As Housing Associations are already painfully aware, Chancellor George Osborne has ordered a change to the rental formula used to calculate affordable and social rents.  The change will mean that Housing Associations will have to cut social housing rents by 1% per year for the four years from April 2016, with no regard for inflation.

It is estimated that this will lead to an effective reduction in average rents of around 12% by 2021, which may have a significant impact on Housing Association investment profiles.  Questions may be raised over Housing Association cash flows, their ability and appetite to raise finance to meet existing commitments and plans to build new homes.

Insofar as existing commitments are concerned, where a contract for the purchase of land no longer represents the value it previously did, it is worth reviewing the contract to see whether there may be any way of backing out of the contract.

There may, for example, be a contractual right for a buyer to terminate before completion, for specified reasons.  For example, development agreements often allow for termination if the seller/developer is in financial difficulties or if the build is not completed by a specified long-stop date.  These rights may be conditional or time-critical and therefore should be considered as soon as possible to assess whether exercise of the right is feasible. 

Even if there is no express contractual right to terminate, it may still be possible to terminate if the seller is in breach of any of its contractual obligations.  For example, a purchase may be a Section 106 scheme which is delivered through a development agreement.  Such agreements often contain a number of obligations on the developer, such as an obligation to build in accordance with an agreed specification.  If the seller/developer does not perform such obligations, an entitlement for the buyer to terminate the contract may arise. 

If there is a clear or arguable right to terminate, it may be possible to use that as a basis for renegotiation of the terms of the contract.   Alternatively, if there is no right to terminate, a buyer could consider simply refusing to complete the purchase under the contract.  However, that would usually provide the seller with a right either to rescind the contract and seek damages, or to force completion of the contract by a court action for specific performance.  

If you have contracts which you are reconsidering in the light of the budget changes, we would be happy to carry out a review of the contract and provide you with advice on the options open to you.

Our use of cookies

We use necessary cookies to make our site work. We'd also like to set optional analytics cookies to help us improve it. We won't set optional cookies unless you enable them. Using this tool will set a cookie on your device to remember your preferences. For more detailed information about the cookies we use, see our Cookies page.

Necessary cookies

Necessary cookies enable core functionality such as security, network management, and accessibility. You may disable these by changing your browser settings, but this may affect how the website functions.

Analytics cookies

We'd like to set Google Analytics cookies to help us to improve our website by collection and reporting information on how you use it. The cookies collect information in a way that does not directly identify anyone.
For more information on how these cookies work, please see our Cookies page.