Housing Association Guide - Part 7 Appendix 1The House Sales Scheme
Contents
NB This is the guidance that originally issued to Housing Associations in June 2005. Further guidance will be issued following consultation on the review of the House Sales Scheme.
1.01The Statutory House Sales Scheme - the Housing (Northern Ireland) Order 2003, includes provisions which give the Department for Social Development (DSD) the power to draw up a House Sales Scheme, for Associations to offer for sale or lease to their secure tenants the dwelling houses occupied by those tenants; and places a statutory obligation on Associations to operate the sales scheme.
1.02A copy of the Statutory Scheme - which Associations must apply with effect from 12 October 2004, is attached at Annex A. The Statutory 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 some scope for ambiguity.
1.03Eligibility to Purchase – the Statutory Scheme sets out clearly the category of tenants eligible 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 of the Association, Northern Ireland Housing Executive (NIHE) or one of the bodies mentioned in the Appendix to Annex A.
[Notes:
(1) For the purposes of the scheme time spent as an introductory tenant counts in this regard.
(2) 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 is defined as two weeks or more for non payment of rent or rates, heating charge (if any) or any other rent account debit.]
1.04Disposals Proceeds Fund and Replacement Properties – in operating the House Sales Scheme Associations must transfer the net surplus on sales together with the VPG received to an account - Disposals Proceeds Fund (DPF - which can only be used for the purposes of providing replacement properties (as defined)). The proceeds of the House Sales Scheme must not be used to reduce the Association’s private finance requirements for new schemes funded through HAG and may only be used for the purposes of providing replacement properties.
[Note: Details of the operation of the DPF and the definition of and requirements for replacement properties are contained in Appendix: 2 to Part 7.]
2.01Sheltered Accommodation - in recognition of the fact that Associations have a wide variety of sheltered accommodation properties, the scheme includes a more general exemption for group housing schemes for persons with particular 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 particular needs where either:
- The houses are provided with, or situated near, special facilities for use by their tenants; and/or
- The tenants of the houses are provided with housing support services, i.e., services which provide support, assistance, advice or counselling to an individual with particular needs which are necessary for them to live independently in their house.
2.02Group Housing Schemes – 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 view of the DSD is that houses in group housing schemes do not necessarily need to be physically contiguous, providing the other tests are met but that 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.
2.03Bungalows - the scheme also makes it clear that all bungalows with 2-bedrooms or less are exempted from the scheme. This is a significant change from the Voluntary Sales Scheme and it should be noted that the rules about the age of tenants and the commencement dates of their tenancies are no longer relevant.
3.00 Applications to Purchase3.01Those Tenants wishing to purchase their homes - must 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 (see also Para 5.02 below). The tenant will be notified of the purchase price within 12 weeks of making the application. Tentative enquiries such as telephone calls do not constitute an application. The Association should point this out to the tenant and make them aware of the correct application procedure.
4.01The Scheme states - that the purchase price shall be the market value less any available discount (see also Para 5.01 below). Market value must be assessed by an independent qualified Valuer (see Appendix: 1 to Part 4, Para 2.04) 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. Tenants will be responsible for paying the valuation fee and also, if requested, an assessment fee (see Para 4.02 below). On completion of the sale of the property, the Association will reimburse to the tenant the fee for the valuation and, if applicable, the fee for the reassessment used in the transaction. Associations can reclaim, as an allowable cost, the fee for the valuation used in the completed sale which will be deducted from the overall VPG figure to create a net surplus for the purposes of the Disposals Proceeds Fund (see Para 13.01 below).
4.02The 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 an assessment of the valuation by the District Valuer of the Land & Property Services (formerly Valuation and Lands Agency (VLA)). Any request for an assessment should be made within 4 weeks of an offer being made. The District Valuer’s determination on the valuation is binding on both parties.
4.03The Market Valuation - for all valued properties is only valid for six months after the date the letter has been issued by the valuing agent. If the sale has not been progressed within this time period 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. In view of this requirement:
- Associations are asked to note that if legal documentation has not been received by the DSD within 6 months following the date of issue of the DSD’s “consent in principle”, that consent will automatically expire.
- If the Association considers there to be extenuating reasons why the sale could not be progressed during this period, an application for extension of the consent period should be made in writing to the DSD, with a full explanation of the steps taken to progress the sale. Extensions will normally only be granted in cases where the tenant cannot be held responsible for the delay.
- Where no application for extension is made, or an extension is refused, the application to purchase lapses.
[Note: The DSD should be notified in writing as soon as possible of all applications to purchase which lapse or do not proceed for any other reason.]
5.00 Calculation of Discount5.01The scheme - sets out clearly the methodology for calculating discount. After a minimum of 5 years as a secure tenant initial discount is 20% of the market value and this increases by 2% per year to a maximum of 60% or £24,000 whichever is lower. The discount should not, however reduce the price below the historic cost. The historic cost is the amount, which is to be taken as representing so much of the costs incurred in the provision, improvement or acquisition of the dwelling as is to be treated as incurred in the relevant period (the financial year in which the application to purchase is made and in the 10 previous 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.
[Notes:
(1) Details of how to how to calculate the historic cost can be found at 9.00 below and at Annex B.
(2) A flow chart is provided at Annex C to help calculate the actual selling price.]
5.02Associations should not assume - that tenancies with any Registered Housing Association/ Registered Social Landlord in Britain should be counted for discount purposes but should take account of the important distinction which must be drawn between those Registered Housing Associations/ Registered Social Landlords 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 property. Relevant documents would include old Rent Books, phone, electricity or gas bills which would include the name and address of the applicant.
6.00 Conditions on Resale/Buy Back Options for Housing Associations 6.01Repayment of Discount - 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 or their successors must pay back the entire discount should they sell within 5 years of purchase (see Para 6.0 of Annex A). Associations shall place any repayment of discount received in the Disposals Proceeds Fund.
6.02Should a tenant or their successor decide to sell within 10 years - the property must be offered to the original landlord. Where the original Association does not wish to repurchase a property, but there is an acknowledged housing need, that Association should engage with other Associations, within 3 weeks, to determine whether they wish to purchase the property. Associations should ensure that this process does not unduly delay the sale of the property. The vendor is responsible for the payment of the valuation fee but if the Association is not satisfied with the valuation they will be liable for the payment of the assessment fee charged by the District Valuer of the Valuation and Lands Agency.
[Note: Associations must ensure - that leases and other relevant documents allow for these conditions of repurchase.]
7.00 Objective Timescales For The House Sales Process7.01The DSD expects Associations - to process all applications to purchase within a reasonable timeframe. The following timetable is indicative of what is required:
Stage |
Time Allowed |
| Application to Offer
|
12 weeks
|
| Tenant Acceptance Period
|
6 weeks (4 weeks to request the determination of the market value by District Valuer, if the valuation is disputed)
|
| Acceptance of Offer to Issue of Contract
|
8 weeks
|
| Tenant Acceptance of Contract
|
8 weeks to return
|
| Legal Documentation to DSD for Endorsement
|
2 weeks
|
8.00 Calculation Of Historic Cost8.01Historic 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 taken 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. 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 (such as the SN1/TA1 Form) detailing Qualifying Costs.
[Note: see Annex B for typical examples of historic cost calculation.]
8.02Costs 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 relevant period (the financial year in which the application to purchase is made and in the 10 previous financial 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. NAV values should be based on the Initial NAV 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 compiling the current overall scheme costs.
Example:
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.
9.00 Improvements And Adaptations9.01Development and Enhancements - to any properties should be considered when calculating historic cost. A list of example improvements, that might be considered include:
- Adaptations;
- Installation of heating system;
- Upgrading of windows to double glazing
9.02Improvements - only improvements which have been made to the property in the financial year in which the application was made and the previous 10 years should be considered as a cost, such as Adaptation Grants payments (excluding all On-Costs) and improvements made at the Association’s expense. All such costs should be aggregated in order to calculate an overall subtotal for Historical Improvement Costs. Only costs incurred up until the date of the application should be considered. If an individual cost cannot be applied to a property, 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 =
9.03Planned Improvement Schemes - The Association should, when making a formal offer to the tenant of a property, give details of any improvement works proposed to be carried out in the next year (e.g., window replacement, heating upgrade). The tenant should be given the opportunity to opt out of any works which are due to be carried out before the property is sold. In the event that improvement works are carried out to the property after it has been valued, a new valuation must be undertaken and the purchase price recalculated from the date of valuation.
9.04Maintenance - 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.
10.00 Verifiable Calculations10.01Once 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 the Housing Inspection Team 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. A number of worked examples are set out at Annex B.
11.01Associations can claim allowable costs - which are deducted from the overall VPG figure to create a net surplus (see Annex C). The expenses which constitute Allowable Costs are as follows:
- Valuation Fees
- Legal Fees
- Survey Fees (sale of flats only)
- VPG Administrative Allowance (see Appendix: 3 to Part 7 of the Guide)
11.02Valuation 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.
12.00 Departmental Procedures12.01Consent to Dispose - When an application to purchase has been processed the Association must apply to the DSD for consent to dispose the property before informing the tenant of the purchasing price. The application for consent to dispose of the property should be made by the Association on Form CIP1 (see Annex D).
13.00 Voluntary Purchase Grant (VPG13.01Under the Voluntary Purchase Grant Scheme (VPG) - Associations are permitted to claim from the DSD an amount commensurate with the discount awarded to the purchaser. Associations have 20 working days from the date of sale/contract to claim VPG (see Appendix: 2 to Part 7 for Disposals Proceeds Fund guidance). Applications for VPG must be made on the form VPG1. Form VPG1 will be forwarded by the DSD to Associations upon notification of date of sale completed and receipt of an ACE map highlighting the said property.
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