Following the recent appointment of Jo Evans Sharratts have further expanded their Development Team by appointing a new Partner to work within and strengthen its established Team. Kevin Edwards , has joined the Development Team to work primarily with the Firm’s existing RP and Developer client base and brings with him a wealth of experience.

With nearly 20 years’ experience in new build development work in the Affordable Housing Sector, Kevin has an established reputation for guiding developer/land-owner and investor clients on the delivery of complex and large scale development and regeneration projects. After qualifying at the Homes and Communities Agency Kevin has worked for a number of established Firms operating in the Affordable Housing Sector nationwide including Bevan Brittan (during which Kevin spent time on secondment within a London Borough’s property legal team), Devonshires (acting on various development and joint ventures, as well as DBOM contracts and larger redevelopment projects), Shakespeare Martineau and Birketts.

Kevin’ s experience will assist with the Firm’s continued growth plans and strengthen the existing services being offered to the firm’s impressive roster of clients – a list that includes a number of G15 Providers and other investors and partners working within the Affordable Housing Sector.

On joining Sharratts Kevin commented “I am delighted to be joining the team at Sharratts.  The firm is well known for its excellent client-led service and entirely Affordable Housing focussed work.  The sector as whole is going through an unprecedented period of change and challenge on many fronts (the Carbon agenda, planning challenges, Fire and Building safety issues, proposed leasehold reform, increased development costs, pressure on rental receipts and lack of government policy direction to name but a few!) and I am excited to start working with Sharrratts and their clients (and my existing contacts) to help steer through these issues and continue to deliver the affordable housing the country need,”

We welcome Kevin to the Firm and look forward to introducing to him our existing clients.

Sharratts have appointed a new Senior Associate to work within and strengthen its established Development Team. Jo Evans, previously of ASB Law Knights and Rix and Kay, has joined with the Development Team to work primarily with the Firm’s existing RP and Developer client base

With 20 years’ experience in commercial property and Development, Jo has an established reputation for guiding developer/land-owner and investor clients on the delivery of complex and large scale development and regeneration projects. During her career she has also worked in-house for Kent County Council, where she advised on high-value public sector projects, and global powerhouse Nabarro, before it merged with CMS and Olswang.

Jo’s experience will assist with the Firm’s continued growth plans and strengthen the existing services being offered to the firm’s impressive roster of clients – a list that includes a number of G15 Providers and other investors and partners working within the Affordable Housing Sector.

On joining Sharratts Jo commented “I am really excited about this fantastic opportunity to be part of Firm’s continued growth within the Affordable Housing Sector”

We welcome Jo to the Firm and look forward to introducing to her our existing clients.

Reinforced autoclaved aerated concrete (RAAC) is a cheaper alternative to standard concrete and was mostly used in flat roofing. It is aerated and less durable than standard concrete, and can be susceptible to structural failure when exposed to moisture

It is suggested that between 5-10% of all public buildings, which would include social housing, built in the 1950-1980s is likely to contain RAAC.

The Regulator of Social Housing has made it’s position clear that all RP’s need to be aware of the risks posed by this potentially dangerous form of lightweight concrete in its homes and must find a) find out if any of its home contain RAAC and b) if found, which risks it poses to the safety of its tenants.

Any homes which are considered to be unstable or otherwise pose a risk to tenant safety may potentially be considered under the Building Safety Act 2022 which prescribes a retroactive 30 year limitation period for pursuing claims against anyone who took on work in connection with those units.

Further updates are expected as more RPs assess their housing stock and report any findings to the Regulator.

The secondary legislation under the Building Safety Act 2022 will come into force on 1 October 2023 and this is also the deadline for registering existing Higher Risk Buildings (i.e. residential buildings which are at least 18m high or have at least seven storeys and contain two or more dwellings) with the Building Safety Regulator.

Registration must be made by the Principal Accountable Person or somebody authorised by them (e.g a managing agent or lawyer)  and an unregistered building cannot be occupied after this date.

The new suite of regulations impose obligations on dutyholders (including clients, designers and contractors) and an updated procedure for building regulations approval as well as amending the Building Regulations 2010 so that the Building Safety Regulator is now the sole building control authority for Higher Risk Buildings.

There are transitional arrangements for buildings that are in the course of construction and either full plans are deposited or initial notice given and accepted before 1 October 2023 and “sufficient progress” is made before 6 April 2024, in which case the previous Building Regulations will still apply.

On 17 May 2023, the Government introduced the long-awaited Renters (Reform) Bill to the Commons to “bring in a better deal for renters” in the rented sector  and make significant changes to the Housing Act 1988 (HA1988).

The Bill is making its way through Parliament  and is now unlikely to receive Royal Assent until the spring of 2024 and is unlikely to come into force before October 2024 at the earliest.  Therefore we are unlikely to see any immediate changes but when we do, those changes will be significant and, amongst others, include:

• Ending of certain kinds of assured tenancy.
• Changes to the grounds for possession in relation to assured tenancies.
• Changes relating to rent and other terms of the assured tenancy. Landlords will, for example, only be able to increase the rent annually by giving 2 months’ notice in accordance with section 13 of HA1988); these changes will apply to social housing and non social housing prodcuts and
• The introduction of a ‘landlord redress scheme” for prospective, current or former residential tenants to make a complaint against a member of the scheme to be independently investigated and determined by an independent individual.

The Bill is intended to address long stated concerns that some renters face a “ precarious lack of security”. These elements of the Bill have been well publicised in the media in the context of the proposed abolition of the Landlord’s right to terminate an assured shorthold tenancy (AST) which is often referred to as a ‘no-fault eviction’.

It is probably more accurate to say that the main thrust of the Bill  set out, under the heading ‘End of certain kinds of assured tenancy’, is the abolition of ASTs entirely and the removal of the ability to grant any form of fixed term tenancy. This is a significant change to the short-term lettings market and the balance of power between landlord and tenant. The Bill effectively proposes that all rental properties ( private and social housing tenancies)  will be under a periodic tenancy.

A further effect of these potentially far-ranging changes will be that any tenancy agreement entered into where the annual rent is between £750 (£1,000 in London) and £100,000 will be a full periodic (monthly) assured tenancy which may only be terminated by the landlord where one (or more) of the grounds for possession in schedule 2 HA1988 are satisfied.

To address the concerns around being able to recover possession of a property let on a full assured tenancy, the Bill proposes to amend the current grounds for possession which will allow landlords to recover possession in limited circumstances where:

1. the Landlord requires possession to occupy the property as their or their spouse’s/civil partner’s, or close family member’s only or principal home (Ground 1) or the landlord intends to sell the property (Ground 1A).

1. Grounds 1 and 1A will only be available where the tenancy has existed for at least six months and where the landlord obtains possession on these grounds the landlord will be prohibited from letting or marketing the property for three months from the date specified in the notice seeking possession.

1. Within a 3 year period at least 2 months’ rent is unpaid for at least a day on three separate occasions (Ground 8A). This will be a mandatory ground in addition to the current mandatory Ground 8 (two months’ arrears at the date of service of the notice and at the hearing for possession) and where these grounds are satisfied the court must make a possession order.
2. the tenant has been guilty of conduct causing or capable of causing a nuisance or annoyance as opposed to behaviour ‘likely to cause’ a nuisance or annoyance. This is a discretionary ground where the court must be satisfied that it is reasonable in all the circumstances to grant possession.

The explanatory notes to the Bill state that the private rented sector has doubled in size since 2002 with 4.6 million households or 11 million people renting from a private landlord.

In the private sector and the ever-expanding build to rent sector there is  some concern that the proposed changes, particularly the end of ‘no-fault evictions’, will make residential property less attractive as an investment.

Whilst the main elements of the Bill have been largely discussed in the context of the private rented sector the changes will also affect the social housing sector. RPs also of course also use assured and assured shorthold tenancies and will also lead to providers having to review the widespread use of starter tenancies.

Introduction:-

Under the Building Safety Act 2022 some leaseholders in qualifying buildings are protected from some costs associated with building safety defects.

On 6 April and 21 April 2023 there were updates to Government guidance, the second update in particular was a full admission that their lawyers made an error in the way that the Building Safety Act was written. The important issue to be aware of is that the Government’s mistake means that the protections mentioned above may be unintentionally removed if a leaseholder completes a lease extension.

What protections are offered by the Building Safety Act 2022.

The protection relates to building safety defects that were created by building (or refurbishment work) completed between 28 June 1992 and 27 June 2022.

Examples of the costs are those resulting from combustible cladding or some other safety defects such as those which could cause the collapse of some or all the building. It may also indemnify leaseholders against other related costs, such as their landlords professional service fees relating to the issue. Depending on the defect, this could provide leaseholders with protection against paying significant remediation costs for which they would otherwise be liable via their service charge.

Does the Building Qualify for Protection in the first place?

Only buildings which have 5 or more storeys OR are 11 metres or above qualify for protection under the Building Safety Act.   A “storey” includes the ground storey. When measuring the building you only measure from the ground on the lowest part of the building to the floor of the top residential storey. This means the top residential storey and anything above it (the roof) are excluded from the measurement.  The building must contains at least two dwellings and not be owned by the Leaseholders themselves.

If the property doesn’t qualify under the Building Safety Act 2022, the Lease hasn’t currently got any protections to lose – so Lease Extension is unaffected as a result.

The implications on Lease Extensions:-

When a Lease Extension is completed, it will provide the Lessee with a new lease which usually references the old lease. The new Deed will be dated on completion and invariably after the cut-off date for protections of 14 February 2022.  Due to the defect in the wording of the legislation, any Leaseholder who previously qualified for assistance under the Building Safety Act 2022 (in particular the protections afforded in Schedule 8) would lose the protection upon entering into the Deed. Meaning any defect in the building and the share of the cost of remediation may fall on the Leaseholder.

Although this is a potential problem for all types of long residential leases in relevant buildings, there is a particular focus on shared ownership properties. This is partly because older shared ownership leases may be reaching, or have already reached, the critical 80 year term point where it becomes harder to get a mortgage.

Are the Government planning to fix the flaw in the Legislation?

The Government have said that it was not their intention to exclude people extending leases from protection under the Building Safety Act.

They updated their guidance further on 21 April 2023 to state “We are looking to legislate to resolve this issue as soon as Parliamentary time allows.” 

The Government also stated:

“Leaseholders should seek legal advice to make sure explicitly in their agreements that their protections are extended as part of their lease. It was intended to work like this, and freeholders should make sure that lease extensions reflect this position.”

How to proceed:-

While we await the Governments amendments to the legislation, landlords are being urged to re-create the statutory protections by including equivalent contractual protections in any affected re-granted leases.

Although RPs who find themselves in this position are not obliged to do anything, but many will want to follow the government guidance and ensure that all qualifying leaseholders get the same protection.

Homes England updated the Capital Funding Guide on 29/07/2022 in respect of “Key Information Documents” (“KIDs”).

From the 15 September 2022, RPs will need to provide the Key Information Documents for Shared Ownership homes provided through the SOAHP 2016 to 2021 funding programme (as well as those funded under SOAP 2021-2026)c and all Section 106 developments.

This means from and including 15th September 2022, the Key Information Documents (now available on the Capital Funding Guide) must be completed for the sale of new Shared Ownership homes and resales. These will need to be completed by the sales/resales team.

Please note, it is a condition of grant funding that these documents are completed and provided to the proposed purchaser no later than at reservation stage for plot sales and the leaseholder upon consent for the resale. The completed documents should be sent to the buyer/leaseholder’s solicitor along with the Memorandum of Sale.

Going forward RPs/HAs should ensure that the appropriate Key Information Document pack is used dependent on the type of Shared Ownership home being provided and the relevant AHP programme it was funded through.

We are delighted to announce our appointment to the Housing Associations’ Legal Alliance (HALA) framework to provide legal services for property development (including acquisitions and sales) from 1 September 2022.

HALA currently comprises more than 35 Registered Providers and more details can be found at www.hala.org.uk.

This is in addition to our previous appointment to the Communities & Housing Investment Consortium (CHIC) legal services framework to provide similar legal services to over 50 Registered Providers and local authorities. More details can be found at www.chicltd.co.uk/chic-products/legal-services If you would like to find out more information about how to instruct us under a framework or information about frameworks, please contact Leo Stevens on Leos@sharratts-london.co.uk or 01959 568 018.

Wealden Council wins landmark CIL case against Stonewater that has potential far reaching implications for housing delivery

Stonewater, a registered provider of social housing, is facing a community infrastructure levy (CIL) bill in excess of £3 million over a 169-home consent in Hailsham, East Sussex, following a High Court judge agreeing with Wealden’s District Council’s decision to reject the RP’s application for relief from CIL.

Planning permission for 169 new homes on the site was originally granted by the Council in May 2020, on the grounds that 35 per cent – 59 homes – would be affordable housing.  Stonewater subsequently acquired the site, wanting to proceed with delivering all 169 homes as affordable, making them eligible for CIL relief.  The Council’s position is that this did not accord with the original permission, nor how it had been assessed and determined.  The judge agreed with them.

Justice Thornton ruled against Stonewater’s claim that it should be exempt from the CIL payment in respect of dwellings included within the consented scheme of development that were not ‘fettered’ under the section 106 planning agreement (i.e. for use as affordable housing), and which the RP

intended to deliver as additional affordable housing units (AHUs), with the benefit of grant funding from Homes England (HE).

The Judge felt that the Council had approved the planning application on the grounds that 35% of the scheme would be social housing, which would not exempt the remaining parts of the residential

development from CIL charge. 

The decision focussed on two specific issues.  Firstly, that Stonewater had not provided sufficient

information with its CIL relief application to demonstrate that the additional units would be utilised as AHUs.  Interestingly, Stonewater is a not-for-profit charitable registered provider of social housing and the proposed units are being grant funded by Homes England.  So it would have had no difficulty, one would have thought, in demonstrating the use of the AHUs in support of its CIL application by pointing to these factors, its business plan and its financial appraisals for delivery of the site etc. 

Second, the judge referred to the fact that the planning permission (in the planning consent itself) specifically described the level of affordable housing on the site.  Further, with reference to the planning agreement connected to the planning consent, the Judge concluded that “the language of the document points to an interpretation that the agreement controls the amount of affordable housing that can come forward by fixing a specific requirement of 59 dwellings or 35% affordable housing”.  She added: “If the development proceeds in multiple phases, there must be 35% in each phase and thus, inevitably, as a matter of maths, 35% in aggregate.  Accordingly, a scheme which provides less, or more, units of affordable housing would not comply with the section 106 requirement to provide 59 units and hence would be contrary to its terms and to that extent unlawful, albeit the council would have a discretion to vary the section 106 agreement or enter into a new agreement.”

Noting that Wealden had not been asked to consider whether approval should be given to 100 per cent affordable housing on the site, the judge concluded: “The council has given a legally valid, and logically sufficient, reason not to grant social housing relief.  The council’s decision was focused on the evidential implications of its correct understanding that the section 106 agreement in existence imposed a specific affordable housing requirement of 59 units, or 35 per cent.“

Commenting on the decision, Cllr Ann Newton Deputy Leader and Portfolio Holder for Planning and Development at Wealden said, “This is a welcome decision by the court. Our approach has always been to secure a range of accommodation in our developments and this is reflected in our policy securing for 35 per cent affordable housing of qualifying dwellings.  A greater proportion of affordable housing cannot be provided at any cost, not least to achieving mixed and balanced communities without key infrastructure.” Going forward, in Wealden at least, any developer who wishes to provide more than the policy requirement affordable housing must declare this in order that planning applications are considered transparently.

To some extent the case leaves more questions than answers.  It is, for example, unusual for the

planning consent to spell out the level of affordable housing.  Also, for a local planning authority to take decisions that reduce the level of affordable housing being provided, where in most cases there is a demonstrable shortage of AHUs.

Also, the case was a review of a decision being made on a specific case, and whether or not Wealden had acted on usual, public law, grounds of reasonableness, etc.  The Judge thought they had.  But also pointed to the fact that in different circumstances the local authority could come to a different decision about whether or not to accept the CIL application for relief.

The full effect of the judgment is yet to be seen.  What is concerning for clients and practitioners working on transactions, is the judicial comment in relation to section 106 agreement interpretation.  Clearly at present planners and developers and RPs operate on the assumption that, absent any specific wording to the contrary, planning agreements that impose a requirement to provide AHUs, do not also operate, implicitly, as a cap on the level of affordable tenures/number of AHUs being provided within a given development. 

Put simply, the judgment appears out of touch with common practice in this regard.  But this does not mean that the judge was not correct in how she applied the law.

So what’s to be done?  For the time being we can make a few practical observations:

1. Think about the local authority you are dealing with, and ensure that discussions with the local authority cover off all relevant aspects, whatever stage of the planning or delivery process you are at – parties must now juggle with the left and right hands of housing and planning teams, but also the third hand of CIL in a way that hitherto has not perhaps come to light so strongly;
2. If you are in the position of negotiating planning documents, ensure that there is a specific understanding about the quantum of AH, as between the policy compliant levels set out in the s106 agreement, and the units that are not fettered so specifically.  If parties intend to use those units for AH, then make it an express term of the s106 – i.e. that the agreement does not and is not intended to impose any restriction on the use of the non-s106 AHUs (typically defined as ‘private sale units’ or similar);
3. Looking at the example of an RP seeking to purchase, from a third party developer, units within an existing consented scheme and which are to be provided as additional AHUs, with or without grant funding, i.e. over and above the consented scheme of development and s106 AHUs.  Here the parties should ensure that they secure a letter/waiver from the local planning authority confirming that their proposals are permissible;
4. Think about other solutions, like for example, where an RP is a charity, whether or not another CIL relief would apply.  Or if the entering into of a section 106 agreement or unilateral undertaking in respect of the additional units solves the problems to everyone’s satisfaction (always remembering that keeping the local authority happy may not also mean that everyone else is happy – e.g. Homes England and grant funding requirements/rules relating to double subsidy).

As always, please contact a member of the Sharratts’ team for help and advice and we’d be happy to help.

R on the Application of Stonewater (2) Limited v Wealden District Council.

Planning Court (Thornton J) 15 October 2021

Case Number: CO/1014/2021

The long-awaited new form Shared Ownership model lease has finally been released via the updated Capital Funding Guide.  Not only are there changes to the Lease but the CFG has also been updated to reflect these and some minor changes to affordability and sustainability.

The CFG Affordability changes….

These are all minor and seek to clarify points which have been unclear in previous versions of the CFG.   Affordability assessment must now be carried out by a Mortgage Advisor with a suitable level of experience.  This was previously only an option.  It is now clear that when registering with the Help to Buy Agent that they only assess eligibility and not affordability.

Maximising shares is further clarified with the aim of a rate of 45% debt to income being the “standard.”  RP’s can clearly use their discretion if they feel in certain circumstances this is not sustainable for any applicant.

In relation to resales it makes it clear that shares can be sold at the existing level even where a buyer can afford more.  If they can afford a higher share, RP’s should facilitate where possible, bringing resales in line with new build sales.

Unsecured lending is not prohibited under the new model however, this would not benefit from the mortgagee protection provisions in the lease.  This is clearly aimed at people buying very low shares using finance from other sources (e.g. personal loan).  Such applicants would still be subject to the same affordability and sustainability criteria.

The New Model Lease:

Lease Term

Following much discussion and review of Leasehold regulations generally, new leases will be granted for a term of 990 years.   This will avoid future lending issues when lease extensions are required and also brings Shared Ownership in line with the private sale market.

Share Purchased

It has been well publicised that the minimum share will be reduced to 10%, at such a low initial share it will be even more important to ensure affordability and sustainability of long-term ownership.  Much debate has been held around this point and it will remain to be seen how many applicants qualify to buy at this level.

Resales

The resales (or alienation) clause has been amended to reflect the change from an 8 week nomination period to 4 weeks.  The reasoning is to prevent leaseholder from being “stuck” in the resale process and able to sell on the open market sooner.

Staircasing

The first major change to the lease is the introduction of 1% shares.  Traditional staircasing still exists in the “old” form however an additional Schedule has been introduced allowing owners to buy a 1% share each year for the first 15 years of ownership.  This right passes to new owners following a resale.  To minimise costs for the leaseholder the valuation is undertaken by the RP making

reference to the original valuation of the property and the HPI (House Prices Index).  Each party will also cover their own costs.  A memorandum will still be required to record each additional share and the corresponding decrease in the level of Specified Rent.

Repairs

The second major change relates to repairs.  Historically the Shared Ownership Lease has been a full repairing lease with all responsibility for repairs lying with the leaseholder. 

The new lease introduces an initial repair period which ends after 10 years or on final staircasing, whichever is first.  Costs are covered up to £500 in any year, any unspent amount from the previous year can roll over to the next.

Such repairs do not cover wear and tear, and anything covered by buildings insurance or the warranty. 

Transfer

The model house lease has always included a draft Transfer to be used on final staircasing (when the freehold title is transferred to the owner).  The new model requires this Transfer to specifically exclude the provisions of Section 121 Law of Property Act 1925 which brings this drafting in line with current lender requirements in relation to Estate Rent charges, such unacceptable rent charge provisions have caused lots of delays in recent years.  

Two tiers of Shared Ownership?

Whilst RP’s are able to use the new lease for all sales going forward there will be a considerable period where properties will be available for sale with both forms of lease (indefinitely if we include resales). 

RP’s will have to use the new lease on a plot sales which are grant funded under the 2021-2026 programme or in relation to section 106 units currently in planning.