Sunday, 26 October 2014

Implementing affordable rent

As the Localism Bill returns to parliament, Samantha Hall examines some of the problems facing landlords seeking to introduce fixed term tenancies

The development of thinking around the government’s proposed affordable rent tenancies continues – with the generally accepted fixed term structure giving rise to some serious practical concerns.

To date most have assumed – following the lead given by the government’s consultation Local decisions: a fairer future for social housing and the Localism Bill – that the new affordable rent tenancies would be fixed term tenancies. The National Housing Federation published its model assured shorthold fixed term tenancy agreement along these lines in April 2011.

A significant drawback with fixed term tenancies is that if they are for a duration of three years or more, they need to be executed by deed. Execution by deed is not practical in day to day housing management. Most housing officers undertaking tenant sign-ups would not have landlord authority to execute by deed and so would find themselves unable to complete tenancy agreements. These issues can be overcome, but it does not make for straightforward or smooth housing management. 

A three year plus fixed term tenancy executed under hand rather than by deed, would take effect as an equitable tenancy. There is probably no significant legal detriment in this to either the tenant or the landlord – however social landlords will not want to explain to tenants what exactly the differences are in the two forms – and so again the fixed term model leaves landlords with practical difficulties.

The difficulties multiply with tenancies for fixed periods of seven years or more. As well as being executed by deed, these documents must be registered at the Land Registry, with all the administrative burdens this entails – and the longer the fixed term period, the greater the risk of being caught by SDLT thresholds and the tenancy becoming stampable.

There is a possibility of registered social housing providers avoiding these problems however. The publication of the Tenant Services Authority’s decision instrument Revision to the tenancy standard: affordable rent showed that the TSA is not being prescriptive in relation to tenancy form. This allows landlords to consider alternatives to the fixed term tenancy – for example periodic tenancies with a contractual fetter on possession.

This is a useful flexibility, and one which could allow housing officers to continue tenancy sign-ups free from unnecessary legal and governance complications.

The periodic tenancy would need to be carefully drafted – using an existing assured shorthold agreement for the affordable rent regime would be inadvisable, as the tenancy document would not meet the regulatory requirements. 

In addition to the tenancy drafting, there are other significant matters to be worked through by a landlord seeking to introduce an affordable rent tenancy. These include potential impacts on charitable status and existing nominations agreements and whether any covenants affecting the land or in existing loan agreements are breached by the use of the new tenancy.

Notwithstanding these additional considerations however, the TSA’s decision instrument and its opening up of the possibility of using periodic tenancies at least means that social landlords considering adopting affordable rents tenancies are not limited to the fixed tenancy option.

Samantha Hall is solicitor at Trowers & Hamlins

Readers' comments (5)

  • Chris

    Seeing the extensive potential administrative burden and considerable areas for legal dispute, is there anyone out there who can put an estimated cost to the changes Shapps has staked his reputation on, and so establish if the insecure unaffordable tenancies beloved by the Tory are value for money?

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  • Is the AR product linked to FTTs? That's not how I've read it and following advice from the CLG and CIH I've been informed that AR doesn't require a FTT.

    Can anyone provide some clarity on this?

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  • Chris:

    Affordable tenancies will provide value for money for the taxpayer because the level of grant funding will be much lower. Housing benefit payments will increase initially, but once the universal payment kicks in, this should be capped (assuming the Govt have the balls to keep control of benefit payments).

    As for the legal disputes, I'm sure that there will be a vast number of 'bleeding heart' human rights lawyers rubbing their hands at the thought of lining their own pockets with yet another scheme to fleece hard-working taxpayers.

    The Govt MUST put a stop to that by legislating to limit their payments, or by simply legislating to stop whatever it is they will argue about in order to rack up payments that they can then channel into the socialist movement to enable unions to cause misery for millions of people across the country.

    The previous system where grant funding was spiralling out of control was unsustainable. It's always difficult to implement a new system, but I guarantee that the vast majority of RSL's will make this work, and the vast majority of tenants will carry on with their lives with very little impact.

    I also guarantee that the NHF, Old Labour, Looney Lefties, Inside Housing, and several who post on here will moan and complain whatever the outcome. The first time a tenant complains, they will hold that one complaint as definitive "proof" that affordable tenancies don't work even though the vast majority of tenants will not give a monkeys.

    Bonola

    I don't think that AR's require a FTT, but the intention was that the two would go hand-in-hand so that those in most need would not be disadvantaged by those who simply choose to live in social housing, but could afford to rent on the open market, such as Bob SIX FIGURE SALARY man of the people Crow.

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  • Chris

    SHW - if the answer to the growing legal costs is to cap the amount lawyers charge why is it so wrong to suggest that the answer to the growing benefit cost is to cap the amount landlords charge?

    The government line supported maintain that benefit caps are the only way, when logic says reducing the price reduces the cost.

    Affordable tenancies are more expensive. Lower paid people will not be able to afford them and so will not be able to live in the areas they chose, for instance, so that they can work. How is that value for money for the taxpayer?

    SHW - the policies you are supporting are the wrong medicine for the diagnosis, and definately not being done out of love.

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  • These AR tenancies will end up being let in many different ways in accordance with varying LA policies and allocations strategies causing disparity across the country... some will let to the applicants who 'float to the top' in CBL needs based systems irrespective of affordability, in fact RPs may well prefer those on full HB to be in situ with HB paid directly to them if still allowed and may even require that to satisfy the requirements of their commercial lenders in order to finance the stuff in the first place. LAs that impose 'have to be in work' allocations conditions will be criticised for creating social stratification - the remaining social lets for the poor and unemployed?
    It is going to make it even harder to achieve thriving sustainable communities - the worthy mantra and aspiration of many LAs - with such division. In the area in which I work 80% of market rent is not affordable without HB even to households with average incomes! Applicants will end up being allocated AR homes on s106 developments in upmarket areas with very high rents (even where eventually capped at LHA)
    I am surprised there is not more discussion about what is really meant by the word AFFORDABLE... surely 'affordable' means affordable WITHOUT the need for assistance from HB...?? 35 - 40% net disposable income to affordably go to meet base housing costs tagged to 30th percentile earnings would mean something and could be used to demonsrtrate to developers what they are expected to contribute in order to achieve that where planning obligations require provision.... in the same way that there is a methodology we use to assess affordability for aspiring homeowners taking on mortgage, residual rent or equity loan costs where 45% net disposable income is deemed affordable. Lets get our collective heads around this one. Just because it is described as affordable does not mean it is!

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