Unlocking funds to build
Associations must work carefully to secure their development grant, says Gillian Bastow, partner at Lewis Silkin
Housing associations participating in the government’s affordable rents programme have recently received the Homes and Communities Agency’s framework delivery agreement.
The FDA is a contract for each housing association to deliver an agreed programme of new affordable homes from 2011 to 2015. It contains an agreed timetable and standards, and sets out how much grant the HCA will give the association.
Although initially published as a standard form, the HCA has incorporated some changes into the most recent version of the contract - we now wait to see at what point it becomes fixed. Meanwhile, as with all contracts the small print is important and there are a few points to note.
The small print
Grant will be paid on practical completion of each approved scheme as long as this occurs before the 31 March 2015 deadline. Grant does not have to be paid before the scheme completion date (confirmed on the HCA’s investment management system) even if practical completion occurs earlier.
There is a mechanism for dealing with changes to the programme. However, the HCA does not have to agree a change that would cause it to exceed the available grant for the year in question.
Housing associations, therefore, will not automatically benefit from early delivery and will bear the risk of delays. However, they might be able to recoup some of the loss by charging affordable rents of up to 80 per cent of market rates on a greater number of re-lets than in the agreed programme.
The programme details the level of capacity that providers can create through re-lets at affordable rents and disposals of social rented properties (conversion capacity). Managing this aspect over four years could present a challenge.
The HCA expects section 106 schemes to be delivered without grant and without subsidy from conversion capacity, recycled capital grant fund or disposals proceeds fund.
As well as delivery of the programme, associations’ obligations include: transparency, procurement efficiencies and employment skills strategies, disclosure of information under the Freedom of Information Act, and to notify the HCA of various events and any default.
There is a fairly rigorous procedure for monitoring and reporting, which requires a senior officer of the association to certify compliance issues for quarterly review meetings.
As with any contract, there are consequences in the event of default. The HCA can withhold grant and terminate the FDA in whole or for specific schemes. Following termination, it can require repayment of overpaid grant but will not have to pay further grant if it is underpaid.
The FDA for London features capital-specific obligations including the requirement to pay the London living wage - an hourly rate set each year by the Greater London Authority - to relevant employees. The London functions of the HCA will transfer to the mayor of London in April 2012.
This is a brief summary and associations are advised to read the small print of their FDA carefully. How the contract will work in practice is likely to prove an evolutionary process.