. However no sale will be completed until all arrears, whether rent or any other payment due from them as a secure tenant, have been paid. For the purposes of the Scheme rent arrears are defined as two weeks or more for non-payment of rent or rates, heating charge (if any) or any other rent account debit.

Exemptions

In recognition of the fact that housing associations have a wide variety of sheltered accommodation properties the House Sales Scheme includes a more general exemption for group housing schemes for persons with special needs, than that contained in the NIHE scheme. To qualify for this exemption, any individual house must be part of a group of houses which have been designed for persons with special needs where either:

The practical effect of this is to exempt all group housing schemes for persons with particular needs including, but going beyond simply sheltered housing. The Department considers that houses in group housing schemes do not necessarily need to be physically contiguous providing the other tests are met.  However, the houses in question would need to have facilities and services which go beyond the inclusion of a simple call system to qualify for the exemption.

All bungalows with 2 bedrooms or less are exempted from the House Sales Scheme.  

Applications to purchase

Those wishing to purchase their homes should apply in writing to the Association. The Association, in considering the application, will make the necessary checks to ensure that the tenant is eligible to purchase. The tenant will be notified of the purchase price within 12 weeks of making the application.

For more information on Calculation of Discount

Purchase price

The Scheme states that the purchase price shall be the market value less any available discount (see also final paragraph in this section).  Market value must be assessed by a suitably qualified professional valuer as at the date of the application to purchase. The valuation will take into account, and make appropriate deductions for, any improvements carried out by the tenant.

The applicant should be given 6 weeks to confirm that they wish to purchase the property. If they are not satisfied with the valuation they can request a reassessment by the District Valuer. Any request for a reassessment should be made within 4 weeks of an offer being made. The District Valuer’s re-determination is binding on both parties.

Market Valuation for all valued properties is only valid for six months after the date of the letter which has been issued by the valuing agent.  If the sale has not been progressed within this time period then a new valuation will be required, with all calculations being based on the new valuation.  Where there is a new valuation Associations should seek new consent in principle.

Calculation of discount

The Scheme sets out the methodology for calculating discount. Initial discount is 20% of the market value and this increases by 2% for each additional completed year of tenancy to a maximum of 60% or £24,000 whichever is lower. The discount should not, however, reduce the price below the historic cost. Historic cost is the amount of money spent by the Association in providing, improving or acquiring the dwelling in the year the tenant applied to buy as well as in the previous 10 financial years. If the market value price before discount is below the historic cost figure there shall be no discount and the purchase price shall be the market value price.  For details as to how to calculate historic cost see Departmental Procedures.

Associations should not assume that tenancies with a registered housing association in England, Scotland or Wales can be included for discount purposes.  Account must be taken of the important distinction between registered housing associations in Great Britain which have charitable status and those which have non-charitable status.  The tenant will be required to provide sufficient proof of having lived at a particular property, for example, old rent books, phone, electricity or gas bills which bear the name and address of the applicant.

Conditions on resale

The Scheme sets out the arrangements for repayment of discount in the event of a resale and the buy-back option for housing associations. Tenants must pay back the entire discount should they sell within 5 years of purchase and associations shall place any discount received in the Disposals Proceeds Fund. Should a tenant decide to sell within 10 years then the property must be offered to the original landlord. Associations must ensure that leases and other relevant documents allow for these conditions of purchase. Where an association does not wish to repurchase a property, but there is an acknowledged housing need, that association should engage with other housing associations to determine whether they may wish to purchase the property. This exercise should be completed expeditiously in order to ensure that the process does not unduly delay the sale of the property.

 

The Department expects housing associations to process all applications to purchase within a reasonable timeframe. The following timetable is indicative of what is required:

 

Consent to dispose

When an application to purchase has been processed the Association must apply to the Department for consent to dispose of the property. The application for consent CD1 Form (PDF 19KB) should include the following:

Calculation of historic cost

Historic Cost is calculated by totalling all the costs that have been expended on the property which is being applied for under the House Sales Scheme. In determining the historic cost, account must be made of the provision and acquisition costs associated with the property i.e. the total costs incurred to build the particular property, or alternatively, the total costs incurred to purchase and make the property habitable for tenants.  These should be calculated as one joint figure. Total costs are based on the Total Qualifying Costs and Non Qualifying Costs of the Scheme as a whole.  These amounts should be based on the initial scheme application forms detailing Qualifying Costs.

Costs pertaining to the provision of a property are only relevant if the property was built or purchased and made habitable, or substantially improved with the practical completion date being within the past 10 years.  These overall scheme costs should be apportioned based on the Initial NAV of the individual property as a percentage of the Total Initial NAV of the scheme or, for schemes completed after 1 April 2007, the Capital Valuation of the property as a percentage of the Total Capital Valuation of the scheme.  NAV/Capital values should be based on the Initial NAV/Capital Valuation of the property and scheme respectively when it was built or purchased. This is to ensure an accurate percentage can always be recorded against each scheme and will save time in compiling the current overall scheme costs.

Initial NAV of Property - £80

Initial NAV of Scheme - £2500
Total Cost of Scheme - £1,200,000
(Qualifying and Non Qualifying costs)

80/2500 x  1,200,000 = £38,400 Provision and Acquisition Historic Cost

Initial CapValuation of property - £110,000
Initial Cap Valuation of scheme - £3,437,500
Total Cost of Scheme - £4,200,000
(Qualifying and Non Qualifying Costs)

110,000/3,437,500 x 4,200,000 = £134,400 Provision and Acquisition Historic Cost

Improvements and adaptations

As the term suggests, only development and enhancements to any properties should be considered when calculating historic cost.  A list of improvements, which is not exhaustive, that might be considered include:

Only improvements which have been made to the property during the previous 10 years should be considered as a cost eg. Small Adaptation Grants payments (excluding all On-Costs) and improvements made at the private expense of the association.  All such costs should be totalled to give an overall subtotal for Historical Improvement Costs.

Figures relating to maintenance costs should not be included within this figure as maintenance refers to the upkeep of the property and is not, therefore, an improvement.

Costs associated with improvements made to a number of properties at the one time can be averaged to calculate an estimated cost for the property being purchased.

Example:

A contractor is installing Double Glazing within 20 houses and has charged a total of £108,000.  An average costing for the property in question should be calculated by simply dividing the total by the number of units being modified i.e. £108,000/20 = £5400

Verifiable calculations

Once figures have been calculated for both areas of Historic Cost – Provision/Acquisition and Improvements they should be totalled to give a final Historic Cost figure.

The House Sales Scheme makes it clear that all calculations must be completed in a manner which is verifiable. The methodology and calculations will be subject to scrutiny by Housing Division’s Governance and Inspection Unit at a future date to ensure compliance with the above guidelines.  Any unsupported figures may result in further audit work being carried out to ensure suitable evidence is maintained.  

See Historic Cost Calculation Worked Examples (PDF 13KB) for more information.

Allowable Costs

Associations can claim allowable costs which are deducted from the overall VPG figure to create a net surplus. The expenses which constitute Allowable Costs are as follows:

Valuation Fees, Legal Fees and Survey Fees must be accompanied by an invoice.  Fees which are listed as allowable expenses and which are not accompanied by an invoice will not be considered as an allowable cost.  

Disposals Proceeds Fund

Associations must transfer the net surplus on sales together with the VPG received to a "ring fenced" account (Disposals Proceeds Fund).  

For further information: