Registered Providers are being driven to examine their existing property assets to seek a cash surplus (either in the form of a capital receipt or additional income) to boost the funds available from the HCA to build new developments. This update looks at the types of transactions that might be considered within an Options Appraisal and/or an Asset Management Strategy. Asset Management Strategies provide a framework to manage existing property assets proactively so as to retain only those which are best placed to meet social, environmental and business purposes whereas an Options Appraisal suggests options for improvement/disposal of property based on a number of key factors.
Across the teams working within Registered Providers there has to be a shared understanding of the Asset Management Strategy so that each team can play its part in delivering information to the officer considering and implementing the transaction. Accurate, relevant and up to date knowledge regarding any asset is critical to ensure that the anticipated cash sought can be raised within the desired timeframe and used to cross-subsidise the development programme. These types of transactions are also highly useful to Registered Providers seeking to respond to tenant needs on an estate by estate basis.
At MMS we work with our clients to help them make informed decisions as to which of their property assets to develop, mortgage, sell or use differently.
The types of transactions that you might be contemplating may include:
- Infill development - re-use of existing land, usually under-utilised communal areas, garage sites or basement areas
- Replacement, extension, refurbishment or reconfiguration of property - to create homes of a type desired by tenants
- Disposal of land or properties - which are difficult to manage service or exist outside your core area(s) of operation
- Re-activation of empty housing - probably being carried out in conjunction with refurbishment so that it can be disposed off
- Disposal of different types of property - shops, offices, garages etc
- Auction of street properties or land
- Mortgaging of properties which were previously unmortgaged
The aim of these transactions is either to receive a cash sum (whether from outright sale or in respect of an equity share where a property is sold under a shared equity arrangement) or income (where the rent charged for the new letting is an "affordable rent" rather than a social rent or a "commercial rent" for non-residential assets or loan monies where a property is mortgaged). The disposal of assets might also result in a higher level of recovery of service charges - e.g. more can be recharged to purchasers or leaseholders than to social housing tenants.
Some of the transactions involve a level of cost up front for the Registered Provider before the cash surplus can be realised, however, it may be possible to obtain grants or payment relief for carrying out works.
Factors such as identifying the property, type of transaction, reasons for the transaction (e.g. to maintain sustainable communities) and whether the local market conditions are favourable to the proposed transaction, valuation or survey are all beyond the scope of this update but should become clear from the Asset Management Strategy, Stock Condition Survey, Tenant's Survey, your inspection of the property and the business plan of the Registered Provider.
The National Housing Federation has published a list of the information which a Registered Provider should hold in an Asset Register. The Asset Register is an excellent starting point and your solicitor can input into compiling the information from the records/information which they hold on your behalf. MMS has recently produced a list of the documents which Registered Providers should seek from their solicitor upon acquisition of a new development. However if you are looking at a transaction on an older property, information might be more difficult to compile and you may need your solicitor to assist with certain aspects of the Asset Register, depending on how good/accessible your records are. To ensure accuracy, the Asset Register should always be based on signed, dated and completed documentation, not drafts.
When taking the decision to proceed with a transaction you will need further information in addition to the Asset Register. A "transaction review" should be carried out to determine whether or not a transaction can be implemented successfully to achieve its intended purposes.
This review should consist of (at least) the following:
Full property title review
- Do you own the property?
- Are there any restrictions on sale?
- Are there any restrictive covenants to be complied with before you can build/redevelop?
- Are any third party consents needed? i.e. landlord, Management Company or lender, who holds a mortgage over the property i.e. if you are a transfer organisation then you are likely to have to obtain Secretary of State consent to a disposal if that property will no longer be "social housing"
A title review will also help to establish:
- Where the actual title deeds are if you intend to sell the property?
- Do you need any consents before proceeding?
- Do you need to pay off an existing mortgage?
- Do you need to provide substitute security for any lender in order to release the property for sale?
- Do you need to put in place indemnity insurance?
- Do you need to pay up any service charges/rent charges in respect of the property?
Non-registrable lease/licence/occupancy arrangements
Are there any in place? If so,
- What documentation is available?
- Who is in occupation?
- Do you need to remove them?
- Can the arrangement be formalised/renewed on better commercial terms?
Existing planning/S106 obligations
Are there any limitations on redevelopment or any matters which might make the property difficult to sell? i.e. is the property subject to:
- A planning direction meaning that any development will require planning permission?
- A use only as specified - i.e. play area/parking meaning you need to seek a release first?
- A restriction to let on social rents - meaning you need to seek a release to be able to sell as shared ownership or to let as affordable rent?
Existing utilities/third party searches
- Are there any service runs under the property that perhaps need to be diverted before you can develop?
- Do existing services have capacity for any new development?
- How will new connections be made and over what route?
- Is that route under your control?
- Are there any proposed compulsory purchase orders, traffic/rail schemes, environmental issues affecting the property?
If you propose to remove existing tenants:
- What is their current tenancy?
- What rights do they have to return or to receive compensation?
- Are you required to consult with other tenants on any wider estate in respect of your proposal?
- Will health and safety of adjoining tenants be affected?
Third party rights
- Boundaries are where they should be and do they match the title to the property?
- Is anyone exercising any rights over the property regularly?
- To what extent is the highway adjoining the property adopted?
- Are there any public rights of way over the property?
- Are there any potential right to light claims or party wall issues to be dealt with?
New planning/S106/nomination agreements
- Do these conditions and obligations meet your requirements?
- Are there any potential objections to your proposals from adjoining land owners/occupiers?
- How can these be managed?
- Where appropriate you are complying with relevant procurement rules?
- Are there any grants available?
- Are there any standards to be compiled with when carrying out works?
- Do you need any licences from landlords or third parties to carry out the works?
- Do you need to acquire any adjoining land in order to complete your development site?
To determine which type is most appropriate:
- Is disposal going to be a private sale or by auction?
- Will the land/property be sold to a company or an individual?
- Will the contract be conditional?
- Are any special conditions needed?
By carrying out sufficient due diligence it is possible to obtain a degree of certainty that the surplus cash being sought can actually be realised by the transaction.
Sweating your assets focuses on making the best of what you already own, responds to current tenant needs and can revitalise communities. Careful reconfiguration and redevelopment of large, older estates can bring much needed change whilst meeting tenant needs. For example, the construction of sheltered accommodation on spare land frees up family units whilst allowing older residents to remain in their local community or the making of accommodation more attractive to the current purchaser/occupier in the local market, providing better infrastructure and support, services and local commercial amenity.
If you wish to discuss any of the issues raised, please contact:
020 7634 8768
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This briefing is written as a general guide only. It is not intended to contain definitive legal advice which should be sought as appropriate in relation to any particular matter.