F2-21/98 Disposal of sites and properties
between registered social landlords
Provides guidance on eligibility for Social Housing Grant, the Recycled Capital Grant
Fund, and the Disposal Proceeds Fund when one registered social landlord acquires a
site or property from another. It also announces a change in policy for Section 9
consents on the disposal price
30 Jun 1998
This circular should be read in conjunction with relevant sections of the Capital
Funding System Guide, current Corporation guidance on Disposing of Land, and the
current Recovery and Recycling of Capital Grant guidance notes.
1 Introduction
1.1 This circular sets out the existing principles regarding the eligibility for Social
Housing Grant (SHG), the Recycled Capital Grant Fund (RCGF), the Disposal
Proceeds Fund (DPF) and Rent Surplus Fund Reinvestment Fund (RSF-RF) to fund
acquisitions and works where one registered social landlord (RSL) is acquiring a site
or property from another.
1.2 The tables at appendix 1 should be used as an initial reference, with one row being
applicable to a particular transaction. They summarise the relevant sections of the
current Capital Funding System Guide, Corporation guidance on Disposing of Land,
and Recovery and Recycling of capital grant guidance notes
1.3 In the case of SHG, this guidance applies whether the source of the SHG is the
Housing Corporation or a local authority.
1.4 This circular does not affect sites or property developed under a consortium or
development agreement where one RSL acts as the developer, passing the ownership
of property to another RSL, or RSLs, after completion of the work. The terms of such
a transfer of ownership will be set out in the agreement. Equally, this circular does not
affect property managed by an RSL under a management agreement because
ownership stays with the original RSL.
1.5 Section 4 of this circular sets out the Corporation's revised policy on the
consideration to be paid for disposals by one RSL to another.
2 Background
2.1 The changes introduced by the Housing Act 1988 have encouraged RSLs to
develop and implement effective asset management strategies. This may involve open
market sales, both to rationalise portfolios and to raise funds to carry out repairs or
boost reserves. RSLs are also being encouraged and in some cases required to use
their own resources to carry out works to their stock, creating a complex situation
regarding the eligibility of different classes of RSL stock for SHG funding. At the
same time RSLs may be building up RCGF and DPF funds where the permitted uses
may differ from the principles which apply to SHG.
2.2 Where one RSL disposes of property to another RSL, as opposed to selling out of
the sector, the key principle has always been that any disposal should be neutral in
terms of cost to public funds. However, because of the growing complexity, both in
terms of eligibility for public funds and the potential sources of those funds, the
implications of this principle need to be set out in more detail in respect of eligibility
for current and future funding through SHG.
3 Principles
3.1 Any limits on SHG eligibility will also apply to the use of the RCGF, DPF and
RSF-RF, subject to any over-riding principles for those funds which may be changed
from time to time. Except where stated otherwise, a reference in this circular to SHG
also means the use of RCGF, DPF and RSF-RF money. The current policies and
procedures are contained in these references:
- RCGF - the 'Recovery and recycling of capital grant' guidance notes issued with
Corporation circular F2 - 21/97, updated by circular F2 - 28/97;
- DPF - the Capital Funding System Procedure Guide Chapter 19;
- RSF-RF - Corporation circular F2 - 2/98 for policy on uses of the fund.
3.2 SHG is not available:
(a) for acquisition or works funding purely to recycle assets within the sector or
within a group;
(b) to augment or maximise the receipt to the RSL which is disposing of the site or
property;
(c) to enable an RSL to avoid its repairing obligations in respect of properties covered
by a restricted fund;
(d) where a transfer valuation was based on continuing liability for repairs or
improvements.
The use of public funds for these purposes cannot be justified in value for money
terms and produces no housing gain.
3.3 Where SHG is being made available for a property which is being disposed of by
one RSL to another, this will be limited to the maximum amount that would have
been available had the disposing RSL retained the property in its ownership.
Examples
3.3.1 'Acquisition and works' SHG will not be paid to, nor RCGF or DPF money used
by, the acquiring RSL if the RSL selling the property would have been eligible for
works only costs.
3.3.2 Property funded under 1988 Act (HAG) or 1996 Act (SHG) procedures remains
ineligible for major repairs funding.
3.4 When negotiating the sale price, the receiving RSL will need to take into account
these limits on SHG availability for acquisition or current and future works.
3.5 Whether a property is eligible for SHG funding and, if so, on what terms, will
depend on when it was acquired or developed, how it was funded and the resources in
terms of major repairs reserves and RSF available to the disposing RSL. Stock falls
into four categories and Appendix 1 summarises in tabular form the options available
to disposing and receiving RSLs. These are:
Pages 1 & 2 - Originally funded without HAG/SHG or other public subsidy before 1
April 1989 (note that stock transfers do involve public subsidy; see pages 7 & 8
below);
Pages 3 & 4 - Originally HAG funded being pre-1988 Act for rent, or 1988 Act
HAG/1996 Act SHG supported housing stock;
Examples
3.5.1 Corporation approvals for 'pre 1988 Act' self contained stock have Project
Numbers earlier than P or T891..., and 'post 1988 Act' supported housing stock will
have a Corporation Project Number of P or T921... or greater);
Pages 5 & 6 - Originally funded with 1988 Act HAG or 1996 Act SHG, RCGF or
DPF money, or reimproved / rehabilitated with RSF-RF money; and
Pages 7 & 8 - stock transferred after 1 April 1989 from another public sector body.
4 The Disposal Price
4.1 Where an RSL disposes of developments produced under a consortium or
development agreement, or SHG agency agreement, the disposal must comply with
the terms of that agreement. In this section, the term 'land' includes property.
4.2 For all other situations, this circular announces a change of policy relating to
Section 9 of the Housing Act 1996. The current Disposing of Land booklet advises
that disposals by one RSL to another RSL should normally be made at outstanding
loan debt. However, the need for RSLs to implement effective asset management
strategies has demonstrated that this policy is no longer relevant.
4.3 The Corporation has now revised its policy where one RSL is disposing of land to
another RSL, enabling the price of such disposals to be negotiated up a maximum of
the open market vacant possession value. The general presumption is still that RSLs
would not sell land out of the social housing sector if there is a continuing need for
social housing in that locality unless the land is no longer suitable, and/or sale or
replacement are the best option.
4.4 Public funding, which includes RCGF and DPF money, will not be made available
purely to facilitate the transfer or to retain land within the social housing sector
(subject to section 6 below), neither will public money fund the costs incurred in the
transaction. The price should take into account:
a) the open market vacant possession value;
b) the interests of the disposing RSL's lenders, including any charge on the property,
the effects on the loan security, and any requirement to repay all or part of the loan or
whether the loan can be transferred to the receiving RSL;
c) the transfer of any HAG/SHG liability, being a legal requirement contained in
Section 18(6) of the Housing Act 1996 which repeats previous legislation;
d) any dowry for repairs negotiated with the disposing RSL;
e) whether the property will be eligible for future SHG funding;
f) any sales receipts from home ownership schemes anticipated by the receiving RSL;
g) whether it is 1996 Act stock and therefore subject to the Right To Acquire, or will
become so through receiving further SHG or DPF funding.
4.5 The receiving RSL must ensure that, prior to acquisition, they receive full
documentation in respect of the site or property, including details of all grants from
any source previously paid, repaid or deferred, the deemed loan debt (for RCGF or
DPF purposes), any ongoing revenue funding and any loans, reserves or provisions
transferred with the property.
5 Repairing obligations and repairs reserves.
5.1 The receiving RSL will be expected to negotiate with the disposing RSL in
respect of any dowry for future major repair and reinvestment in the transferred
property. The Corporation does not intend to prescribe how to calculate any such
dowry, neither will it wish to arbitrate. The RSLs should refer to the appropriate page
of appendix 1 to see whether the property is eligible in principle for SHG or other
funds to finance any major repairs.
5.2 Where appendix 1 indicates that the property is eligible for Works to existing
stock (WTRSLS) SHG, these categories of work are set out in the Capital Funding
Procedure Guide. Note that RCGF or DPF money cannot be used for miscellaneous
works .
5.3 RSF is not earmarked for any particular property, so the receiving RSL may bid
for WTRSLS SHG if it had received an RSF dowry but had spent all its RSF-RF on
other properties.
6 Disposals as part of the Black and Minority Ethnic Strategy
6.1 Where disposals of stock to Black and Minority Ethnic RSLs are being negotiated,
the aim should be to ensure that stock is disposed of in good condition or with a
dowry. This will always be the case where stock was funded on the basis that a major
repairs provision would be built up, for example most 1988 Act stock.
6.2 However, to facilitate disposals where a dowry is not a realistic option, the B&ME
RSL will be able to bid for funding for works, but not acquisition, even where the
disposing RSL was ineligible because of the size of its RSF reserve. Note that if the
property itself was ineligible before the disposal then it remains ineligible after the
disposal i.e. 1988 Act non-supported housing stock. Stock requiring repair or
improvement should only be acquired where there is an assurance that funding will be
made available through the ADP or LASHG.
7 Open market sales
7.1 Where an RSL offers a site or property for sale on the open market, any RSL
considering acquiring it for social housing should take into account the limitations on
eligibility for funding set out in this circular. These limitations will apply to any site
or property that has been in the ownership of another RSL within five years up to the
date of acquisition, other than those which were sold under the Right to Buy, Right to
Acquire, voluntary sales to tenants or fully staircased shared ownership properties.
8 Accounting requirements
8.1 Both the disposing and receiving RSLs should consider the accounting provisions
contained in the Statement Of Recommended Practice (SORP), in particular the
effects on the Income and Expenditure account arising from dowries, the transfer of
liabilities, and surpluses/deficits on the sale of fixed assets.
9 Large Scale Voluntary Transfer RSLs
9.1 When a Large Scale Voluntary Transfer RSL (LSVT) intends to dispose of land or
property which was held prior to registration with the Corporation, the LSVT is
required to obtain consent from the Department of the Environment, Transport and
the Regions under Section 133 of the Housing Act 1988. In such circumstances, it is
not necessary to obtain Corporation consent under Section 9 of the Housing Act 1996.
10 Enquiries
10.1 Please direct enquiries on this circular to the regional office of the Corporation