7. Grant Recovery - Registered Provider

This chapter sets out the grant recovery and recycling requirements for all Registered Providers and includes Homes England's Recovery of Capital Grants and Recycled Capital Grant Funds General Determination 2017.

1. Overview

1.1 Purpose

1.1.1 In defined circumstances, capital grant is subject to recovery by Homes England. This chapter sets out grant recovery requirements for Registered Providers only. Unregistered bodies should refer to the Grant Recovery - Unregistered Bodies chapter 8.

1.1.2 The Recovery of Capital Grants and Recycled Capital Grant Fund General Determination 2017 makes provision for the recycling of grant for both non-profit and for -profit Registered Providers. Where Registered Providers are referred to in the chapter, this includes all Registered Providers that are developing with capital grant outside of London, unless otherwise stated. Local authority Registered Providers should also refer to their Grant Agreements for specific details of their recovery and recycling procedures.

1.1.3 This chapter sets out:

the legislative framework for grant recovery including the Recovery of Capital Grants and Recycled Capital Grant Fund General Determination 2017 (Registered Provider Recovery Determination)
the ‘Relevant Events’ that trigger grant recovery
the circumstances where recoverable grant must be repaid to Homes England or recycled into a Recycled Capital Grant Fund
how to calculate the amount of recoverable grant. This includes when property is sold and specific requirements for profit making Registered Providers following disposal events
the Permitted Uses of the Recycled Capital Grant Fund
the requirements for accounting, reporting and auditing a Recycled Capital Grant Fund

1.1.4 These procedures apply to capital grants provided by both Homes England (including all predecessor bodies) and local authorities. They apply equally to historical grant paid as Housing Association Grant or Social Housing Grant, and Social Housing Assistance. Social Housing Assistance is currently paid to providers under section 19(6) of the Housing and Regeneration Act 2008. The different types of funding listed here are referred to collectively in the Registered Provider Recovery Determination and this chapter as ‘capital grant’ or ‘grant’.

1.1.5 Properties developed by organisations with the assistance of Social Housing Grant under section 27A of the 1996 Housing Act, may as part of their Grant Agreement have been or are expected to be subsequently transferred to Registered Providers. These are to be treated as funded under section 18 of the 1996 Housing Act and will therefore be subject to section 18 grant procedures following transfer.

1.1.6 The recovery of grant and administration of Recycled Capital Grant Funds for amounts generated within Greater London falls within the remit and responsibility of the Greater London Authority. Registered Providers should refer to the Greater London Authority’s separate arrangements for recovery of grants and the recycling of grant amounts generated within greater London. Please refer to the Affordable Housing Capital Funding Guide for guidance on amounts generated in London.

1.1.7 For guidance on the term ‘recoverable’, please see below.

When this guide uses the term ‘recoverable’, or ‘recovery’, it refers to the obligation that arises on the Registered Provider when a relevant event occurs on grant-funded land or property. The obligation is to either repay or to recycle the defined amount of grant through their Recycled Capital Grant Fund. This obligation can be discharged by repaying the grant to Homes England, or by crediting the sum of grant to the Registered Provider’s Recycled Capital Grant Fund.

The procedural requirements governing how recycled grant can be used are set out in Sections 5 and 6.

1.1.8 The term relevant event refers to the relevant events defined in paragraph (7) of the Registered Provider Recovery Determination. The term does not refer to milestones or events described in other guidance or contract arrangements.

1.2 Context

1.2.1 Legislation requires Homes England to determine principles regarding grant recovery. This requirement is outlined in the following legislations:

Supplemented by Statutory Instrument 2010/862.

1.2.2 Homes England’s current principles governing grant recovery following the sale of property (and other defined relevant events) are set out in the Recovery of Capital Grants and Recycled Capital Grant Fund General Determination 2017.

1.2.3 The Key Conditions of Grant

1.2.3.1 All Social Housing Grant* is given in perpetuity – it vests in the land/asset where it was originally invested until a relevant event for recovery occurs and the grant is repaid or recycled in accordance with the terms of the Recovery of Capital Grants General Determination 2017 or the grant agreement.

Unless and until a relevant event occurs and grant is repaid/recycled in accordance with those terms, the grant liability will pass to successive owners of the land/asset in accordance with the provisions of legislation.

*Social Housing Grant refers to all capital Grant paid under section 19 of the Housing and Regeneration Act 2008, section 18 of the Housing Act 1996, section 50 of the Housing Act 1988, section 41 of the Housing Associations Act 1985 and grants paid under any enactment replaced by section 41 of the Housing Associations Act 1985.

1.2.3.2 It is a Registered Providers responsibility to safeguard the grant and ensure it continues to be used for the purposes it was provided. This condition is set out in contractual arrangements and the Recovery Determination 2017. Grant must be used by the original grant recipient, it cannot be on-lent or on-granted to a third party without prior agency approval.

Failure to safeguard historical grant – If there are concerns about the management of historical grant, Homes England can remove the right to hold a Recycled Capital Grant Fund and/or recover any outstanding grant by repayment (with interest).

Where systemic failures in management are identified Homes England will report these to the Regulator of Social Housing.

1.2.3.3 Homes England approval must be given for the transfer of property between Registered Providers. The Recovery Determination 2017 paragraph 7(o) states that a disposal of a grant funded property is a relevant event unless (paragraph 7(i)) to a Registered Provider (taking the property or land subject to liability for the Capital Grant within it pursuant the legislation) with the prior approval of the Agency.

All Registered Provider to Registered Provider stock transfers must be notified to Homes England in order to receive consent for the grant liability to transfer. If consent is not received, the transfer will be deemed to be a relevant event for grant recovery (relevant event o – disposal) and recovery of grant will be sought.

Providers are required to keep adequate records of grant transferred to and from other Registered Providers or other third parties. Apportionment of grant can only be amended with the agreement of Homes England.

Where a Not for Profit Registered Provider transfers grant-funded stock to a For Profit Registered Provider, Homes England will share in any proportionate uplift compared to the open market value of the properties at the point of sale.

Where a For Profit Registered Provider transfers grant-funded stock to a For Profit Registered Provider, and Homes England’s consent is given for the grant to be transferred, uplift will be applied from the original Attributable Total Scheme Costs incurred at practical completion to the date of the relevant event for recovery.

The above transfers require open market valuations to be provided with the schedule of assets transferring.

1.2.3.4 Grant cannot be depreciated or amortised over time. Grant must be held as a contingent liability within a Provider’s asset and liabilities register. Accounting treatment does not divest the recipient from the grant liability.

1.2.3.5 Providers are required to keep accurate and up to date records in relation to the amount and conditions of grant given, including how grant has been apportioned across schemes and vests in individual units of housing.

The Regulator of Social Housing’s Governance and Financial Viability Standard 2015 2.5 (a) stipulates that providers must maintain a thorough, accurate and up to date record of their assets and liabilities. To remain compliant providers must hold accurate records of social housing grant vested in land/assets. This grant is classed as a contingent liability.

1.2.3.6 Waiving Grant Recovery

Homes England cannot write -off grant. it can however agree to the waiver/amendment of grant amounts due for recovery in exceptional circumstances. Homes England may also agree to vary the apportionment of the grant to housing stock.

If a Registered Provider wishes to waive grant recovery amounts, they must submit a business case to Homes England demonstrating why the recovery of the grant amount due is not possible without affecting a provider’s overall viability to provide social housing.

A business case would need to include the following, where relevant:

a. summary of issue surrounding the grant liability

b. information regarding the risk and impact of grant repayment

c. financial accounts

d. RICS qualified Open Market Valuations

e. sales receipts (including a calculation of the net sales receipt where there is a shortfall between the amount of grant owed and the net sales receipt)

To calculate the net sales receipt, deduct the following from the gross sales receipt:

the deemed loan debt
reasonable valuation fees and expense
reasonable legal fees and expenses relating to the disposal

Supporting documentation confirming the figures used in the calculation should include:

a copy of the valuation
a copy of the valuer’s invoice
a copy of the Registered Provider’s solicitor’s invoice
details of the loan debt attributable to the property, and how that amount of debt was attributed
details of the amount of grant attributed to the property, and how that amount of grant was attributed

Waiving historical grant is only considered in exceptional circumstances where recovery would lead to financial hardship for a provider. This includes where there is a shortfall calculated from the net sales receipt. Without a business case and approval from Homes England, providers must meet any grant recovery shortfall from their own resources.

1.2.3.7 For profit Registered Providers must repay grant with uplift to Homes England upon the occurrence of a relevant event as set out in the Recovery Determination 2017. For more information about how to apply uplift, please refer to guidance on uplift calculations and methodology for Registered Providers.

1.2.3.8 Grant paid out under Section 27a of the Housing Act 1996 to Local Authorities and Arms Length Management Organisations (ALMOs) may have different funding and recovery conditions.

Please see the relevant contract/grant agreement for specific terms on grant recovery.

2. Relevant events

2.1 General

2.1.1 This section sets out:

the procedures that must be followed by all Registered Providers when a relevant event occurs in connection with grant-funded land or property
the basis for Registered Providers to calculate recoverable grant following one of the relevant events is set out in the Registered Provider Recovery Determination 2017

2.1.2 Property is defined in the Recovery of Capital Grants and Recycled Capital Grant Fund General Determination 2017 as including dwellings, hostels (note that this is not intended to be permanent accommodation), supported housing, temporary social housing or traveller pitches funded by capital grant.

2.1.3 Grant recovery is triggered when a relevant event occurs on grant-funded social housing properties or grant-funded land. For the purposes of this guide grant recovery means either the repayment or recycling of grant.

2.2 Repayment and recycling timetables

2.2.1 Following the receipt of a notification of a relevant event that triggers grant recovery, the amount of grant to be recovered will be confirmed by Homes England. Where the grant is to be repaid (not recycled), Homes England will raise an invoice, stating the terms and schedule for payment. Registered Providers should not forward a payment in advance of receiving an invoice.

2.3 Administrative allowances

2.3.1 Registered Providers may deduct administrative allowances when calculating grant liability without our consent, only if the deduction relates to the disposal of a property via one of the eligible home ownership routes detailed below:

staircasing sales (for each transaction): £449
Right to Buy sales: £701
Right to Buy sales (flat): £1,576
Voluntary and Statutory Purchase Schemes (house) e.g. Right to Acquire and Social HomeBuy: £701
Voluntary and Statutory Purchase Schemes (flat) e.g. Right to Acquire and Social HomeBuy: £1,576

2.3.2 No other deductions can be made from Capital Grant due for recovery without Homes England’s prior consent. This includes deemed loan debt, other sales costs and depreciation or amortisation of grant.

2.4 Uplift calculations for For-Profit Registered Providers following a relevant event.

2.4.1 For Profit Registered Providers are subject to the requirement to recover attributable grant with uplift upon the occurrence of a relevant event. For a definition of uplift amount please see below.

‘Uplift amount’ means an amount calculated by reference to any increase in market value of any housing or other land acquired, constructed, converted, improved, or repaired as a result of capital grant.

2.4.2 Alongside a notification form and uplift calculations, For Profit Registered Providers are also required to include an independent open market valuation (OMV) from a Royal Institution of Chartered Surveyors (RICS) qualified and registered valuer when notifying Homes England of a relevant event.

2.4.3 Please refer to section 3.4.3 for information on staircasing transactions and notifications.

2.4.4 Please refer to the guidance on determining the uplift amount in grant recovery calculations which outlines the methodology and provides examples on uplift calculations.

2.5 Grant allocated under the Affordable Housing Programme (AHP) 2011 to 2015

2.5.1 For schemes developed under the AHP 2011 to 2015, the grant liable for recovery is always calculated according to the funding requested for the scheme/unit rather than the agreed grant rate.

For further information on finding the ‘funding requested’ figure on the Investment Management System (IMS), please contact grant_notifications@homesengland.gov.uk.

2.6 Relevant events where recycling is not an option

2.6.1 Relevant event (a): when, during the progress of a project approved for capital grant, an instalment of capital grant was claimed or paid in anticipation of a milestone, and that milestone either does not take place or takes place later than anticipated

2.6.1.1 If a milestone is never achieved, Homes England will require repayment of the entire grant paid without eligible deductions, plus any interest due as per section 3.5. Repayment will be sought via a reclaim activated within IMS.

2.6.1.2 If a milestone has occurred later than anticipated, depending on the circumstances Homes England may decide it will not recover grant. However, Homes England will normally require payment of interest on the amount of grant paid. For further information on the definitions and requirements of each milestone, please see the Programme Management chapter, section 4: Milestones.

Homes England will calculate the amount of interest to be paid and invoice the Registered Provider the amount to be paid. Registered Providers should not make a payment in advance of receiving the invoice.

2.6.2 Relevant event (b): when, after an instalment of capital grant has been advanced upon a project approved for capital grant, Homes England cancels the approval, or approves the project on revised terms which involve a reduced entitlement to capital grant

2.6.2.1 Where an approval is cancelled, Homes England will require repayment of all grant paid for the scheme without eligible deductions, plus any interest due as per section 3.5.

2.6.2.2 Where an approval is revised, Homes England will require repayment of any grant paid out in excess of the revised amount, plus any interest due as per section 3.5.

2.6.3 Relevant event (c): discovery, upon an intermediate or final review of the costs of a project approved for capital grant, that an instalment or payment on account of capital grant had been greater than eventually required

2.6.3.1 Where an approval is revised, Homes England will require repayment of any excess grant paid, which is the difference between the amount of grant paid and the revised approval, plus any interest due as per section 3.5.

2.6.4 Relevant event (d): failure to use capital grant for the purpose for which it was paid

2.6.4.1 Homes England will require repayment of all grant without eligible deductions, plus any interest due as per section 3.5.

2.6.5 Relevant event (e): failure to comply with any condition attached to the making of capital grant, including failure to complete a project

2.6.5.1 Homes England will require repayment of all grant without eligible deductions, plus any interest due as per section 3.5.

2.6.6 Relevant event (f): discovery that the Secretary of State, Homes England or a local authority has received incorrect information or made an error in connection with the calculation of capital grant payable or recoverable

2.6.6.1 Depending on the circumstances of individual cases, Homes England will require repayment of grant in whole or in part without eligible deductions, plus any interest due as per section 3.5.

2.6.6.2 If Homes England requires repayment of grant in part, the amount of grant to be repaid will be calculated according to the particular facts relating to the property or scheme in question.

2.6.7.1 Selling land that has been acquired with the aid of grant before the development has either begun or been completed requires grant to be repaid in full.

2.6.7.2 The gross sales receipt for the land sold should not be less than the valuation provided to the Registered Provider by an independent RICS accredited qualified valuer.

2.6.7.3 Eligible deductions can be made from the gross sale receipt as follows:

reasonable valuation fees and expenses
reasonable legal fees and expenses
reasonable marketing costs

2.6.7.4 Grant paid should be recovered from the net sales receipts. That is the gross sales receipt less eligible deductions as above.

2.6.7.5 Where the net sales receipt of the land/scheme being sold is not sufficient to enable all recoverable grant to be repaid, please see section 1.2.3.6.

2.6.7.6 Where only part of the land or scheme is sold, grant should be apportioned as required in section 4.8.

2.6.7.7 Spare land

The sale of spare land whether sold prior to or after development is not treated as a disposal and not deemed a relevant event, therefore no grant is recoverable. Spare land includes:

part of a garden or general landscaping
plots of land for electricity sub-stations or similar utilities
land swaps to regularise boundaries
rights of way, access or easements

2.6.7.8 Spare land excludes any area of land designated at project approval for any future phase or phases of development.

2.6.7.9 If Registered Providers are in any doubt about whether land can be classified as spare land, they should approach their Homes England Contract Manager.

2.6.8.1 Homes England will require repayment of all grants, without eligible deductions, plus any interest due as per section 3.5.

2.6.8.2 This is an historical relevant event. It is not anticipated that this situation will arise in the future.

2.6.9 Relevant event (i): deregistration of a Registered Provider by the Regulator, under sections 118 or 119 of the Housing and Regeneration Act 2008

2.6.9.1 Registered Providers are required to inform Homes England immediately of their application to deregister from the Regulator of Social Housing. When a Registered Provider seeks to deregister all grants previously paid to the Registered Provider are required to be repaid. The repayment requirement includes credits in the Registered Provider’s Recycled Capital Grant Fund.

Please note that where a Registered Provider holds stock both outside and inside Greater London, they will have to repay grant to Homes England for the former and the Greater London Authority for the latter. This is also the case where a Registered Provider holds recycled funds generated from both inside and outside London.

2.6.9.2 Homes England will request a full schedule of grant-funded assets (outside of London) that the deregistering provider owns. This should include as much detail as possible about the original grant funding. Please refer to section 3.2 for the information we would expect in the schedule of assets. We will then confirm the grant liability that is up for repayment under relevant event (i).

2.6.9.3 We accept there might not be any immediate disposal of stock following deregistration. This circumstance would mean there would be no sales receipt from which to repay Homes England the grant vested in properties that are not being disposed of.

2.6.9.4 Where a Registered Provider can demonstrate to our satisfaction that immediate repayment of grant would result in financial hardship, Homes England may consider deferring the repayment or allow repayment by instalments.

2.6.9.5 To demonstrate financial hardship, Registered Providers must write to Homes England with a business case for deferral. For details of what to include in a business case, please refer to section 1.2.3.

2.6.9.6 If Homes England approves the business case, we will require the deregistering provider to sign a deed of covenant. The deed of covenant ensures that the route to recover grant is acknowledged by the deregistering provider. Once a deed of covenant is in place, we will defer recovery until a subsequent relevant event occurs on a grant funded property secured by the deed.

2.6.9.7 Unless we agree to a business case, the grant vested in units and sums in the Registered Provider’s Recycled Capital Grant Fund are to be repaid immediately. Homes England will arrange for the Registered Provider to be invoiced accordingly.

2.6.9.8 The Regulator of Social Housing cannot approve deregistration until they receive confirmation from Homes England that the grant has been secured through a deed of covenant or that the grant has been repaid.

2.6.10 Relevant event (j): a change in the status of a private Registered Provider from an unincorporated body to an incorporated body by whatever means

2.6.10.1 Homes England recognises that charities and trusts may want to change their legal status from an unincorporated to incorporated body to limit the personal liability of their trustees. It is further recognised that this change in legal status will not necessarily generate a receipt.

This change in legal status is a relevant event triggering the repayment of grant vested in a provider’s portfolio of grant-funded properties. It is the Registered Provider’s responsibility to contact Homes England to discuss this change of legal status and their obligations to repay grant.

2.6.10.2 Homes England will request a full schedule of grant-funded assets (outside of London) that the Registered Provider owns. This must include as much detail as possible about the original grant funding. Please refer to section 3.2 for the information we would expect in the schedule of assets.

2.6.10.3 Once grant liability has been confirmed by Homes England, the grant is repaid unless otherwise agreed on a case-by-case basis. The options to be agreed on a case-by-case basis are:

put in place a deed of covenant if the new incorporated body is not intending to register with the Regulator of Social Housing. Both the unincorporated body and the newly incorporated body must acknowledge grant liability in the deed of covenant. Once a deed of covenant is in place, we will defer recovery until a subsequent relevant event occurs on a grant funded property secured by the deed. Homes England must provide its agreement to the deferral of grant and deed of covenant. Providers must write to us with a business case for deferral. This must demonstrate financial hardship should the grant be repaid. For details of what to include in a business case, please refer to section 1.2.3. The business case will be subject to Homes England’s approval
or request that a provider to sign an undertaking letter if the new incorporated body is becoming, or has become, registered with the Regulator of Social Housing. The provider will not be required to submit a business case or sign a deed of covenant. The undertaking letter, with the provider’s signature, will confirm that no grant funded assets will transfer to the newly incorporated body before its registration has been confirmed. It will also confirm that no de-registration of the unincorporated body will take place before the transfer of grant funded assets to the newly incorporated body. The newly incorporated body will become liable for all vested grant obligations and grant recovery on a future relevant event. Please note that this process cannot be followed for Section 27a grant. Section 27a grant was given to Local Authorities between 2011 and 2015. Please refer to 1.2.3 in conditions of grant.

2.6.10.4 Where a Registered Provider does not seek Homes England’s consent to waive grant repayment via a deed of covenant or an undertaking letter, Homes England will enforce repayment of grant.

2.6.11 Relevant event (k): all or some of assets of a Registered Provider become vested in a third party

2.6.11.1 Homes England considers the vesting of part, or all, of a Registered Provider’s assets to a third party who is not a Registered Provider to be a relevant event for recycling. The passing of social housing assets to a third party that is not a Registered Provider of social housing is a disposal and therefore a trigger for the recycling of grant.

2.6.11.2 Where the assets become vested in a third party who is a Registered Provider, the grant liability will pass to new Registered Provider, as if the Registered Provider had received the grant themselves. This is dealt with by the Historical Grants team as a Constitutional Change. Please refer to section 3.3 of this guide for information on Constitutional Change notifications.

2.7 Relevant events where Registered Providers have the option of recycling

2.7.1.1 Change to non-grant eligible use

If the Registered Provider changes the use of the property to one which does not qualify for grant, the total grant liability vested in the property will be recoverable.

Where there is any doubt as to whether the future use of the property is grant eligible, Registered Providers should consult Historical Grants for advice: grant_notifications@homesengland.gov.uk.

2.7.1.2 Change from Supported Housing

Registered Providers must notify Homes England of a change of use from supported housing to general needs. Providers will usually be asked to repay or recycle 12% of all grant liable in the supported housing units except where a change of supported housing client group does not constitute a relevant event and grant is not recoverable.

2.7.1.3 Temporary change of use with permission

In exceptional circumstances, Homes England may agree a temporary change of use, without recovery, to one not qualifying in principle for grant.

Registered Providers must discuss proposals with Homes England’s Historical Grants Team who will consider individual cases on their own merit, considering:

the level of demand for the existing use of the land or property
the likelihood that it could be returned to affordable housing within 12 months
factors which make it difficult or undesirable to dispose of the land or property
whether the temporary use offers a housing or regeneration function
whether the temporary use falls within the permitted purposes of a Registered Provider

Homes England’s agreement to a temporary change of use to one which is non-grant eligible will last for 12 months. The agreement will be subject to review and only in exceptional circumstances renewed.

2.7.1.4 Conversions

Three Homes England funding programmes, the Affordable Housing Programme 2011 to 2015 (AHP 2011 to 2015), the Affordable Homes Programme 2015 to 2018 (AHP 2015 to 2018) and the Shared Ownership and Affordable Homes Programme (SOAHP) 2016 to 2021, allowed Registered Providers to utilise the concept of ‘conversions’ to aid the additional supply of homes for Affordable Rent. In certain conversion scenarios and as agreed with Homes England as part of a Registered Provider’s programme offer, grant may not have been subject to recovery provided it generated financial capacity to deliver new supply. The allowed conversions included:

on re-let, existing Social Rent to Affordable Rent
Social Rent to Shared Ownership
Intermediate Rent to Shared Ownership

2.7.1.4.1 Additional financial capacity (conversion capacity) generated from these conversions was only allowed to be used to support the delivery of homes for rent. Conversion capacity generated during the SOAHP 2016 to 2021 was not allowed to be used to support the delivery of Shared Ownership or Rent to Buy homes.

2.7.1.4.2 In the Affordable Homes Programme 2021 to 2026, the conversion of void Social Rent stock to Affordable Rent in order to generate additional financial capacity is no longer allowed and does not form part of the AHP 2021 to 2026 contract.

2.7.1.4.3 Please note that conversion capacity funds generated through previous programmes cannot be used to support the delivery of homes under the AHP 2021 to 2026.

2.7.1.4.4 If Registered Providers intend to convert the tenures of their stock, they must consider whether this may trigger a relevant event – such as a ‘change of use’ or ‘disposal’ - for grant recovery purposes. However, where the conversion was agreed as part of a Registered Provider’s SOAHP 2016 to 2021 delivery contract, this will not lead to grant recovery.

2.7.1.5.1 Social Housing provided through temporary social housing products such as Lease and Repair Empty Homes, and the historical products of Temporary Social Housing, Temporary Market Rent Housing, Short Life and HAMA (Housing Associations as Management Agents) PLUS, enabled certain properties to provide a limited life for social housing use. Registered Providers would have a legal interest in the property by means of a short lease, in most cases up to a maximum of 30 years.

2.7.1.5.2 Where a lease in a property has run its course, and the property was funded under a temporary social housing product, grant is no longer recoverable.

2.7.1.5.3 Where there is a change of use of the leased property to one which is not grant eligible then grant is recoverable. Where five complete years of life are not achieved from the date of the lease, grant is recoverable in full. If more than five years life has been achieved, the amount of grant recoverable will be reduced pro-rata for the proportion of the life, in completed months, which has been achieved.

2.7.1.5.4 Example grant recovery calculation.

A Registered Provider claims £12,000 grant for an empty homes scheme delivering one new affordable home from an empty property. The lease is due to run from 01 April 2017 to 31 March 2027.

Grant originally claimed (a): £12,000
Term of lease in months (b): 120 months
Amount of grant paid for each month of lease (c = a/b): £100
On 12 March 2023, the lease is prematurely terminated or changes to a use which is not grant eligible.
Number of complete months lease held (d): 71 (April 2017 to February 2023)
Amount of grant used for the purpose for which it was paid (e = (c x d)): £7,100
Amount of recoverable grant (f = (a – e)): £4,900

2.7.1.6 Tenure Changes

The following table sets out which tenure changes trigger a recovery event, and how much grant is to be recovered.

Tenure	Amount of Grant to be Recovered
Social rent to affordable rent (if in contract)	See section 2.7.1.5
Social rent to affordable rent (if not in contract)	Not allowed, conversion a condition of new supply.
Social Rent to Shared Ownership	Recovery should be the proportion of grant originally allocated to the rented home in direct proportion to the equity purchased. For tenanted properties funded for Social Rent under AHP 2021 to 2026, please refer to 2.7.4.46- Right to Shared Ownership.
Social Rent to Intermediate Rent	Not allowed as per RSH Rent Standard 2023 – section 3.15.
Affordable Rent to Social Rent	No recovery
Affordable Rent to Shared Ownership	Recovery should be the proportion of grant originally allocated to the rented home in direct proportion to the equity purchased. For tenanted properties funded for Affordable Rent under AHP 2021 to 2026, please refer to 2.7.4.46- Right to Shared Ownership.
Affordable Rent to Intermediate Rent	Not allowed as per RSH Rent Standard 2023 – section 3.15.
Shared Ownership to Social Rent	No recovery
Shared Ownership to Affordable Rent	No recovery
Shared Ownership to Intermediate Rent	No recovery
Intermediate Rent to Social Rent	No recovery
Intermediate Rent to Affordable Rent	No recovery
Intermediate Rent to Shared Ownership	Recovery should be the proportion of grant originally allocated to the rented home in direct proportion to the equity purchased

2.7.2 Relevant event (m): cessation of use of property or land funded by capital grant

2.7.2.1 Where a property has become void, this is a relevant event for recovery of grant. Homes England does not expect immediate recovery of grant. Homes England, in the first instance, expects Registered Providers to bring the properties back into use rather than repaying or recycling the grant. Where this is not possible and all options have been exhausted, Homes England will offer further discussions with providers to agree how the historical grant is treated.

2.7.2.2 Where an RP has decided as part of an asset management strategy to vacate a grant funded scheme (or multiple dwellings within a scheme) and intend to leave the properties vacant, Homes England considers this a cessation of use.

2.7.2.3 Notification procedures for long-term/permanent voids

Homes England must be notified within 14 days of the following events:

where 50% or more of the properties in a grant-funded scheme have become vacant or there is a decision to vacate 50% or more of the properties in a grant-funded scheme
Where there is no intention to relet a void property/properties due to an asset management strategy decision
where there is an intention to apply for planning consent for a change of use (relevant event (l)), demolition (relevant event (n)) or re-development of the properties.

Homes England expects that grant will be recovered in these events.

2.7.2.4 Where there are plans to bring the vacant properties back into use or re-development is being considered, Registered Providers must submit these plans and proposals to Historical Grants. You will need to provide:

reasoning for why the properties or property is being, or was, vacated
proposals and timescales to bring the property back into use

If you are planning to redevelop, you will need to provide:

reasoning for why this property or properties are unviable for reletting in their current condition
proposals and timescales to achieve redevelopment
evidence of the intention to re-pay or reapportion the historical grant after redevelopment

2.7.2.5 If you are considering applying for new grant to redevelop void properties, you will need to ensure that you have notified Homes England of the relevant event (m) occurring on the property prior to your application. You will also need to ensure that an agreement has been reached with Historical Grants on the treatment of historical grant ahead of applying for new grant.

2.7.2.6 Notification procedures for Temporary Voids

Homes England must be notified within 14 days if a property reaches 12 months of being void. Registered Providers are not required to submit proposals to bring temporary void properties back into use. You must notify us if:

the property can no longer be relet
you are planning to re-develop the property
another relevant event occurs on the property

2.7.3 Relevant event (n): demolition of property or other buildings funded by capital grant

Demolition of grant funded property is a relevant event for grant recovery, and all grant attributed to the property in question should be recovered at the point of demolition. Homes England appreciates that property or developments may become unviable or unfit for their current purpose and when all other options have been considered, demolition becomes the only option.

2.7.3.1 We recognise the potential for new social housing units to be built on this land to regenerate the land’s purpose for further social housing use. We will consider how to treat historical grant when such an event occurs.

2.7.3.2 Registered Providers must submit a business case for prior approval if they wish to defer the recovery of grant following the demolition of a grant funded property. The business case must include details of:

outcome of options appraisal for the site
overall proposals for redevelopment
how the development will be funded
overview of project costs and how historic grant will be apportioned on units on the new site
the timeline for delivery

2.7.3.3 Homes England will not accept business cases where properties have already been demolished. Registered Providers must submit business cases at least 21 days in advance of demolition. Homes England strongly suggests that Registered Providers contact the Historical Grants Team as soon as possible when considering demolishing a property with social housing grant.

2.7.3.4 Where Homes England agrees to defer grant recovery, the Registered Provider’s obligation to repay or recycle grant will arise at the next relevant event relating to the land on which the demolished property was located. The grant recovery policy and procedures in force at that time will apply.

2.7.3.5 In the meantime, the grant is treated as remaining or resting in the land up to a maximum of 5 years. If new social housing units are developed on the demolished land, the older historical grant becomes re-invested into the new units alongside the new grant.

2.7.3.6 In agreeing to let the grant remain vested in the land, any new scheme or property must be built within the existing boundaries of the previous grant-funded property’s land.

2.7.3.7 Where grant is resting in the land it will not be included in any value for money assessments undertaken by Homes England when deciding whether to provide additional grant to redevelop the site. However, both ‘old’ and ‘new’ grant will be subject to recovery following future relevant events.

For an example, see below.

A property is demolished, and the original £50,000 grant remains ‘dormant’ in the land. New property is built on the site with £20,000 of new grant. The property is then sold on the open market and £70,000 grant is recoverable.

2.7.3.8 Grant will be recovered if a Registered Provider demolishes property so that:

the resultant vacant site remains in the Registered Provider’s ownership
the site is to be used for non-income earning purposes (such as forming an open space or facilitating the realignment of roads)
a compensation payment is received by the Registered Provider

2.7.4 Relevant event (o): disposal of Property or land funded by Capital Grant by a Registered Provider, except exceptions given in the Registered Provider Recovery Determination.

2.7.4.1 Outright sale of land and buildings

An outright sale of a rental property is:

a sale on the open market
a negotiated private sale
an outright sale to a sitting tenant other than on Right to Buy/Right to Acquire/Social HomeBuy terms

2.7.4.2 The gross sale receipt must not be below a valid valuation by an independent RICS qualified valuer.

2.7.4.3 Sale under compulsory purchase orders

If a property owned by a Registered Provider is sold under a compulsory purchase order (or where there is written evidence of the threat of a compulsory purchase order), the gross sales receipts will be the higher of either:

the receipt from the disposal plus any compensation received plus any interest received as part of the compulsory purchase order, or
the amount obtained by a qualified valuer acting on behalf of the Registered Provider in negotiation with the body exercising compulsory powers and Eligible deductions will only include the Registered Provider’s reasonable valuation and legal costs, and an administrative allowance if the body exercising the compulsory purchase order has not paid them as part of the compulsory purchase order process

2.7.4.4 The amount of interest to be included in the calculation of the gross sales receipt will be the interest paid by the acquiring body, less any tax on that interest that the Registered Provider may have to pay (if it is non-charitable), plus any tax relief grant that it may have received to offset the tax paid.

2.7.4.5 Disposal of spare land in these circumstances is covered in paragraph 2.6.7.7.

2.7.4.6 The amount of grant recovered will not be reduced in respect of any costs incurred by a Registered Provider in opposing a compulsory purchase order. If the net sales receipt is lower than the grant attributable, the provider is expected to meet the shortfall from its own funds, please refer to section 1.2.3 for more information.

2.7.4.7 Leases on grant funded properties

When a lease is granted on a grant-funded property, the secure legal interest in the property has transferred to the lessee. Therefore, this is a relevant event (o) disposal that triggers recovery. If the lessee is a Registered Provider, it is possible to treat the leasing of the property as a change of ownership. Please refer to 2.7.4.15.

Where grant has been vested in a property that is subject to a lease, (other than under a temporary social housing product) and a relevant event has occurred, the full amount of grant vested is usually due for recovery, however to confirm please contact grant_notifications@homesengland.gov.uk

Social housing provided through Lease and Repair Empty Homes, and the historical products Temporary Social Housing, Temporary Market Rent Housing, Short Life and HAMA PLUS, enabled certain properties to provide a limited life for social housing use. Registered Providers would have a legal interest in the property by means of a short lease.

2.7.4.9 Where the Registered Provider’s (short-term) legal interest in the property has run its course grant is deemed to have achieved its social policy aim and is no longer recoverable.

2.7.4.10 Where a lease is sold before it expires then grant is recoverable. Where five complete years of life are not achieved from the date of the lease, grant is recoverable in full. If more than five years life has been achieved, the amount of grant recoverable will be reduced pro-rata for the proportion of the life, in completed months, which has been achieved.

2.7.4.11 Please see section 2.7.1.5.4 for an example on how to calculate the grant recoverable on properties funded through one of these temporary lease products.

2.7.4.12 Change of ownership

The sale or transfers of grant-funded property between any class of Registered Provider is a relevant event for grant recovery purposes. However, with Homes England’s consent, a Registered Provider can request that the grant liability and any conditions pass to the recipient Registered Provider as if they had originally received the grant themselves.

2.7.4.13 Should Homes England provide its consent; a recovery event is not triggered. Grant becomes recoverable from the recipient Registered Provider following any future relevant event (see the Registered Provider Recovery Determination paragraph 28). If we do not provide our consent, then relevant event (o) is triggered and grant becomes due for repayment.

2.7.4.14 Where the transfer of grant-funded properties takes place, both the exporting and receiving Registered Providers are required to keep adequate records of grant transferred to and from each other.

2.7.4.15 Where transfer takes place from a not for profit to a for profit Registered Provider, an open market valuation will be required from a RICS qualified surveyor. The value of the transferred asset will be the base point for calculation of any uplift due to Homes England upon a future relevant event, where the market value of the property or properties concerned has increased.

Read more information on how to calculate uplift upon relevant events.

2.7.4.16 In order to apply for Homes England’s consent to transfer grant, please submit a registered provider transfer form (RPTF) to grant_notifications@homesengland.gov.uk. Homes England will consider your request and issue an approval letter which confirms the grant liability that has passed between Registered Providers.

2.7.4.17 Right to Buy

Certain housing association tenants, usually those of Large-Scale Voluntary Transfer housing associations, with secure tenancies have the Right to Buy under the Housing Act 1985 Right to Buy provisions.

2.7.4.18 Registered providers may deduct the following eligible deductions from the gross sale receipt to arrive at the net sales receipt:

the deemed loan debt
reasonable valuation expenses
reasonable legal expenses relating to the disposal
the Right to Buy sales allowance
any previous abortive Right to Buy sales expenses

Please note that although Registered Providers may deduct the above fees from the gross sales receipt to calculate the net sales receipt, these fees are not deductible from the grant liability vested in the asset or the property.

2.7.4.19 Abortive Sales

The cost of preparing Right to Buy notices is covered by the Right to Buy sales administration allowance. However, Homes England may, upon request, also consider cases where an application is withdrawn before an offer notice has been served but after a considerable amount of work has been done. Supporting documentary evidence similar to that needed for completed sales will be required. Neither the Right to Buy sales allowance nor actual administrative expenses can be claimed in respect of abortive sales.

2.7.4.20 Reasonable expenses

Section 4 of the Housing and Planning Act 1986, which took effect on 7 January 1987, requires providers to notify prospective Right to Buy purchasers of any known structural defects. It also requires the provider to include in the offer notice binding estimates of service charges for repairs and improvements to be carried out during the initial period of the lease (currently five years). For example, service charges cannot be increased above the estimate except to take account of prescribed inflationary allowances. Therefore, in certain circumstances, Registered Providers may incur expenditure which cannot be recouped from the Right to Buy purchaser via the service charge.

Deficits incurred on service charge

Grant recovery arrangements allow Registered Providers to deduct as an admissible expense a one-off insurance premium against the possibility of hitherto unknown structural defects arising in the ten-year period immediately following the Right to Buy sale, together with the cost of the associated survey.

Therefore, Providers already have the means of insuring themselves against the possibility of paying for structural work which was not foreseen at the time of a Right to Buy sale of a flat and for a longer period than that entailed by the binding estimates requirement of the 1986 Act. Also, the survey associated with the structural insurance together with the valuation survey should go some way towards defining what structural defects will need remedial work within the initial period (currently five years) and assist in providing a basis for estimating the associated costs.

There remains the possibility that estimated work turns out to cost more than originally anticipated. Under normal circumstances, such cases should be rare. If the increased costs arise because, for example, the opening of a particular element reveals a hitherto unknown defect, they should normally be covered by the structural defects insurance. The 1986 Act provides for estimates to be uprated to take account of cost increases limited to inflation, so deficits should arise only in respect of inaccurate estimating of works included in the service charges or where the inflation upgrading does not fully meet the actual increases in costs.

Where deficits on repairs do arise they should be offset against any surpluses arising on Right to Buy sales in the same accounting period in which the deficit was incurred.

In cases where there are no Right to Buy surpluses or insufficient surpluses, grant will be paid on any remaining deficit arising on repairs (not improvements) after the association has met the first £250 per unit and 10% of the remainder up to a combined limit of £500 per unit. This payment can be made on a year-by-year basis for the initial period only.

Grant will only be paid where the deficits arise on repairs not on improvements. Applications for grant funding of any such deficits incurred on Right to Buy service charges must be made to Homes England via  grant_notifications@homesengland.gov.uk, within six months of the end of the accounting period in which the deficit was incurred.

Grant will be payable on a per unit basis. Where more than one unit is involved, each unit will be dealt with separately.

Survey costs

In view of the need to provide binding estimates for the first five years, providers will need to consider the necessity for detailed structural surveys to assess their service charge estimates. Although survey costs are an admissible expense for the purposes of grant recovery, the Department of the Environment wish to ensure that such costs are reasonably incurred given the circumstances of a case.

Given the limitations on a provider’s liability to fund any deficits incurred and, given the possibility that some protection should normally be available by way of insurance cover, the Department of the Environment will only admit those survey costs which may be regarded as reasonable under certain circumstances. In addition, providers would be expected to have a reasonable knowledge of the state of their properties at any given time.

Survey costs remain an eligible cost for the purposes of Right to Buy sales and the proposal to assess the reasonableness of such costs relates to the need for a full structural survey and the frequency with which such a survey needs to be updated. There will be circumstances in which a provider already had adequate knowledge of the state of a property either because of an earlier Right to Buy sale or other reason.

2.7.4.21 For an abortive Right to Buy sale, a copy of the completion notice or a signed statement by the tenant that they do not intend to proceed with the sale should be attached to the written calculation of recoverable grant as supporting evidence.

2.7.4.22 If the net sales receipt is insufficient to recover grant, please refer to section 1.2.3.

2.7.4.23 Right to Buy disposals on properties funded with Section 27a grant

2.7.4.23.1 Local authority and Arms Length Management Organisation properties which received grant from Homes England (or one of its predecessor organisations) between 2008 and 2018 may be applicable for the Right to Buy. However, due to the nature of the grant funding and the agreements made at the time, a restriction will need to be released on the property through Homes England’s Property Consents and Historical Grants Teams.

2.7.4.23.2 For the restriction to be released, you will need to apply via Homes England’s property consents portal with the documentation they require on the application. Property consents will not release the restrictions on the property until the Historical Grants Team has assurance on grant recovery. The following will need to be provided to the team via grant_notifications@homesengland.gov.uk:

a historical grant notification form with full details which are referenced in 3.2 of this guide
the Deed of Covenant which outlines the restriction on the property and the calculations to be made to recover grant and the agency’s proportion
a calculation of the grant recoverable based on the deed of covenant
a section 125 Right to Buy offer notice
an independent open market valuation from a RICS qualified valuer
Local Authorities may use their house surveyors in line with usual process for local authority Right to Buy transactions

Please specify that this is a Right to Buy disposal that requires the release of a restriction on your notification email.

2.7.4.23.3 Registered Providers have the choice to either repay the grant to Homes England or sign an undertaking letter to bring the grant in line with Section 19 grant and allow it to be recycled into their RCGF.

2.7.4.23.4 Please note that some Local Authority and ALMO grant agreements made between 2008 and 2018 agreed to vest Section 19 grant but were also not permitted to recycle in these agreements. To recycle, Local Authorities and ALMOs will still need consent via an undertaking letter from Homes England to recycle grant under these agreements.

2.7.4.24 Shared Ownership

Grant recovery for shared ownership arises when:

staircasing occurs and further shares are sold. This includes full staircasing to 100%. Please note that For Profit Registered Providers will need to notify Homes England of all staircasing tranche sales. Non-Profit Registered Providers will only need to notify us of the final tranche sale i.e 100% ownership
a resale occurs at a higher percentage tranche than the selling shared owner owned
a shared ownership property has been repurchased with contributions from a Registered Provider’s Recycled Capital Grant Fund and subsequently sold on Shared Ownership terms. it is subject to the same grant recovery requirements as if the property had been repurchased with new grant. The requirements for calculating recoverable grant following a sale of a repurchased property in a protected area, whether funded with new or recycled grant are found in section 4.4

Registered Providers are asked to note that grant recovery is not applicable for shared ownership where:

the initial sale of the first share in a shared ownership property unless Right to Shared Ownership first tranche sale
the resale of a shared ownership property at the same tranche percentage as the original shared owner owned

2.7.4.25 Shared Ownership: staircasing sales

The following paragraphs refer to homes acquired or developed for sale on Shared Ownership terms through one of Homes England’s current or historical programmes. For Shared Ownership homes delivered through the AHP 2021 to 2026 the new model for shared ownership sees the minimum general staircasing transaction reduce from 10% to 5%. It also introduces the option for shared owners to staircase in 1% increments per year for the first 15 years. For more information please refer to MHCLG’s (now DLUHC’s) technical consultation response on the new Shared Ownership model. The principles of grant recovery detailed below apply equally to all staircasing transactions including 1% transactions.

2.7.4.26 When further shares (after the initial share) are purchased (staircasing), these are relevant events for recovery. Not-for-profit Registered Providers are not required to notify Homes England for each staircasing event. Records of the calculations must be retained by the provider. Homes England reserve the right to request copies of the calculations. Please note, Registered Providers are still required to record all tranche sales which incur grant recycling in their annual RCGF return.

2.7.4.27 For-profit Registered Providers must notify Homes England of each staircasing tranche after the initial sale. They must also attribute uplift and provide supporting calculations on each staircasing transaction as per 2.4.

2.7.4.28 When a 100% staircasing event occurs, both non-profit and for-profit registered providers must notify Homes England and include a schedule of all previous staircasing transactions and their calculation of grant to be recovered. This must be attached to the notification form.

2.7.4.29 The gross sale receipt of the share purchased must not be below the applicable percentage of a valid valuation by an independent RICS qualified valuer and as detailed in the Shared Ownership lease. Note that where a 1% staircasing transaction is being undertaken on homes funded through the AHP 2021 to 2026, then there is no requirement to obtain a RICS valuation as the valuation is derived using the Land Registry’s House Price Index.

Please see below an example of a 10% staircasing transaction:

Current property value: £200,000
Share to be purchased: 10%
Value of share: £20,000

2.7.4.30 How to calculate grant recovery on staircasing sales:

Grant attributable to the property: £40,000
Initial share sold: 40%
Grant of £40,000: attributed to provider’s 60% shares
Additional share to be purchased: 10% (= 17% of the original remaining 60% share)
Recoverable grant: 17% of £40,000 grant in property (= £6,667)
Staircasing sales admin allowance: £449
Recoverable grant less the admin allowance: £6,218

If the net sale receipt is insufficient to enable the full recovery of the attributable grant, then recovery of the shortfall must be deferred until the next sale of further shares (staircasing). Written calculations supported by documentary evidence of the figures used in relation to the deferment must be retained by the Registered Providers. Please note on the final staircasing sale, Homes England requires the full grant attributable to be recovered, unless a business case is submitted as per section 1.2.3.

2.7.4.31 There may still be a balance leftover in the net sale receipt after recovering the grant attributable to the share being purchased. If there is a leftover balance, Registered Providers must initially use this balance to repay any previously deferred recoverable grant in this or other property within the same scheme.

2.7.4.32 Sales on Shared Ownership terms of property included in an Estates Renewal Challenge Fund Programme will be subject to grant recovery, except when such sales without recovery were agreed as part of the Estates Renewal Challenge Fund delivery plan.

2.7.4.33 Shared Ownership: voluntary sale of rented property

Registered Providers should note that this section covers voluntary sales on a property on a Shared Ownership basis with no discount. It should not be confused with Social HomeBuy, which is the voluntary sale of property outright or on a Shared Ownership basis with a discount funded by Homes England.

2.7.4.34 The gross sale receipt of the share being sold must not be below a valid valuation by an independent RICS qualified valuer.

No administrative allowance may be deducted.

2.7.4.35 If the net sale receipt is insufficient to enable the full recovery of the attributable grant, then recovery of the shortfall must be deferred until the next sale of further shares (staircasing). Written calculations supported by documentary evidence of the figures used in relation to the deferment must be retained by the Registered Providers. Please note on the final staircasing sale, Homes England requires the full grant attributable to be recovered, unless a business case is submitted as per section 1.2.3.

2.7.4.36 Shared ownership: Repossessions

For an overview of repossessions, see the Shared Ownership chapter, section 7.4.6: Mortgage default.

Repossession occurs where the leaseholder’s mortgage company takes possession of the property, and then does one of three things:

sells the lease to another purchaser
staircases to a higher percentage (but not to 100% ownership) and sells the lease to another purchaser
staircases to 100% and then sells the property on the open market

The mortgage company then uses the sale receipt to pay themselves the loan outstanding from the defaulting leaseholder and (in the second and third scenarios) will pay a sum to the Registered Provider as the staircasing premium. If there is any money left over after the loan has been paid off and the Registered Provider has been paid, the mortgage company passes it to the leaseholder.

Therefore, from the Registered Provider’s perspective, repossessions involving staircasing are theoretically the same as any other tranche sale where the Registered Provider receives a capital receipt. However, the Mortgagee Protection Clause means that the gross sale receipt that the Registered Provider receives from the mortgage company is not necessarily the value of the property multiplied by the Registered Provider’s equity share. Where this is the case it is not a requirement that Registered Providers must first seek Homes England’s consent to waive the recovery of grant.

The Mortgagee Protection Clause in the Shared Ownership lease allows the leaseholder’s mortgage lender to staircase at a lower price than that normally required. The amount to be paid for the outstanding share is the actual sale price of the property (not the equity percentage of a property valuation) less those sums due to the mortgage company, i.e. the sum of the mortgage company’s reasonable and proper expenses incurred in:

exercising the right to purchase a new lease or the freehold
exercising its powers of sale
the amount of principal due under the mortgage approved under Clause 34(15) (or equivalent) of the Lease
up to 18 months unpaid interest;
advances to the Registered Provider to cover any sums such as rent and service charges due under the lease.
reasonable legal fees
reasonable estate agent’s fees
reasonable valuation fees
other costs incurred in connection with the protection of the security or sale of the property

2.7.4.37 Policy in respect of defaulting shared owners is contained in the joint Shared Ownership guidance.

2.7.4.38 The approach to calculating recoverable grant, including deferment and potential waiving of grant recovery is the same as for any other Shared Ownership staircasing. However:

Registered Providers may accept (for recovery purposes) the valuation by the mortgage company’s valuer instead of one by an independent RICS qualified valuer
the gross sale receipt is the money received from the mortgage company, as stated in the mortgage company’s statement of account

2.7.4.39 Registered Providers may deduct the following eligible deductions from the gross sale receipt:

deemed loan debt attributable to the percentage sold
staircasing allowance

2.7.4.40 Any shortfall on staircasing receipts remains a debt due to the Registered Provider by the defaulting leaseholder.

2.7.4.41 Where the leaseholder’s mortgage company has used the Mortgagee Protection Clause in the Shared Ownership lease, and the Registered Provider has suffered a shortfall on staircasing receipts, recoverable grant may be waived by the Registered Provider or deferred (without prior consent of Homes England) if the Registered Provider confirms in supporting documentation that they:

will provide a written calculation of the recoverable grant
are in the process of obtaining legal advice or have already obtained legal advice on prospect of recovering the money due from the leaseholder
will take all necessary steps to recover the money due
undertake to credit all money received, less reasonable costs incurred, to the Recycled Capital Grant Fund, or pay the money to Homes England, if applicable, within 14 days of receipt

2.7.4.42 In deciding what action is reasonable to pursue the debt Registered Providers should obtain written legal advice. A copy of the solicitor’s advice must be kept with the written calculation of recoverable grant for audit purposes.

2.7.4.43 If Registered Providers act as advised by their solicitor, and no receipts are generated, any expenses or abortive costs will not be allowed as eligible deductions unless the surpluses from Shared Ownership staircasing sales completed in the previous twelve months are insufficient to cover the costs. Where Registered Providers incur such a loss, they can deduct the costs incurred from a future grant recovery on a Shared Ownership sale or staircasing in that scheme.

2.7.4.44 If the amount for which the defaulting leaseholder is liable under the Mortgagee Protection Clause would have left the Registered Provider with a surplus after full grant recovery, then it is a matter for the Registered Provider to decide whether to seek to recover this amount when taking action to recover other monies due.

2.7.4.45 Where grant recovery is to be reduced or deferred, the supporting documentation should include:

an appropriate certification signed by the Registered Provider authorised signatory together
a copy of the completion statement provided by the leaseholder’s mortgage company
a copy of the mortgage company’s explanation if the sale price is lower than the valuer’s valuation

When a co-ownership (equity sharing) society sells a property to one of its members, the society should calculate the grant attributable to the property pro rata, based on the capital amounts of the purchasing members.

2.7.4.47 Homes England does not permit deferral or waiving of grant by the Registered Provider of the recoverable grant in this scenario. In other words, the amount of grant recoverable is not reduced if the sales receipt is less than the grant recoverable. There are no eligible deductions for this product.

2.7.4.48 Where a case is handled solely by the co-ownership society, the recoverable grant must be repaid to Homes England.

2.7.4.49 Where a case is handled through a Registered Provider that Registered Provider should credit its own Recycled Capital Grant Fund with the recoverable grant.

2.7.4.50 Right to Shared Ownership

2.7.4.51 The Right to Shared Ownership is only applicable to new Affordable Rent or Social Rent homes funded and delivered as part of the Affordable Homes Programme (AHP) 2021 to 2026. For more information on the Right to Shared Ownership, including exemptions, please refer to DLUHC’s Right to Shared Ownership: initial guidance for registered providers.

2.7.4.52 Where homes are sold on a Right to Shared Ownership basis the initial sale represents a grant recovery event. This grant recovery is based on the initial equity share purchased in relation to the grant apportioned to the rented home. Any future staircasing transactions will follow the same Shared Ownership principles for staircasing. Providers must keep accurate records of staircasing transactions including amounts of grant recovered at each tranche sale.

Example:

A provider receives £50,000 grant for an Affordable Rent home. The tenant has exercised their Right to Shared Ownership (RtSO) previously purchasing an initial 10% share. They now wish to staircase a further 20%.

Grant claimed for the rented home (a): £50,000
Initial RtSO share purchased (b): 10%
Grant recovered at initial RtSO sale (c = a * b): £5,000
Grant remaining after initial RtSO sale (d = a – c): £45,000 (for the provider’s 90% share)
Additional share to be purchased: 20%
Grant to be recovered at additional tranche sale: £10,000 (20% of £50,000)

2.7.4.53 Registered Providers may deduct the following eligible deductions from the gross sale receipt to calculate the net sales receipt (please refer to outright sale gross sale receipt calculations in 2.7.4.3).

2.7.4.54 No administrative allowance may be deducted.

2.7.4.55 If the net sales receipt is insufficient to enable the recovery of grant attributed to the share being sold, Registered Providers should recover grant in part and the shortfall should then be recovered when the sale of a further share of that dwelling, or the sale of shares of any other property within the same scheme occurs.

2.7.4.56 Grant on individual properties where the Right to Shared Ownership is exercised should be apportioned as set out in the guidance in section 4 of this chapter.

2.7.4.57 Homes England will recover uplift on any initial Right to Shared Ownership sale from For Profit Registered Providers. This is in addition to the amount of grant directly related to the initial share purchased by the applicant. The uplift applicable must be based on the existing principles for Affordable Rent sales adjusted accordingly for the initial share purchased. Read guidance on determining the uplift amount in grant recovery calculations. Please note on the final staircasing sale, Homes England requires the full grant attributable to be recovered, unless a business case is submitted as per section 1.2.3.

2.7.5 Relevant event (p): a disposal of property or land funded by capital grant that would give rise to a repayment of discount under section 155 of the Housing Act 1985

2.7.5.1 This is an historical relevant event, relating to the repayment of discounts repayable in a particular timeframe, which has now passed. It is not anticipated that this situation will arise in the future.

2.7.6 Relevant event (q): a disposal of property or land funded by capital grant that would give rise to a repayment of discount under sections 11 and 12 of the Housing Act 1996

2.7.6.1 This is an historical relevant event, relating to the repayment of discounts repayable in a particular timeframe, which has now passed. It is not anticipated that this situation will arise in the future.

2.7.7 Relevant event (r): a disposal of property or land funded by capital grant that would give rise to the repayment of a payment made to a tenant as an incentive to vacate a dwelling owned by a Registered Provider under the terms of the mortgage deed requiring repayment of the original payment

2.7.7.1 This relevant event relates to Tenant Incentive Schemes. These schemes had a requirement that discounts received by tenants would need to be repaid if the property was disposed of within three years of purchase. Given the length of time that has now elapsed since discounts under Tenant Incentive Schemes were available as the scheme was withdrawn circa 1999, Homes England does not envisage any recovery issues arising in the future.

2.7.8 Relevant event (s): the redemption, or a disposal of property or land funded by capital grant giving rise to the redemption, of an equity percentage loan secured by an equity mortgage

An owner redeeming all or part of an equity loan, either voluntarily or when obliged to do so upon selling their property, is a relevant event. Please refer to the below sections on specific products and grant recovery.

2.7.8.2 Equity loans paid by Registered Providers or HomeBuy Agents under HomeBuy (i.e. products existing before the 2006 to 2008 National Affordable Housing Programme), Expanded Open Market HomeBuy (EOMHB) or Government Loan Only (GLO).

For further details on equity loan redemptions, including how to calculate the repayment amount please see below.

Equity loan redemption worked examples

Redemption of a pre 2006 to 2008 National Affordable Housing Programme HomeBuy Equity Loan – Rising Market

Value of property at original sale = £180,000
Percentage of value covered by equity loan = 25%
Amount of grant = £45,000
Value of property at redemption = £250,000
Value of percentage covered by equity loan = £62,500 (25% of £250,000)
Amount of grant to be recovered = £45,000

Redemption of a pre 2006 to 2008 National Affordable Housing Programme, HomeBuy Equity Loan – Falling Market

Value of property at original sale = £180,000
Percentage of value covered by equity loan = 25%
Amount of grant = £45,000
Value of property at redemption = £150,000
Value of percentage covered by equity loan = £37,500 (25% of £150,000)
Amount of grant to be recovered = £37,500
Remaining grant written off

Redemption of an EOMHB Equity Loan – Rising Market

Value of property at original sale = £180,000
Percentage of value covered by grant funded equity loan = 12.5%
Amount of grant = £22,500
Value of property at redemption = £250,000
Value of percentage covered by grant funded equity loan = £31,250 (12.5% of £250,000)
Amount of grant to be recovered = £22,500

Redemption of an EOMHB Equity Loan – Falling Market

Value of property at original sale = £180,000
Percentage of value covered by grant funded equity loan = 12.5%
Amount of grant = £22,500
Value of property at redemption = £150,000
Value of percentage covered by grant funded equity loan = £18,750 (12.5% of £150,000)
Amount of grant to be recovered = £18,750
Remaining grant written off

Redemption of a GLO Equity Loan – Rising Market

Value of property at original sale = £180,000
Percentage of value covered by equity loan = 17.5%
Amount of grant = £31,500
Value of property at redemption = £250,000
Value of percentage covered by equity loan = £43,750 (17.5% of £250,000)
Amount of grant to be recovered = £31,500

Redemption of a GLO Equity Loan – Falling Market

Value of property at original sale = £180,000
Percentage of value covered by equity loan = 17.5%
Amount of grant = £31,500
Value of property at redemption = £150,000
Value of percentage covered by equity loan = £26,250 (17.5% of £150,000)
Amount of grant to be recovered = £26,250
Remaining grant written off

2.7.8.3 The recoverable grant is the lower of:

the grant attributable to the property (including any grant paid to cover the scheme on costs), or
(where property values have fallen) the amount attributable to the percentage of the open market value for which the equity loan accounts. If the funds redeemed after the first charge lender has recovered the outstanding mortgage monies are insufficient to cover the required amount, the shortfall will be written off by the Registered Provider

2.7.8.4 If the loan is being redeemed voluntarily (or in other circumstances not involving the sale of the property, such as redemption of the main mortgage with no replacement senior lender), administrative costs associated with the redemption are not eligible deductions from the gross sales receipt. This is because there are no costs of sale, as there is no sale, only the redemption of the loan.

2.7.8.5 Equity loans paid by equity loan providers under Open Market HomeBuy products from 1st April 2008 (other than under transitional arrangements in place up to 30 September 2008).

2.7.8.6 On receipt of the homeowner’s equity loan repayment the equity loan provider will be required to process that receipt in accordance with the terms agreed with Homes England and the relevant clauses in their equity loan agreement.

2.7.8.7 Equity loans paid under the Mortgage Rescue Scheme (Shared Equity product)

2.7.8.7.1 The Mortgage Rescue scheme is now closed, and the following requirements apply to equity loan redemptions for property funded under this programme. An owner redeeming all or part of a Mortgage Rescue equity loan, either voluntarily or when obliged to do so under the terms of their equity loan agreement, is a relevant event.

2.7.8.8 On receipt of the equity loan redemption payment, the Registered Provider will be required to ring fence 73% of this amount and either repay this to Homes England or place it in its Recycled Capital Grant Fund. The remaining 27% is to be retained by the provider.

2.7.8.9 Equity loans paid through FirstBuy/HomeBuy Direct/Help to Buy: Equity Loan

2.7.8.9.1 For these products, grant was paid directly to the homeowner in the form of a loan and the equity loans are now repaid directly to the Mortgage Administrator. The homeowner’s solicitor then repays 50% of the amount redeemed to the developing loan provider and 50% to Homes England. The whole process is administered through a contract, with the grant being sent to the developer and Homes England via the homeowner’s solicitor on the day of completion, the process for which is managed by the Mortgage Administrator. Therefore, there is no option to recycle recovered grant in respect of FirstBuy/HomeBuy Direct/Help to Buy: Equity Loan.

2.7.9 Relevant event (t): the sale of a Dwelling under the Voluntary Right to Buy or the Right to Acquire

2.7.9.1 The disposal of a property funded by grant under the Voluntary Right to Buy or the Right to Acquire is a relevant event for the recovery of grant.

2.7.9.2 Registered Providers should refer to the Department for Levelling Up, Communities and Housing and National Housing Federation’s policy guidance for advice on how to recover the proceeds of Voluntary Right to Buy net of capital grant.

2.7.9.3 Registered Providers should note that the net proceeds of sale from the Right to Acquire are not recoverable and it is only the capital grant attributable that is to be recovered. The net proceeds can be reinvested in line with the provider’s objectives and purposes. See sections 6.1.3 and 6.4 for more details.

2.7.9.4 Right to Acquire properties funded with Section 27a grant

2.7.9.4.1 Local authority and Arms Length Management Organisation properties which received grant from Homes England (or one of its predecessor organisations) between 2008 and 2015 may be applicable for the Right to Acquire. However, due to the nature of the grant funding and the agreements made at the time, a restriction will need to be released on the property through Homes England’s Property Consents and Historical Grants Teams.

2.7.9.4.2 For the restriction to be released, you will need to apply via Homes England’s property consents portal with the documentation they require on the application. Property consents will not release the restrictions on the property until Historical Grants have assurance on grant recovery. The following will need to be provided to the historical grants team via grant_notifications@homes.england.gov.uk.

a historical grant notification form with full details which are referenced in 3.2 of this guide.
the Deed of Covenant which outlines the restriction on the property and the calculations to be made to recover grant and the agency’s proportion.
a calculation of the grant recoverable based on the deed of covenant.
an independent OMV from a RICS qualified chartered surveyor.
Local Authorities may use their house surveyors in line with usual process for local authority Right to Buy transactions.

Please specify on your notification email that this is a Right to Acquire disposal that requires the release of a restriction.

2.7.9.4.3 The provider will have the choice to either repay the grant to Homes England or sign an undertaking letter to bring the grant in line with Section 19 grant and allow it to be recycled into their RCGF.

2.7.9.4.4 Please note that some local authority and ALMO grant agreements made between 2008 and 2018 agreed to vest Section 19 grant but were also not permitted to recycle in these agreements. To recycle, local authorities and ALMOs will still need consent via an undertaking letter from Homes England to recycle grant under these agreements.

3. Notifications

3.1 Relevant event notification procedure

3.1.1 Through provisions made in the Registered Provider Recovery Determination 2017, Homes England requires that Registered Providers notify them upon the occurrence of a relevant event.

3.1.2 Providers must follow the below timescales to notify Homes England of a relevant event:

relevant events (a) to (f) – providers must notify Homes England no more than 14 days after the date which the relevant event occurred. These are relevant events relating to breaches of contract during the delivery of homes
relevant events (g) to (t) – providers must notify Homes England in advance of the relevant event occurring. This should be no less than 14 days in advance of the anticipated occurrence of the relevant event. These events occur post-completion
for relevant event (m) – please refer to 2.7.2 for further information on timescales of notifications

Any deviation to the above timescales must be agreed in advance with Homes England.

3.1.3 Registered Providers must notify Homes England of a relevant event using the historical grant notification form. Find further information about the form and guidance on completing the form.

3.1.4 Registered Providers are required to keep a written record of grant recovery calculations for audit purposes. Supporting documentation must be kept together with the written record of the calculation. The written record of the calculation must also be included on the Homes England notification form when there is a relevant event for notification.

3.2 What details to include on the notification form

Providers must include full and accurate details relating to the grant-funding of the property or land on the historical grant notification form. This includes:

Registered Provider details. This should include the Registered Provider’s provider code.
property Address and type of property (i.e supported housing)
year the property was grant funded
funding programme or product the property was funded by
IMS scheme number (if grant funded after 1997)
project number (if grant funded in or before 1997)
the relevant event
total grant liability in the property
information about the original provider that received grant funding for the property if not the current owner. This should include when the properties transferred to the current provider, and the original provider’s name and provider code
grant liability minus eligible deductions as per section 2.3.3
grant to be written off (if applicable following a business case – refer to section 1.2.3)
how grant has been apportioned across units on the scheme such as floor area or equal allocation. Where grant has not been equally apportioned, providers should provide a detailed list of grant apportionment across units

3.3 Constitutional Change Notifications

3.3.1 Homes England requires Registered Providers to notify us when they have a legal interest in any grant funded properties or land and are intending to make changes to their organisational structure. This may affect the legal ownership of the homes and therefore affect the legal route to future grant recovery. For example, where they are becoming or ceasing to be a subsidiary or associate of another body, where they are amalgamating, transferring their engagements, merging or de-merging or where there is a change in ownership, company structure or management.

3.3.2 Registered Providers must notify Homes England of changes to organisational structure using the notification of constitutional change form. Find further information about the form and guidance on completing the form.

3.4 Shared Ownership staircasing notifications

3.4.1 Non-profit Registered Providers only need to notify Homes England of staircasing transactions when the property has been staircased to 100% (I.e. fully disposed of). This is classed as relevant event (o) disposal and the notification process above must be followed. A full schedule of calculations for previous staircasing events must be supplied with the Grant Notification form, demonstrating that all of the original grant (minus any administration allowance deductions) has been recovered.

3.4.2 Shared Ownership staircasing transactions below 100% tranche sales are relevant events for the purpose of grant recovery. However, they are exempt from the notification process outlined in this section. Non-Profit Registered Providers must keep a written record of their grant recovery calculations as set out in section 3 but are not required to separately notify Homes England.

3.4.3 For-Profit Registered Providers (FPRPs) will need to notify Homes England of all staircasing transactions. FPRPs will also need to add uplift to the grant recoverable in these staircasing transactions. FPRPs will need to provide uplift calculations, as detailed in section 2.4, for every notification for staircasing transactions on a property. FPRPs will need to provide open market valuations from an independent RICS qualified chartered surveyor for every staircasing transaction. For details on how to calculate uplift following a relevant event please refer to the uplift calculator.

3.5 Interest chargeable on delayed notification or repayment

3.5.1 Where Registered Providers are required to notify Homes England of a relevant event and that notification is not received by the appropriate deadline set out in paragraph 3.1.2, Homes England will add interest to the amount of capital grant to be recovered.

3.5.2 Homes England requires For Profit Registered Providers to add uplift to grant recovery as defined in 2.4 in all circumstances. If the notification is delayed, Homes England will also require the addition of interest to this grant amount. Where such an event occurs, repayment will be in accordance with the uplift principles and methodology defined in section 2.4. For any questions regarding the rate of interest or the interest calculation, Registered Providers should contact Homes England via grant_notifications@homesengland.gov.uk.

3.5.3 For the purposes of charging interest following delayed notification, the date of the relevant event will be determined by Homes England, based on paragraph (7) of the Registered Provider Recovery Determination. This will be the date the relevant event occurred.

3.5.4 Interest will not be charged if Homes England has been informed in writing of a likely delay and has agreed in writing that the circumstances do not justify the charging of interest for a particular period.

3.5.5 Homes England will charge additional interest if the invoice for repayment of grant, or interest due to late notification, is not paid within the timescales specified in the invoice. Registered Providers should contact Homes England via grant_notifications@homesengland.gov.uk, who will be able to advise on the rate of interest that will apply and the interest that will accrue daily.

4. Grant liability

4.1.1 This section sets out the requirements for apportioning grant to properties on a scheme. Grant should be apportioned to properties on the same scheme at Practical Completion, and it is expected that this grant apportionment methodology stays consistent. Providers must not recycle or repay grant on different properties in the same schemes with different apportionment methods.

4.1.2 The following principles of apportioning grant where a relevant event has occurred within schemes applies regardless of the programme under which funding has been given.

4.2 Apportionment of grant: Rented properties

For examples of how Homes England accepts grant to be apportioned on rented properties please see below.

Acceptable methods of grant apportionment to rented properties are:

equal division
floor area

4.2.2 The total amount of grant paid in respect of a scheme and to be apportioned must include:

funding (including new and recycled grant received on the initial development)
grant paid to clear any loan on a scheme originally approved under section 41 of the Housing Associations Act 1985, and the works funded under later legislation.
grant paid for re-improvement, Major Repairs, and Minor Miscellaneous Works
grant paid on any previous scheme on the site, which has been demolished whose recovery has been deferred (i.e., previous grant less any grant already recovered)

4.3 Apportionment of grant: Shared Ownership properties

4.3.1 For Shared Ownership schemes approved on or after 1 April 1993, grant can be apportioned in the following ways:

equal division
floor area

4.3.2 For Shared Ownership schemes approved before 1 April 1993, the grant apportionment calculations consider the percentage of equity initially sold if calculating grant apportionment by Market Value.

4.4 Initial sales of existing rented stock to Shared Ownership

4.4.1 A dwelling forming part of a Registered Provider’s existing rented stock may be sold voluntarily on Shared Ownership terms. The grant attributable to the initial share sold will be all the grant that is attributable to the dwelling.

4.5 Older Person’s Shared Ownership (OPSO). Rural Restricted Equity/Rural Buyback and Rural Repurchase

4.5.1 In all cases, Registered Providers must refer to the procedures under which these schemes were developed for the special features relating to sale and grant recovery. The special features are summarised below.

Older Person’s Shared Ownership staircasing sales example:

25% of a dwelling was initially purchased, with grant attributable to the remaining 75% of the dwelling of £45,000.

The shared owner then buys the maximum shares allowed which is a further 50% share of the dwelling.

The grant attributable to that staircasing is two thirds of £45,000 = £30,000.

The balance of £15,000 grant remains in the property in perpetuity or until the unit ceases to be an OPSO unit.

4.5.2 For Older Person’s Shared Ownership schemes where the units were sold outright at a discounted sale price, the grant-funded discount is not recoverable.

4.5.3 Leasehold Schemes for the Elderly (LSE) – For information on grant recovery for units funded by historical LSE scheme, please contact the Historical Grants Team.

4.5.4 For Rural Restricted Equity and some Protected Area properties, a cap is placed on the proportion of equity that the shared owner can purchase, e.g. restricting the shared owner to 80% ownership. Unlike the LSE provisions described above, all capital grant paid on the property is recoverable, if possible, from the proceeds of that restricted staircasing.

For an example, please see below.

Rural Restricted Equity and some Designated Protected Area property staircasing sales

25% of a dwelling was initially purchased and the grant attributable to the unsold equity was £21,000.

With a cap of 80% sales, that leaves 55% of the equity available to be purchased in the future (80% - 25%)

If the shared owner buys a further 40% of the dwelling, the grant attributable to that staircasing is 40/55 x £21,000 = £15,273.

If the net sale receipt is £19,800 then £15,273 of grant would be recovered, with the balance of £4,527 accruing to the Registered Provider.

If the net sale receipt is £9,200 then £9,200 of grant will be recovered with the balance of £6,073 (£15,273 – £9,200) of the recoverable grant being deferred until the next staircasing sale.

The grant attributable to the final staircasing to 80% ownership would be (£21,000 – £15,273) £5,727 plus the deferred £6,073 = £11,800. If the net sale receipt of that staircasing purchase were only £11,000 then £800 would be written off by the Registered Provider.

4.5.5 For Rural Repurchase/Designated Protected Area Repurchase schemes, grant recovery is calculated on a unit basis rather than a scheme basis i.e. a shortfall on one dwelling in the scheme is not rolled forward to other dwellings in the scheme.

4.5.6 When the final staircasing of such a Rural or Designated Protected Area property takes place, Registered Providers may immediately write off any shortfall of recoverable grant; shortfalls are not deferred to the next staircasing sale within that scheme. There is no requirement to consult with Homes England before taking action to write off grant under these circumstances.

4.5.7 However, when considering how to apportion grant between a Rural or Designated Protected Area properties in the scheme, this must be calculated in accordance with market value and not on any other basis.

4.5.8 Upon the resale of a Designated Protected Area repurchased property, grant recovery as per Shared Ownership staircasing rules will apply. However, the first sale of shares in a repurchased property will not be deemed an exempt disposal and grant will become recoverable immediately when the share is sold and a sales receipt is realised. For an explanation, please see below.

The Registered Provider Recovery Determination considers that the sale of the initial share of a property being developed for sale on Shared Ownership terms is deemed an exempt disposal for grant recovery purposes. This is because when bidding for grant for newly developed Shared Ownership property landlords are required to plan and anticipate the percentage and value of the initial share to be sold and then to take the forecast sales receipt into account.

Potentially it is possible that new grant, or a combination of new and recycled grant, may have funded the full or partial repurchase price of Designated Protected Area Repurchase property. In these circumstances Homes England anticipates that the landlord would:

not necessarily have been aware of the leaseholder’s intention to sell and have therefore been unable to forecast and plan the repurchase
be obliged to repurchase the property
be obliged to repurchase the property within the time scale contained in the lease
be unaware of the ‘share’ the next eligible applicant could afford and sustain and therefore unable to forecast the sales receipt of that share

Given the above Homes England accepts that the landlord would not be able to take future sales receipts into account when bidding for new grant to fund the repurchase. As, potentially, Homes England could fund up to 100% of the repurchase price, it’s therefore required that grant become immediately recoverable once the sales receipt becomes available.

4.5.9 The resale of a new or recycled grant-funded Designated Protected Area repurchased property must be at market value. Following the resale of the initial share, recoverable grant should be calculated according to the percentage of the share sold compared to the total new or recycled grant used to fund the repurchase. From the gross sales receipt landlords can deduct eligible deductions as follows to get to the net sales receipt:

Homes England’s staircasing allowance and any deemed loan debt apportioned as appropriate.

Please note the deemed loan debt is not deductible from the grant liability in the property or asset.

The following examples are based on a property with a market value of £250,000 being repurchased in part or in full.

Repurchase funded by new and recycled grant (1)
Share to be repurchased	80%
Value of share to be repurchased	£200,000
Landlord’s own contribution	Nil
New and recycled grant	£200,000
Total new and recycled grant as a percentage of repurchase	100%
First share to be resold	30%
Sales receipt for 30% share sold	£75,000
Less staircasing allowance of £449	£74,551
Recoverable grant	£200,000 x 30% = £60,000
Grant recovered	£60,000
Surplus to be retained by landlord	£14,551

Repurchase funded by new and recycled grant (2) (where the value of the sales receipt does cover the recoverable grant)
Share to be repurchased	100%
Value of share to be repurchased	£250,000
Landlord’s own contribution	Nil
New grant and recycled grant	£250,000
Total grant/recycled grant as a percentage of repurchase	100%
First share to be resold	50%
Sales receipt for 50% share sold	£125,000
Less staircasing allowance of £449	£124,551
Recoverable grant	£250,000 x 50% = £125,000
Grant recovered	£124,551
Grant deferred to future staircasing	£449

Repurchase funded by landlord’s reserves and new grant
Share to be repurchased	80%
Value of share to be repurchased	£200,000
Landlords own contribution	£100,000
New grant	£100,000
Total grant as a percentage of repurchase	50%
First share to be resold	25%
Sales receipt for 25% share sold	£62,500
Less staircasing allowance of £449	£62,051
Recoverable grant	£100,000 x 25% = £25,000
Recovered grant	£25,000
Surplus to be retained by landlord	£37,051

Repurchase funded by a private loan, new and recycled grant (1)
Share to be repurchased	80%
Value of share to be repurchased	£200,000
Landlord’s private loan	£100,000
New and recycled grant	£100,000
Total new and recycled grant as a percentage of repurchase	50%
First share to be resold	25%
Sales receipt for 25% share sold	£62,500
Less deemed loan debt (possibly loan of £100,000 x 25% = £25,000)	£37,500
Less staircasing allowance of £449	£37,051
Recoverable grant	£100,000 x 25% = £25,000
Grant recovered	£25,000
Surplus to be retained by landlord	£12,051

Repurchase funded by a private loan, new and recycled grant (2) (where the initial sales receipt does not cover the recoverable grant)
Share to be repurchased	100%
Value of share to be repurchased	£250,000
Landlords private loan	£150,000
New and recycled grant	£100,000
Total new and recycled grant as a percentage of repurchase	40%
First share to be resold	25%
Sales receipt for 25% share sold	£62,500
Less deemed loan debt (possibly loan of £150,000 x 25% = £37,500)	£25,000
Less staircasing allowance of £449	£24,551
Recoverable grant	£100,000 x 25% = £25,000
Grant recovered	£24,551
Grant deferred to future staircasing	£449

4.5.10 Upon staircasing, the remaining new/recycled grant is recoverable on the same basis and allowing for the same eligible deductions as above.

Following on from the examples above, a year later the leaseholder wishes to purchase a further share. At the time of staircasing the property has a market value of £260,000

Repurchase funded by new and recycled grant (1)
Property value	£260,000
Original new/recycled grant to enable repurchase	£200,000
Additional shares to be purchased	10%
Sales receipt for 10% share purchased	£26,000
Less staircasing allowance of £449	£25,551
Recoverable grant	£200,000 x 10% = £20,000
New and recycled grant to be recovered	£20,000
Surplus retained by landlord	£5,551

Repurchase funded by new and recycled grant (2)
Property value	£260,000
Original new/recycled grant to enable repurchase	£250,000
Additional shares to be purchased	10%
Sales receipt for 10% share purchased	£26,000
Less staircasing allowance of £449	£25,551
Recoverable grant	£250,000 x 10% = £25,000
Additional recoverable grant previously deferred	£449
New/recycled grant to be recovered	£25,449
Surplus retained by landlord	£102

Repurchase funded by landlord’s reserves and new grant (1)
Property value	£260,000
Original new/recycled grant to enable repurchase	£100,000
Additional share to be purchased	10%
Sales receipt for 10% share purchased	£26,000
Less staircasing allowance of £449	£25,551
Recoverable grant	£100,000 x 10% = £10,000
New/recycled grant to be recovered	£10,000
Surplus retained by landlord	£15,551

Repurchase funded by private loan, and new and recycled grant (1)
Property value	£260,000
Original new/recycled grant to enable repurchase	£100,000
Additional share to be purchased	10%
Sales receipt for 10% share purchased	£26,000
Less deemed loan debt (possibly loan x 10% = £10,000)	£16,000
Less staircasing allowance of £449	£15,551
Recoverable grant	£100,000 x 10% £10,000
New/recycled grant to be recovered	£10,000
Surplus retained by landlord	£5,551

Repurchase funded by private loan, and new and recycled grant (2)
Property value	£260,000
Original new/recycled grant to enable repurchase	£100,000
Additional share to be purchased	10%
Sales receipt for 10% share purchased	£26,000
Less deemed loan debt (possibly loan x 10% = £15,000)	£11,000
Less staircasing allowance of £449	£10,551
Recoverable grant	£100,000 x 10% = £10,000
New/recycled grant to be recovered	£10,000
Surplus retained by landlord	£551

4.6 Apportioning grant on land

4.6.1 When a Registered Provider sells the land or buildings that make up an entire scheme no apportionment of grant is necessary. The recoverable grant will be the entirety of the amount of grant given to the scheme. For profit Registered Providers, will also need to add uplift based on the current market value on the point of sale.

4.6.2 However, Registered Providers may sell land that is a part of a grant-funded scheme under the following scenarios:

scenario 1: spare land that is part of a completed development
scenario 2: land swap or sale, using land from a completed development, to enable site assembly undertaken either by the Registered Provider or another body
scenario 3: land and/or part-completed properties sold or swapped prior to completion of the development

It is necessary to apportion grant with a methodology that considers the possibility of the above scenarios.

4.6.3 Spare land – scenario 1:

4.6.3.1 Grant will not be recovered when a Registered Providers dispose of spare land associated with a scheme. Spare land includes:

part of a garden or general landscaping
plots of land for electricity sub-stations or similar utilities
land swaps to regularise boundaries
rights of way, access, or easements

4.6.3.2 Spare land excludes any area of land designated at scheme approval for any future phase or phases. If a Registered Provider is in doubt about whether land should be classed as spare, they should consult the relevant contract manager.

4.6.4 Land swaps and sales (completed developments) – scenario 2:

Where a scheme has been completed, the grant should have already been apportioned between the properties. There will therefore be no grant apportioned to the parts of the scheme that are landscaping, roads etc. The disposal by sale or barter of this land is a relevant event, but there is no attributed grant to be recovered.

4.6.5 Land swaps and sales (partially completed developments or before building work starts) - scenario 3:

4.6.5.1 A Registered Provider may want to dispose of part of the site or some of the partially completed dwellings to another Registered Provider. If the Registered Provider can still deliver the same number of units with the same sizing agreements and comply with all other contractual conditions of their allocation, then all of the grant can be apportioned to the properties, rather than being apportioned between land and properties. Therefore, there will be no grant attributed to land. Although a relevant event will have occurred, there is no grant to be recovered, unless it is disposed to an unregistered body.

4.6.5.2 After disposing of part of the site or some of the partially completed dwellings, a Registered Provider may not be able to deliver the same number of units or fulfil contractual conditions of their allocation. In this situation, Registered Providers must seek confirmation from the relevant contract manager as to whether Homes England is willing to continue to fund the scheme. Homes England may be willing to allow a scheme to proceed at lower level of grant and will consider whether the provider may be able to deliver the balance of units elsewhere.

4.6.5.3 If the grant payable for the new scheme is less than had already been paid for the cancelled scheme, this will fall under relevant event (c). The amount already paid to the provider less the amount payable for the new scheme is recoverable.

4.6.5.4 Where Homes England cannot agree proposed changes to the development, as per the above paragraph, the scheme may be cancelled. This would trigger repayment of all grants paid on the scheme.

5. Recycled Capital Grant Fund (RCGF)

5.1 General

5.1.1 This section sets out how the RCGF must be administered, including how recycled grant should be credited to the fund, and how the fund should be managed. The following arrangements apply to all recycled capital grant generated outside of Greater London and these requirements are applicable to all classes of Registered Provider that operate a RCGF.

5.1.2 Local authority Registered Providers must refer to their contractual agreements which require local authorities to be able to account for and report separately on the operation of their RCGF. Local authorities still must complete RCGF returns on IMS.

5.1.3 Please note that some historic grant agreements with local authorities and ALMOs did not anticipate that local authorities and ALMOs would in future be permitted to operate an RCGF. However, if local authorities or ALMOs would like to recycle grant from properties funded from the following programmes:

2008-2011 National Affordable Housing Programme (NAHP),
2011-2015 Affordable Housing Programme (AHP),
2015-2018 Affordable Housing Programme (AHP);

They must contact the historical grants team via the grant_notifications@homesengland.gov.uk inbox.

5.1.4 The principles for the establishment and use of a RCGF are outlined in paragraph 19 of Homes England’s Registered Provider Recovery Determination 2017.

5.1.5 Recycled grant held in a RCGF may be spent by Registered Providers on priority and permitted uses outlined in section 6.

5.1.6 Upon a relevant event which allows for the option of recycling grant, Registered Providers are required to calculate the amount of recoverable grant to be credited to the fund according to section 3. For each relevant event, Registered Providers must complete a notification form and retain written documentation showing the calculation of the recoverable grant. This amount must be credited to the RCGF with immediate effect from the date of the relevant event.

5.1.7 Each Registered Provider must weigh up any advantage of being able to recycle grant against the cost of setting up and administering a RCGF including the likelihood of the fund balance being spent within 3 years.

5.1.8 When funds are credited to the RCGF, they are considered ‘recycled grant’. Properties funded with ‘recycled grant’ have the same grant notification and recovery requirements as properties funded with new capital grant. RCGF funds in properties are recoverable and must be repaid or recycled through the RCGF upon a relevant event.

5.1.9 The term ‘recycled grant’ also refers to and includes any notional interest credited to the RCGF.

5.1.10 Each year, Registered Providers must calculate and credit notional interest to their RCGF. This notional interest may only be spent on priority or permitted uses outlined in section 6.

5.1.11 Where a property is disposed to tenants under Social HomeBuy or Right to Acquire procedures, Registered Providers must recycle only the attributed grant through their RCGF. The discount does not need to be recycled and credited to the RCGF.

5.1.12 Where RCGF (generated from any Affordable Housing programme source) is contributed towards a scheme allocated under either the Rough Sleeping Accommodation Programme or the Single Homelessness Accommodation Programme, the grant will from that point become restricted to the Agreed Purposes of these programmes and must not be used or recycled for any other purpose, unless otherwise agreed by Homes England/DLUHC. For further details see the Specialist homes chapter, sections headed Rough Sleeping Accommodation Programme (RSAP) and Single Homelessness Accommodation Programme (SHAP).

5.1.12 Disposal Proceeds Fund

The Disposal Proceeds Fund (DPF) was the previous fund that was used to credit the net proceeds of these discounts; however, the DPF has now been withdrawn. There may still be Disposal Proceeds Funds vested in assets also funded by capital or recycled grant. The DPF does not need to be recycled alongside any capital or recycled grant funds.

The net proceeds of the discount can be reinvested by the Registered Provider with their surpluses in line with their objectives and purposes.

5.1.13 Registered Providers should note that where recycled grant amounts are generated outside of Greater London, they must be spent outside Greater London. Recycled grant amounts generated inside Greater London must be spent inside Greater London.

5.2 Circumstances leading to repayment of Recycled Grant

5.2.1 Under certain circumstances, Homes England will require repayment in total or in part of any current balance in the RCGF. These circumstances are when:

a) Homes England discovers that a Registered Provider has provided incorrect information or made an error in the calculation of amount or notional interest in its RCGF.

b.) Homes England discovers that a Registered Provider has not applied all or part of its recycled grant to a priority or permitted use within 3 years

c) Homes England discovers that a Registered Provider has failed to administer its RCGF according to the principles set out in the Registered Provider Recovery Determination 2017 and this guide.

d) Homes England discovers that a Registered Provider has failed to report or supply information on the amounts of grant in its fund according to timetables established by Homes England and detailed in this guide.

e) Homes England discovers that a Registered Provider has applied its recycled grant for purposes other than those set out in the Registered Provider Recovery Determination 2017 and detailed in this guide.

f) Homes England decides that a Registered Provider’s financial circumstances or management position are such that:

grant held in a RCGF is at risk or
the option of placing recovered grant into a fund in the future would put the recycled grant at risk

g) Homes England decides that a Registered Provider is unlikely to be able to apply all or part of its recycled grant to a priority or permitted use within three years

h) The Regulator of Social Housing deregisters a Registered Provider under section 118 or 119 of the Housing and Regeneration Act 2008.

i) The Registered Provider falls under Regulatory supervision and the Regulator decides that retention of recycled grant by the Registered Provider would be inappropriate. The Regulator may change this decision at any time after the Registered Provider ceases to be supervised by the Regulator. Any previous fund balance repaid during the period of supervision will not be returned.

j) Any other relevant provision arising under relevant events 7a – j from the Registered Provider Recovery Determination.

k) A Registered provider fails to administer their RCGF in accordance with the principles of paragraph 19 of the Registered Provider Recovery Determination 2017

5.2.2 For (a) and (b), Homes England will require repayment of the specific sum involved.

5.2.3 For (c) to (i) Homes England will require repayment of all, or part, of the current balance.

5.2.4 In addition, for (c), (d) and (e), any grant from the fund already spent by the Registered Provider using processes or for purposes which do not comply with those set out in the Registered Provider Recovery Determination and this guide will need to be repaid.

5.2.5 Homes England may not allow Registered Providers to operate an RCGF in the future if any of the above circumstances occur. A Registered Provider’s right to recycle grant will be withdrawn and all future relevant events will require repayment.

5.2.6 In all circumstances, notional interest that was credited to the fund will require repayment.

5.2.7 Where repayment of monies previously credited to a RCGF is required, Homes England will issue an explanatory letter and invoice. The letter will include the payment schedule and terms.

5.3 Accounting arrangements for the RCGF

5.3.1 The RCGF must be supported by a robust audit trail of relevant paperwork detailing individual amounts of:

recoverable grant credited to the fund
recoverable grant by local authority
notional interest added
any withdrawals made

5.3.2 Registered Providers may be asked to produce evidence of the audit trail. The supporting documentary evidence must be retained for ten years.

5.3.3 Rules covering the disclosure of RCGF balances and transactions are contained within the current Accounting Direction for Social Housing published by the Regulator.

5.4 Expenditure from the RCGF

5.4.1 Properties developed with recycled grant will be subject to the same regulatory requirements, contractual conditions, and requirements as those funded with new social housing assistance from Homes England.

5.4.2 Where properties funded through recycled grant are defined as social housing under sections 68-70 of the Housing and Regeneration Act 2008, they will become or remain subject to the regulatory standards.

5.4.3 Withdrawals from a Registered Provider’s RCGF must be debited on the date of the start on site and/or other payment milestones.

5.4.4 Please note that these may differ depending on the scheme type and under which programme the scheme was developed. For details on payment milestones, please see the Programme Management chapter, section 4.

5.4.5 Expenditure from the fund must be debited on a first in, first out basis. Please see 5.10.3 as an example.

5.5 RCGF levels

5.5.1 When developing property with recycled grant the Registered Provider can choose how much recycled grant to use to a defined maximum amount.

5.5.2 The maximum amount of recycled grant that can be used on the scheme is calculated as follows: The total capital costs of the scheme (i.e. the amount capitalised on the balance sheet) less:

the sum of any sales receipts (if applicable), less
the notional loan debt that the Registered Provider is able to support from the rental stream produced by the properties (if applicable), less
any other resources, which includes the Registered Provider’s own resource

Providers must ensure they are compliant with State Subsidy Control rules and that RCGF does not fund 100% of any development costs. The underlying principle of public funds plugging a viability gap that the Provider could not otherwise support must apply in all circumstances.

5.6 Approval and accounting

Homes England’s prior written approval is not necessary for the use of the fund or the calculation of the amount to be withdrawn from the RCGF, unless specified elsewhere (e.g. for non-priority permitted uses).

5.7 Addition of notional interest

5.7.1 Annually, on the 31 March Registered Providers must add notional interest to their RCGF.

5.7.2 If the fund balance is £250,000 or less, there is a notional interest rate that the Registered Provider must use. This rate is that which a Registered Provider would obtain by placing the money in the high interest deposit account operated by its own clearing bank. Therefore, a Registered Provider should keep a record of these rates available for its auditor.

5.7.3 If the fund balance is greater than £250,000, the notional interest rate is linked to the Bank of England’s base lending rate, as follows:

Size of RCGF Rate of notional interest calculations:

£250,001 to £500,000: base lending rate less 75 basis points
£500,001 to £750,000: base lending rate less 50 basis points
£750,001 to £1,000,000: base lending rate less 25 basis points
Over £1,000,000: base lending rate less no basis points

A floor of 0% is applicable to notional interest calculations. Therefore, if the Bank of England base rate is at such a level as to produce a nil or a negative amount of notional interest, then no interest should be added for the relevant period.

5.7.4 Registered Providers must calculate notional interest, according to a 365-day year convention, that is:

Balance x rate x (days for which this balance held/365)

The base rate used in the calculation must be amended in line with clearing bank or Bank of England rate changes.

5.7.5 Registered Providers that pay corporation tax on their RCGF interest earnings may deduct that tax from their RCGF balance at the standard corporation tax rate applicable for the time.

5.7.6 In the calculation, notional interest must be compounded on the 31st March of each year. Registered Providers must identify whether RCGF credits are recovered grant or notional interest. However, when spending recycled grant, Registered Providers will simply be drawing against the balance on the account, and do not need to identify whether it is withdrawing recovered grant or notional interest credits.

5.7.7 In calculating notional interest, the date the interest should be calculated from is the date the recovered grant must be credited to the fund. This is the date of the relevant event.

5.8 Transferring balances between Registered Providers

5.8.1 In defined circumstances, Registered Providers may transfer all or some of their RCGF to other Registered Providers where this helps create a usable balance and/or supports the quick and efficient use of recycled grant to meet local priorities. This includes downward staircasing, under the terms defined in section 6.5.

5.8.2 Transfers may occur between Registered Providers which are:

members of a group structure (although each member of the group must have its own RCGF)
members of a Development Partnership or Consortium which is currently in receipt of grant

5.8.3 Transfers may also occur subject to Homes England’s prior agreement, contact Historical Grants on RCGF@HomesEngland.gov.uk where these are:

to another local Registered Provider and/or
to a similar type of Registered Provider (e.g. a specialised housing provider)

5.8.4 Recycling grant generated in Greater London must only be spent within Greater London, and recycled grant generated outside Greater London must not be spent in Greater London.

5.8.5 The receiving organisation must ensure:

it documents the transfer
it receives notification of the date on which each sum being transferred was originally credited to the transferor’s RCGF
the date on which it credits its own RCGF is no more than one day after the date the sums are debited from the transferor’s fund

5.8.6 The donating organisation must debit the sum from its own RCGF on the date the amount is transferred and document this accordingly.

5.8.7 Transfer of sums between organisations’ fund does not reset the 3-year repayment schedule. The time limit for spending transferred recoverable grant remains within 3 years following the year in which the date of the original relevant event occurred.

5.8.8 Transfers to and from other Registered Providers must be separately accounted for in the Annual End of Year RCGF IMS returns, to avoid the possibility of double counting withdrawals and inputs. Please see section 7.2.

5.8.9 Where a transfer of engagements has occurred, then the process described above should be used, with a transfer of the full RCGF balance to the receiving Registered Provider. On the 31 March an Annual RCGF IMS end of year return should be made for both the receiving and the transferring Registered Provider. The transferring registered provider’s Annual RCGF IMS end of year return should covering the period to transfer.

5.9 Repayment of Recycled Capital Grant

5.9.1 If Registered Providers do not recycle the grant within 3 years, Homes England will enforce repayment (including notional interest) of the 3-year-old recycled grants. For profit-making Registered Providers, repayment will be in accordance with the uplift principles and methodology defined at sections 3.4.4. See section 5.11 below regarding collection processes.

5.9.2 Whilst 3 years is the normal time allowed before seeking repayment of amounts in the recycled grant, Homes England reserves the right to enforce repayment of the recycled grant sooner.

5.9.3 Notional interest due will be calculated by Homes England and will be added to and identified in the invoices sent to Registered Providers.

5.9.4 Registered Providers must pay the invoice by the due date or be liable for interest for late payment.

5.9.5 Registered Providers must not send payment to Homes England without having first received an invoice.

5.9.6 When recycled grant, plus notional interest, is repaid to Homes England the amount must be debited from the fund on the date of repayment.

5.9.7 Registered Providers may choose to repay sums in their RCGF to Homes England at any time during the allowed 3-year period. Full details should be forwarded to the Historical Grants team using the RCGF@homesengland.gov.uk address.

5.9.8 On a case-by-case basis, Homes England may allow Registered Providers to roll over their 3-year-old RCGF balance into subsequent years. Homes England is prepared to consider cases where it believes this is in the interest of affordable housing provision, or results from an acknowledged error on the part of Homes England. To seek approval of a roll-over please contact RCGF@homesengland.gov.uk to receive a business case template. Once submitted the business case will be subject to Homes England’s prior approval.

5.9.9 Any agreement to roll-over will initially be for 1 year only and will be subject to Homes England’s monitoring. Homes England will inform Registered Providers of what details they should supply regarding the expenditure of the rolled over amount.

5.9.10 A further roll-over is unlikely unless there are exceptional circumstances and require a further written request by the Registered Provider.

5.10 How to identify three-year-old grant

5.10.1 Registered Providers must identify the amount of three-year-old recycled grant repayable, if any, while preparing their annual IMS RCGF end of year return (see section 7).

5.10.2 The three-year period starts from the end of the RCGF year (31 March) in which the recoverable grant was credited.

Example

The 3-year period should be calculated as follows:

£100,000 credited to the fund on 16.8.2019
that is during the 2019 to 2020 RCGF year
the 3-year period following the year of credit is therefore 2020 to 2023

If not spent by 31 March 2023 it will become subject to repayment.

5.10.3 When calculating the amount of three-year-old grant that is repayable to Homes England, Registered Providers must calculate grant as having been spent on a first in, first out basis.

Example

Operating on a first in, first out basis means that if by the end of the following third year, the Registered Provider has spent, in total, more than it deposited during the year in question, it has nothing to pay:

during the year ending 31 March 2019 £500,000 was credited to the provider’s fund
the 3-year period is therefore 2020 to 2023
in 2020 to 2021 the provider deposits £100,000 into the fund
the total RCGF balance is £600,000
during 2020 to 2023 period £550,000 is spent

Whilst there is balance of £50,000 there is no 3-year-old grant as the £50,000 balance was from the 2020 to 2021 deposit.

5.10.4 If, by 31 March of the year in question, Registered Providers have entered a written contractual commitment to incur expenditure on permitted uses, then that amount of recycled grant can be treated as having been spent.

Only the following count as contractual commitments:

an exchange of contracts to acquire
signing a building contract

5.10.5 Contracts devised to avoid repayment of 3-year-old grant are not acceptable. Homes England expects contractual commitments to result in the contracted expenditure to be incurred within 6 months. On a building contract, that would mean signing building contracts and starting on site within 6 months.

5.10.6 Registered Providers must not repay any outstanding 3-year old grant to Homes England until they receive an invoice as per 5.9.5 above.

5.10.7 Strategic partners have separate arrangements for aging their recycled funds on their RCGF annual return. If the balance of the recycled funds is within the pre-approved amount in the strategic partnership, these funds do not need to be aged. However, any 3 years plus balance which is above the pre-approved amount should be aged as explained in this section. For further information on Strategic partnerships, see the Strategic Partnerships chapter.

5.11 Repayment process

5.11.1 Following a review of a Registered Provider’s Annual IMS RCGF return (see section 7.2) Homes England will raise an invoice for:

any 3-year-old grant (where a rollover request has not been approved)
the interest that the Registered Provider is required to calculate on that 3-year-old grant up to 31 March of the year in question, with the addition of:
interest that Homes England will calculate as due from 1 April to the date of the invoice

5.11.2 Homes England will issue the invoice as soon as possible after the end of year return has been submitted. Registered Providers should not send a payment until they receive the invoice.

5.11.3 If payment arrives later than the date required by the invoice, Homes England will calculate and invoice for additional interest, as already warned in the invoice.

5.11.4 Where Registered Providers report sums over 3 years old, which Homes England has agreed to roll over beyond the usual deadline, no invoice will be raised for this amount.

6. Permitted uses

6.1 General

6.1.1 Recycled grant has the same contractual conditions as if the scheme had been funded with new Social Housing Assistance under the current programme. However, properties provided with recycled grant are not subject to Right to Acquire except when recycled grant is used in combination with new grant.

6.1.2 Priority uses

Homes England expects that, in the first instance, Registered Providers will spend recycled grant on Homes England’s priorities. Recycled grant may be spent on the following priority uses without the prior agreement of Homes England.

Homes England’s priorities for the reinvestment of recycled grant are:

the provision of newbuild dwellings for Shared Ownership, Rent to Buy, Affordable Rent and Social Rent. For more information on providing Affordable Rent with recycled grant see section 6.3.1
re-improvement or the physical conversion of existing owned larger properties into smaller properties that better suit local housing needs
downward staircasing where it will prevent repossession and homelessness. This is provided that the criteria in section 6.1.3 are met

6.1.3 Downward staircasing

6.1.3.1 Downward staircasing is permitted only in cases where the shared owner is experiencing severe financial difficulties and other options for avoiding repossession have been exhausted. This cannot be applied to outright owners. It is not a means of allowing the shared owner to restructure their debts or otherwise improve their financial position. This includes to repay rent arrears.

Note: downward staircasing differs from the permitted use to repurchase a shared owner’s equity in shared ownership home. The latter can be used, for example, to support a provider’s asset management strategy and also address the challenges associated with building safety in grant funded and non-grant funded properties where the shared owner wishes to move on, but is unable to do so (see below 6.2.2 (d) Permitted Use and 6.3.2 Equity Repurchase).

Recycled grant can be used to fund up to a maximum of 100% of the downward staircasing purchase costs.

6.1.3.2 There is no ‘right’ to downward staircasing and any offer is purely at the Registered Provider’s discretion. However, where offered by Registered Providers the following eligibility criteria must be met:

Registered Providers must confine offers of downward staircasing to shared owners in their own stock. However, this can include both grant-funded and non-grant-funded stock.
Registered Providers may set their own detailed procedures if they comply with the required general policy and procedures in this section of the Recovery chapter.
The shared owner must be paying rent on the unsold equity in the property. The term ‘rent’ excludes ground rent and service charges.
Downward staircasing is not available for other owner occupiers. This includes former shared owners or those who have bought a property through a discount or incentive scheme such as Right to Acquire, Right to Buy, the Tenants’ Incentive Scheme (no longer available) or any of Homes England’s equity loan products.
The shared owner must produce suitable evidence to prove their difficulty with mortgage repayments although they need not already be in mortgage arrears. Shared owners must be able to show that other options, such as loan rescheduling, or selling and moving to cheaper property within a reasonable distance to their current dwelling have been exhausted.
Registered Providers must also consider the shared owner’s ongoing ability to meet future repair and maintenance liabilities.
Future sustainability should be based upon advice from an independent debt-counselling agency and should include consideration of housing benefit eligibility.
For Older Person’s Shared Ownership properties, the same policy applies. However, downward staircasing repurchase from the maximum shares permitted under this product will also be permitted to allow essential repair and maintenance work to be carried out. This will be where the leaseholder demonstrates that there is a need for such work to the property and that they lack the funds to pay for it.
For non-grant funded stock, should Registered Providers consider repurchasing all the leaseholders shares thereby converting the tenure to an assured tenancy, they must undertake a survey of the property before completion of the downward staircasing application. This would be in order to assess any immediate and future repair liabilities that would be required under the Regulator of Social Housing’s standards.

6.1.3.3 Under downward staircasing, Registered Providers must repurchase enough equity to reduce the leaseholder’s total housing costs to a level which both parties are confident is manageable.

6.1.3.4 This can include repurchasing sufficient equity to:

clear the mortgage
pay off arrears of interest and principal on the mortgage

6.1.3.5 In order to meet the needs as per the above paragraph, the repurchase of shares by Registered Providers under Flexible Tenure is not restricted to defined tranches in the same way as for upward staircasing.

A repurchase of shares may also be to a level where the shared owner retains less than 25% for a home funded via the Shared Ownership and Affordable Homes Programme (SOAHP) 2016 to 2021 and less than 10% for a home funded via the Affordable Homes Programme 2021 to 2026.

Where Registered Providers are considering repurchases which will leave the shared owner with less than 25% or 10% ownership, they should discuss the implications with the shared owner. Registered Providers should make clear that under the terms of the Shared Ownership lease the shared owner will still have full responsibility for any repairs.

6.1.3.6 There is also the option of full re-purchase, under which the shared owner becomes an assured tenant of the Registered Provider.

6.1.3.7 Where a Registered Provider does offer downward staircasing, its policy and procedures should be published and made available to all shared owners in its properties. Registered Providers should also ensure they retain any documentary evidence in support of their decision to use recycled grant to fund downward staircasing.

6.1.3.8 For any form of equity repurchase, the Registered Provider should ensure that any offer is acceptable to both the shared owner’s mortgage company, and its own lender. The latter may require a revolving credit facility.

6.1.3.9 As with upward staircasing, the amount payable by the landlord will be the appropriate percentage of the shares to be purchased according to an open market valuation carried out by an independent RICs qualified valuer.

The shared owner must pay for the valuation and their own legal fees. When these are initially paid by the Registered Provider, these costs may be deducted from the payment to the shared owner or the shared owner’s mortgage company allowing the Registered Provider to recoup the costs.

6.1.3.10 It will probably be a condition of the shared owner’s mortgage that the sale proceeds are paid direct to the first lender of the first mortgage. The Registered Provider’s solicitor should advise on this.

6.1.3.11 The amount to be debited should be drawn down from the Recycled Capital Grant Fund on the completion date of the legal transaction, and calculated as follows:

Debit from fund = (staircasing sales allowance) + (payment due for the shares to be purchased x percentage figure from RCGF (up to 100%).

The current staircasing sales allowance should be used at the time of the sale.

The payment due to the shared owner or mortgagee must be the market value of the share to be repurchased.

6.1.3.12 The resulting amount of public subsidy (Housing Assistance Grant, Social Housing Grant or Social Housing Assistance plus Recycled Capital Grant) attributed to the property must take into account any deferred recovery of Housing Assistance Grant, Social Housing Grant or Social Housing Assistance in the same scheme (see the worked examples below).

6.1.3.13 The resulting deemed loan debt for the property will be the outstanding balance of the original deemed loan debt plus the new deemed loan debt attributable to the repurchased part of the property.

6.1.3.14 Should the shared owner’s financial circumstances deteriorate even further, subsequent downward staircasing purchases are permitted to the extent of a complete repurchase of the property.

6.1.3.15 Where a shared owner benefits from downward staircasing to reduce their share to a lower level of equity, the terms of the existing lease will continue, including the right to staircase again.

6.1.3.16 Where a shared owner’s financial circumstances improve and they wish to purchase additional shares, then normal staircasing procedures should be followed. In these cases, Registered Providers must treat the recycled grant drawn down to fund the downward staircasing as if it were new grant. This includes following section 2.7.4.30 to calculate the attributable grant recoverable for the staircasing sale and add this sum to any outstanding original funding for grant recovery purposes.

6.1.3.17 Whenever the shared owner benefits from downward staircasing or staircases again, the rent should be adjusted pro rata for the changed percentage rented, and comply with all relevant rent policies.

6.1.3.18 Where a shared owner becomes an outright tenant the Shared Ownership lease must be formally terminated, and an assured tenancy agreement entered into on the same terms as for any other new tenancy agreement for rented housing let by that Registered Provider. It would be at the Registered Provider’s discretion whether to offer a Shared Ownership lease in the future.

6.1.3.19 An ex-shared owner who becomes an outright tenant will not be able to purchase the property under the Right to Acquire because the property was not originally provided with public money for the purposes of being a rented property. However, the assured tenancy would count towards future Right to Acquire residency criteria please, see the Right to Acquire chapter, section 2.2: Qualifying period for Right to Acquire. A tenant may be eligible for any discount or incentive scheme offered by the Registered Provider such as Social HomeBuy with any eligibility period starting from the date of this new tenancy.

6.2 Permitted uses

6.2.1 Expenditure on uses other than those listed in section 6.1.2 above requires prior approval from Homes England through written permission. However, these permitted uses will be subject to some restrictions or additional criteria as described in section 6.3.

6.2.2 The permitted uses requiring the Agency’s approval are:

a) The acquisition of land and housing stock that has not previously received grant funding,

b) To repurchase homes sold outright under Social HomeBuy post April 2006 where the freehold transfer includes a 21-year pre-emption right,

c) To repurchase properties sold under Right to Acquire or Right to Buy after 1 Jan 2005 (the Housing Act 2004 gives a ten year right to repurchase properties sold under Right to Acquire or Right to Buy).

d) To repurchase a shared owner’s equity in a grant funded Shared Ownership property. This can include the repurchase of properties affected by building safety challenges where the shared owner wishes to move on, but is unable to do so because of issues associated with selling their home. Non-grant funded properties affected by building safety challenges where the shared owner wishes to move on, but is unable to do so due to issues associated with selling their home, may also be repurchased using RCGF. See section 6.3.2 below for more information and also the Secretary of State for DLUHC’s 19th December 2023 letter to Shared Ownership providers.

e) To repurchase properties sold under Social HomeBuy or New Build HomeBuy post April 2006 on Shared Ownership terms, where the leaseholder has staircased to 100%,

f) Works to ensure compliance with the Fire Safety Act 2021.

g) Decarbonisation works / energy efficiency improvements

h) Other activities for which Homes England could make Social Housing Assistance available. This must not be for one of the restricted uses set out in section 6.3.4.

6.2.3 For all permitted uses of RCGF a supporting business case is required. Please email RCGF@homesengland.gov.uk to request a business case template. Requests will be assessed and, if agreed, written approval given. Providers must not record amounts spent on permitted uses in their annual RCGF return without first seeking approval.

6.2.4 When a relevant occurs on a property funded by:

Next Steps Accommodation Programme
Rough Sleepers Accommodation Programme
Single Homelessness Accommodation Programme

Registered Providers need permission from the Department for Levelling Up, Housing and Communities to recycle the funds (DLUHC). Recycled funds from these programmes are restricted to use on homelessness provisions approved by DLUHC.

6.2.5 For any further information or questions on permitted uses, please email RCGF@homesengland.gov.uk.

6.3 Restrictions and / or additional criteria to permitted uses

6.3.1 Affordable Rent

Registered Providers that are not a party to a grant agreement and wish to charge an Affordable Rent on homes funded with recycled grant must enter a housing supply delivery agreement with Homes England before the homes are complete (see Housing for Rent chapter for more details).

6.3.2 Equity repurchase

Similar to downward staircasing (see section 6.1.3 above) there is no ‘right’ to equity repurchase with any decision being at the provider’s own discretion. For example, to support their asset management strategy.

However, due to the role of equity repurchase in also addressing the challenges associated with building safety, providers should make details of any policies related to the repurchase of a shared owner’s equity available on their websites in a clear and accessible format. Even if it is to make clear that they do not operate such a policy.

Recycled grant can be used to fund up to 100% of the equity repurchase costs. Providers should ensure they retain any documentary evidence of their decision to use recycled grant to fund equity repurchase. This includes the open market valuation carried out by an independent RICs qualified valuer, which supports the amount paid to repurchase the property.

For non-grant funded properties, providers must undertake a survey of the property before completion in order to assess any immediate and future repair liabilities that would be required under the Regulator of Social Housing’s standards.

6.3.3 Section 106 homes

6.3.3.1 The AHP 2021 to 2026 funding guidance states that Homes England does not expect to fund section 106 homes with new grant. However, where funding can be vested into additional homes on section 106 restricted land, this may be accepted but would need the prior approval of Homes England. For guidance on applying for funding, please visit Homes England’s Apply for affordable housing funding webpage. Note this restriction does not apply where RCGF is to be used to repurchase properties affected by building safety challenges where the shared owner wishes to move on, but is unable to do so because of issues associated with selling their home (see above section 6.3.2).

6.3.3.2 To help aid the decision-making process providers should submit evidence of their appraisal agreed with the relevant local authority on site viability. They should also demonstrate the additionality secured through the application of recycled grant as proposed.

6.3.4 Absolute restrictions

The following may not be funded with recycled grant:

Social HomeBuy or Right to Acquire discounts
major repairs
work to existing stock that is ineligible for funding because of the terms under which it was originally financed
day-to-day and cyclical maintenance
tenant incentive schemes
provision of equity loan products
leasehold enfranchisement

6.3.5 Registered Providers must consult Homes England if unsure about a proposed use of recycled grant by emailing RCGF@homesengland.gov.uk.

6.4 Housing needs

Registered Providers must apply the funds in their Recycled Capital Grant Fund in accordance with the investment priorities stated in the relevant local plans or similar agreed documentation and expenditure is expected to be for the provision of new affordable housing.

6.5 Combining Recycled Grant with new grant and other finance

6.5.1 Registered Providers may combine recycled grant with new grant in schemes receiving an allocation within the current funding programmes.

6.5.2 All schemes require a proportion of the costs to be met with private sector loans or a contribution from the Registered Provider’s own resources.

6.5.3 Resource inputs into a scheme from a Registered Provider’s Recycled Capital Grant Fund must not exceed the level stated within the relevant bid, even if zero. Any proposal to add additional resources to an existing allocation must be agreed with Homes England in advance.

6.6 Land acquisition

6.6.1 Registered Providers may use funds from their Recycled Capital Grant Fund to acquire land where the intention is to develop the additional supply of affordable housing.

6.6.2 Recycled grant may also be used to acquire land for market housing schemes which will include an affordable housing element. Recycled grant should be attributed pro-rata to any affordable housing subsequently developed and shown as a RCGF input at bidding stage if new affordable housing grant is also bid for to support the development of these houses.

If the land is acquired solely with RCGF, this does not need to be reflected on IMS except as a withdrawal on your RCGF return.

6.6.3 Registered Providers will be required to begin development on any land purchased with recycled grant within five years of purchase. If start on site has not progressed after five years Registered Providers will be required to pay back the recycled grant to Homes England, it cannot be re-credited back into the Registered Provider’s Recycled Capital Grant Fund.

7. Reporting and audit requirements

7.1 General

7.1.1 All Registered Providers that operate a Recycled Capital Grant Fund must report annually on credits to and expenditure from their fund. This is done by submitting an RCGF Annual Return on Homes England’s Investment Management System (IMS). It is the Registered Provider’s responsibility to ensure its return is submitted on time. The deadline for returns is 30 June of the year in question.

7.1.2 Registered Providers that are subject to a Grant Agreement must also separately record units funded with recycled grant and no new grant through their annual RCGF return to Homes England.

7.1.3 Registered Providers must retain documentary evidence to support an audit trail for all transactions leading to recovery and re-use of grant (for further details on this, please see section 5.4).

7.2 IMS Annual returns

7.2.2 Registered Providers that operate inside and outside of Greater London should ensure that balances generated and reinvested in London are reported to the Greater London Authority and balances outside of London are reported to Homes England. This will require two separate returns.

7.2.3 All Registered Providers are required to submit an annual return if they undertook one or more of the following:

repaid any sums from their RCGF to Homes England during the year
credited their RCGF with historical grant during the year, inclusive of grant recovered from a relevant event (see sections 2.6 and 2.7) or RCGF balances transferred from another RP (see section 5.8)
debited funds from their RCGF during the year to fund a priority or permitted use (see section 6)
had a balance remaining in their RCGF at the end of the previous year (even though they have since been repaid, credited or debited their RCGF during the year of the return)
completed a transfer of engagements during the year

7.2.4 Homes England may seek repayment of all, or part of balances held in a Recycled Capital Grant Fund if information is not supplied on schedule. This includes:

a failure to complete an annual end of year return on time or at all
not supplying relevant event notifications within the time-scale requirements of 3.1.2

In exceptional cases Homes England can determine that a Registered Provider is unable to operate a Recycled Capital Grant Fund.

7.2.5 Completion of the annual return

7.2.6 The full guidance on how to submit an annual return can be found on Homes England’s IMS guidance page.

7.2.7 Queries relating to administering your RCGF, or submitting your annual return, can be emailed to rcgf@homesengland.gov.uk.

7.3 Collection and administration of the annual returns

7.3.1 Homes England collects the end of year returns via its IMS and Registered Providers who need to submit an end of year return will require access rights. For details of how to submit the end of year return, please see the IMS guidance page (please scroll to the bottom of the page).

7.3.2 Registered Providers who do not have access to IMS and require help should follow the link, and then do one of the following:

go to the IMS guidance page
contact the Provider Management Team
call the service desk on 01908 353 604

For further advice on what information will be needed regarding IMS access and/or end of year returns, including what to do regarding any previous end of year returns that may be due, Registered Providers should contact rcgf@homesengland.gov.uk.

7.3.3 After reviewing the electronic end of year returns Homes England will contact the Registered Provider detailing any errors and/or adjustments required.

7.3.4 Having reviewed the annual returns Homes England will also consider requiring repayment of three-year-old grant as per section 5 and will invoice Registered Providers accordingly.

7.4 Role of the external auditor

7.4.1 The Recycled Capital Grant Fund return is an integral part of a Registered Provider’s annual independent audit. Therefore, Registered Providers’ auditors must have regard to the disclosure of Recycled Capital Grant Fund balances and transactions and the overall accuracy of the return within their sign-off of a Registered Providers’ accounts (see section 5.4).

7.4.2 Registered Providers must keep a record of external auditors’ examinations of their Recycled Capital Grant Fund accounts. Any observations by the external auditor should be communicated to:

Homes England via rcgf@homesengland.gov.uk
the Regulator of Social Housing

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