Getting the best price when disposing of Property

When property is due to become vacant, a Registered Provider or any owner of housing stock for that matter, will take the opportunity to consider whether to retain and re-let the property, perhaps carrying out improvement works to upgrade the property to improve its EPC rating, or whether to sell. 

It may be appropriate in all the circumstances to sell the Property and to reinvest in other housing which is perhaps in a better location or is of a better standard and design to suit the customers of the Registered Provider.

This article talks about the legal considerations that the Registered Provider or owner should take into account in order to secure the best price for the property in the market.  

Charitable

Whilst most Registered Providers are “exempt charities” (and not regulated by the Charity Commission), others are “registered charities” and are regulated by the Charity Commission. There are some additional requirements which apply to registered charities under charity law which do not apply to exempt charities. 

Registered providers that are either exempt or registered charities must ensure they have the power to sell the property. For registered charities, the Charities Act 2011 sets out specific obligations, including the need to obtain an appropriate adviser’s report, advertise the sale appropriately and ensure that terms are fair and reasonable. In some cases, registered charities will also need to consider whether they will need to obtain Charity Commission consent to the disposal. In many cases, consent will not be required if the registered charity gets the best terms that can reasonably be obtained and the other specific obligations are complied with. However, the rules in this area are complex and must always be considered in light of the particular disposal.

Although exempt charities are not subject to the same restrictions as registered charities, board members must fulfil their general duties under charity law when disposing of charity land, including obtaining best value from disposals.

Regardless of status, board members must carefully consider how the disposal supports their charitable purpose, balancing financial returns with social impact and ongoing housing needs.

Title

The title to the Property should be reviewed to determine whether there are any restrictive covenants limiting how the property can be used and whether there are any third parties with whom it will be necessary to negotiate in order to dispose of the property, i.e. release of a mortgage, compliance with a restriction on title. That review will also determine whether it is better to  sell the freehold interest or to grant a lease of the property on disposal. If the latter, it may be that there are other units on any wider estate that have already been sold which will impact on the terms that you can grant within a new lease of the property. If your title to the property is itself leasehold then you might need to liaise with your landlord in order to dispose of the property.

You will want to be certain through looking at the title whether you require any third party consent, whether a freehold or lease can be sold and whether you would need to pay any third party any part or the whole of the sale proceeds. It may well be that you might need to seek a variation to an existing restrictive covenant or alternatively put in place, if not already held an indemnity policy to protect against any expected breach caused by the disposal of the property or a change of the use of the property. Indemnity cover can usually be obtained on a pre-planning basis but there the cost of such a policy to be taken into account.

Management of any wider of Estate

If the property is part of a wider estate then it may well be that the property is subject to payment of service charges to a management company, which is usually detailed in your title to the property. It will be necessary to liaise with the management company, and (if relevant) your landlord and possibly the freeholder of the land, to ensure that all service charges are paid up to date, to obtain replies to standard pre-contract enquiries etc. It is likely that you will pay fees to obtain this information for a prospective purchaser and that purchaser will need to enter into a Deed of Covenant on purchase directly with the management company. If you hold a share in the management company or are a member of the management company then these will need to be transferred to the purchaser at completion.

Planning

It is worth checking what planning information you hold on the property or undertake a search with the local authority and/or review their planning portal. You need to ensure that you know in advance what planning restrictions (conditions or section 106 planning obligations) affect the property – is the use limited, does the local authority have any controls over your disposal of the property for a different use, what is the position under any nomination agreement? Would you before bringing the property to market,  need to secure a release or variation of any planning, restrictive covenant or nomination agreement? How easy is it to obtain and what is the cost involved?

Change of Use

If the Property is used for a specific use, does that use deflate best value and, if it does, it is worth considering whether it is possible to change or broaden the use of the property so as to widen the pool of potential purchasers for the property and the value? Is the likely increase in potential value on sale outweighed by the cost of securing the change of use.

If the existing use of the property would attract best value, and there is no need or desire to use the property for any other purpose, the prospective seller should check that the existing use is lawful (i.e. it benefits from planning permission) and that the documentation is available to evidence the lawful use to a purchaser. In many cases (particularly with older housing stock), there may be no express planning permission for this existing use. In those cases, it might be advisable to apply to the local planning authority for a certificate of lawfulness or (if there is insufficient evidence to obtain a certificate of lawfulness) to obtain indemnity insurance covering any risk of enforcement action.   

An application for certificate of lawfulness must be made using the prescribed form and would need to be supported by evidence that the use has been ongoing, continuously for the last 10 years without enforcement action being taken. Such evidence would normally comprise a signed witness statement or affidavit from someone (ideally the owner/occupier of the property) with direct knowledge of the property.

If the existing use is not lawful or if the proposed use of the property would involve a change in the lawful use, it may be necessary or desirable to obtain planning permission for the change of use before taking the property to market.  

The Application would need to be made on the standard application form, which can be submitted electronically via the planning portal, and accompanied by the appropriate Application Fee.
It will need to be accompanied by:

1. a redline site plan drawn to an identified scale showing the direction of north; 
2. a block plan (scale 1:100 or 1:200) showing all site boundaries.
3. Existing and proposed elevations (at a scale of 1:50 or 1:100)
4. Existing and proposed floor plans (at a scale of 1:50 or 1:100)
5. The certificate of ownership 

In addition to this, include a covering letter or short statement explaining the planning history and that the application is effectively returning the property to its original use.   

The statutory period for determination is 8 weeks.  Assuming there are no objections raised to the application, officers ought to be able to determine the application within that time under delegated powers.

What does the Regulator require?

If you are regulated what the requirements of your Regulator. Do these hinder or help you make a disposal or change of use and disposal?

Where a Registered Providers is considering a change of landlord for one or more tenants, or a significant change in management arrangements it is required under the Regulator of Social Housing’s Transparency, Influence and Accountability Standard to consult with affected tenants, at a formative stage, and take into account those views in reaching a decision. The consultation must; be fair and accessible, provide tenants with adequate time, information and opportunity to consider and respond, set out the potential advantages and disadvantages (including costs) to those tenants in both the immediate and longer term along with demonstrating to those affected tenants how the consultation responses have been taken into account in reaching a decision. 

The consultation should be tailored to ensure that tenants who may experience communication barriers or have additional support needs are able to access the proposals and contribute, should they wish to. 

The RSH’s code of guidance relating to the standards confirms, “Board and councillors of registered providers should assure themselves that feedback from affected tenants has been genuinely considered in their decision-making about proposals, and the registered provider should demonstrate this to affected tenants.”

Equally, if you have received public funding for the property in the past you need to determine what action you need to take with the Regulator on disposal.  Will this involve you repaying the subsidy on disposal or recycling the subsidy into housing specifically?  

Future Uplifts in Value

If you manage to change the use or you decide not to change the use but have concluded that there is the potential for a purchaser to secure an uplift in value through change of use or redevelopment of the property after sale how do you ensure that you secure a share of that uplift.

This would be, most often, secured by imposing an overage in the sale documentation. The overage would be imposed for a period of time and allow you to receive a proportion of the uplift in value every time the purchaser changes the use or redevelops the property during that period. These types of arrangement can be quite complex but can help you demonstrate to your regulator and your boards that best value has been achieved.

If you require any help or assistance on any of the issues raised in this article then do please contact:-

Wendy Wilks
Sarah Orchard
Matthew Stimson