What associations must consider when switching from shared ownership to rent

First, if the homes are being delivered as Section 106, the planning agreement should be checked for any tenure requirements or restrictions and, if necessary, a replacement affordable housing scheme or deed of variation agreed with the local authority.

As part of that, the local authority is likely to require nomination rights and impose affordability restrictions in line with current policies.

“The opportunity to build or provide additional rented units to meet the rise in demand will be seen by associations as very welcome”

Where the homes are already the subject of grant funding agreements, whether with Homes England, the Greater London Authority or with a local or regional authority, the funder’s approval to the tenure switch should be sought and any requirements they may have over rent levels or other tenancy terms reviewed.

If the homes have been bought from a developer as part of a wider scheme, contracts will need to be checked for any restrictions (over and above those contained in any planning agreement) on the tenure for which the homes can be used.

Developers sometimes seek to prohibit tenure switches for set periods to protect the marketability of their retained units.

Leasehold units may also have covenants setting use types, so those should be also checked and consent should be secured as necessary. It is to be hoped that there would be little resistance to ensuring units, available and ready for occupation, can be used as opposed to sitting empty, but this should never be assumed.

For homes being delivered under a joint venture with a developer or local authority, any switch which results in a lower price being paid by the association for the homes will naturally impact on the partnership’s business plan and will need the approval of the joint venture partner.

Homes previously intended for shared ownership use may benefit from a specification different to that which the association would normally provide for rented use (for example, the inclusion of a fitted kitchen).

Depending on what stage of construction has been reached, there may be opportunities to change this – albeit potentially at a cost.

“If changes do need to be negotiated with the local authority, funders or third parties to accommodate a tenure switch, associations may wish to consider building in flexibility to revert back to shared ownership”

Expected service charge levels should be reviewed. Higher levels of building service charge, for example, may have been viewed as acceptable for shared ownership homes but will prove unsustainable for rented units, where such costs would be assumed into the rent charged.

It may be that the level of facilities provided by the building or estate owner can be adjusted to help reduce costs. However, housing associations should be alert to the PR impact here as they could be accused of adopting a ‘poor doors’ policy.

A further consideration is the expected child density for the development. This is likely to increase as a result of a higher number of rented homes.

Potential for overcrowding in homes should be considered along with space standards, which may have been relaxed in homes for sale.

Local authorities may also be alert to infrastructure impacts, such as education and transport usage, of different family make-ups.

Finally, if changes do need to be negotiated with the local authority, funders or third parties to accommodate a tenure switch, associations may wish to consider building in flexibility to revert back to shared ownership or other intermediate tenures.

The road ahead is littered with uncertainty and, although there is a golden opportunity for housing associations to return to their roots and hugely step up their supply of rented accommodation to help deal with a brewing housing crisis, the economy (and, as a result, household finances) may yet bounce back sooner than feared.

Charlie Proddow, partner, Winckworth Sherwood