12. Right to Acquire
This chapter describes the Right to Acquire product details and the Agency’s funding requirements and processes for landlords to follow in respect of the Right to Acquire.
1.1.1 This chapter describes the Right to Acquire product details and the Agency’s funding requirements and processes for landlords to follow in respect of the Right to Acquire.
1.2.1 The Right to Acquire is a statutory scheme which offers eligible tenants in eligible properties the opportunity to purchase, provided that they qualify and the property is eligible, the home they currently rent at a discount. The discount is a fixed sum of money which varies geographically, and is set out in Statutory Instrument 2002 no. 1091.
1.2.2 Eligible tenants can obtain the full discount if they have never received any form of public subsidy to help them purchase a property before. Tenants who have previously received some form of public subsidy remain entitled to their Right to Acquire discount, but it will be reduced by the amount of subsidy that they previously received.
1.2.3 The key provisions governing the tenant’s rights are set out in sections 180 to 185 of the Housing and Regeneration Act 2008 (as amended by section 165 of the Localism Act 2011) and sections 16 and 17 of the Housing Act 1996.
1.2.4 The statutory procedures, discount entitlement and other requirements are governed by Part V of the Housing Act 1985, as amended by section 180 to 189 and sections 192 to 193 of the Housing Act 2004 and sections 304 to 310 of the Housing and Regeneration Act 2008, and as modified in relation to Right to Acquire by the Housing (Right to Acquire) Regulations 1997 (made under section 17 of the 1996 Act). Schedule 2 of the Regulations sets out Part V of the Housing Act 1985 as modified. A more comprehensive list of statutory provisions is listed below:
- 2008 Housing and Regeneration Act sections 180-185 (as amended by section 165 of the Localism Act 2011) and sections 304 to 310;
- 2004 Housing Act sections 180 to 189 and 192 to 193;
- 1996 Housing Act sections 16 and 17, and 20, 21, 24, 25 and 26;
- 1985 Housing Act Part V;
- The Housing (Right to Acquire) Regulations 1997 (Statutory Instrument No. 619);
- The Housing (Right to Acquire) (Discount) (Amended) Order 2002 - SI 1091;
- The Housing (Right to Acquire or Enfranchisement) (Designated Rural Areas) Orders 1997 Nos. 620-625; and
- The Housing (Right to Acquire or Enfranchise) (Designated Rural Areas) Order 1999. (No 1307).
Please see the link here to find the relevant legislation.
1.2.5 Right to Acquire is a matter for tenants to discuss with their landlords. Both parties should take their own legal advice about questions such as eligibility. The Agency is not able to intervene, resolve disputes or provide legal advice.
1.2.6 Providers must publish and provide to tenants certain information relating to Right to Acquire. For more details see section 4.3 below.
1.3 Main features of the scheme
1.3.1 Right to Acquire only applies to tenants on secure and assured tenancies (or assured shorthold tenancies whose tenancies began on or after 1 April 2012 and are for a fixed term of at least two years) occupying self-contained accommodation for rent where the costs of procuring or developing those properties was part-paid for by Social Housing Grant, Social Housing Assistance, the Disposal Proceeds Fund or any combination of these, on or after 1 April 1997.
1.3.2 Tenants on assured shorthold tenancies where the tenancy began before 1 April 2012 or are for less than two years, those who hold long leases or tenants of shared accommodation are not eligible (please see section 2 below).
1.3.3 Schedule 5 of the Housing Act 1985, as modified by Right to Acquire Regulations, sets out the categories of cases where there is no Right to Acquire. See sections 2 and 3 below.
1.3.4 Providers should note that properties developed for rent with recycled grant from their Recycled Capital Grant Fund are not subject to the Right to Acquire, unless combined with Social Housing Grant, Social Housing Allowance or Disposal Proceeds Fund.
1.3.5 Schemes that received grant confirmation before 1 April 1997 are excluded from Right to Acquire. Allocations received before 1 April 1997 but where grant confirmation was on or after 1 April 1997 are not excluded. See section 3 below.
1.3.6 Discounts available under Right to Acquire are fixed cash amounts determined by the Secretary of State, based on the geographical location of the tenanted property. Full details are published in a Statutory Instrument, known as The Housing (Right to Acquire) (Discount) Order. Please follow the link to the latest version.
1.3.7 Where a tenant has previously received a government funded discount to purchase a property, the Right to Acquire discount entitlement will be reduced by the amount previously received. Please refer to the guidance for further information.
Unless the provider has reason to believe otherwise, the tenant’s written certification (for example on form RTA1) is sufficient confirmation that a previous discount has not been received.
1.3.8 For Right to Acquire applications submitted on or after 2 December 1999 the amount of discount is restricted to no more than 50% of the value of the property
1.3.9 Providers must claim grant to cover the discount from the Agency within six months of the date of sale.
1.3.10 Net receipts from Right to Acquire sales are required by statute to be retained by providers in a ring-fenced fund within their accounts to be known as a Disposal Proceeds Fund. Sums held in the Disposal Proceeds Fund can only be used for defined purposes set out by the Regulator (please see DPF guidance). Please see below details of the relevant legislation.
The Housing and Regeneration Act 2008, section 177 etc details the statutory requirements regarding the Disposal Proceeds Fund.
2. Applicant Eligibility
2.1.1 Right to Acquire does not apply to all tenants on secure, assured and assured shorthold tenancies or to all property owners by the provider. Although the scheme shares some of the features of the Right to Buy scheme (Part V Housing Act 1985) there are important differences in how the scheme operates for Registered Provider tenants.
2.1.2 The following paragraphs summarise the Right to Acquire legislative provisions, to enable providers to establish a tenant’s eligibility; but they are not exhaustive and cannot be taken as an authoritative interpretation of the law. Providers should consult the relevant Right to Acquire statutory provisions and seek legal advice where appropriate.
2.1.3 Right to Acquire does not provide for any application of a preserved Right to Buy; Rent to Mortgage option; Right to a Loan for payment of service charges; the Right to Buy or delay procedure.
2.1.4 Right to Acquire only applies where the Registered Provider’s tenant:
- Occupies an eligible property (see section 3 below).
- Is on a secure or assured tenancy with the provider. This includes those who hold assured shorthold tenancies with a fixed term of at least two years beginning on or after 1 April 2012, but does not include:
- Tenants who hold assured shorthold tenancies beginning before 1 April 2012;
- Tenants who hold assured shorthold tenancies with a fixed term of less than two years;
- Tenants who hold long leases; an
- Tenants of shared accommodation; and
- Has been a public sector tenant for the required minimum time (see section 2.2 below).
2.1.5 Schedule 5 of the Housing Act 1985, as modified by Right to Acquire Regulations, sets out the categories of cases where there is no Right to Acquire.
2.1.6 Further information for tenants living in qualifying properties after 1 April 1997 can be found in the Right to Acquire information booklet produced by the Agency.
2.2 Qualifying period for Right to Acquire
2.2.1 The Right to Acquire can only be exercised where the tenant has been a tenant of a public sector landlord for a qualifying period of three complete years. See section 2.3 below for details of public sector landlords.
2.2.2 Previous public sector tenancies can count towards the qualifying period and need not be continuous.
2.2.3 The one exception to this ability to count non-continuous periods of residence is where a Registered Provider has acquired a property under a mortgage rescue arrangement and the previous owner is now the tenant. In these cases the tenant must have been a tenant in their current home for five complete years.
2.2.4 The duration of an assured shorthold tenancy counts towards the qualifying period for Right to Acquire.
2.3 Public sector landlords
2.3.1 To be eligible for Right to Acquire on the grounds of residence the applicant must have accrued the minimum period of time as a tenant of a public sector landlord or landlords. For a list of public sector landlords, please refer to the GOV.UK website.
2.3.2 For the purposes of establishing a qualifying public sector tenancy, time spent in accommodation provided by the Armed Services qualifies. Please see Schedule 4 paragraphs 6 – 8 of the Housing (Right to Acquire) Regulations 1997.
2.4 Detailed eligibility criteria
2.4.1 Subject to holding a Secure or Assured Tenancy (or an Assured Shorthold Tenancy with a fixed term of at least two years which began on or after 1 April 2012) and occupying a qualifying property where the landlord is a Registered Provider, a tenant has the right to purchase the freehold of a house or a lease of a flat (or a house, if the landlord does not own the freehold). Right to Acquire does not apply where the freehold interest is owned by a non-public sector body.
2.4.2 Where a tenancy is held in joint names not all the tenants need to exercise their Right to Acquire. Provided agreement is reached with other joint tenants the purchase can proceed in the name of one of them, provided it is that joint tenant’s only or principal home. In the event of other joint tenants not agreeing to the purchase, Right to Acquire cannot be exercised. Where a joint tenant objects to the application proceeding they should do so in writing to the provider.
2.4.3 Tenants may jointly purchase with up to three members of their family who live with them in the relevant property at the time that the application is made, providing the family members have lived in the property for the previous twelve months.
2.4.4 If the tenant is purchasing property with a mortgage, the mortgage has to be provided by a qualifying lending institution (see section 4.15 below).
2.4.5 The following categories of tenants are not eligible for the Right to Acquire:
- Tenants occupying property on an assured shorthold tenancy (where this commenced prior to 1 April 2012 and/or is for less than two years), licence or a long lease;
- Tenants of Abbeyfields or Almshouses;
- Tenants of fully mutual co-operatives;
- Tenants of co-ownership societies;
- Undischarged bankrupts or tenants who have a bankruptcy petition pending against him/her or has an arrangement with creditors, the terms of which remain to be fulfilled;
- Tenants subject to a court order for possession of the property;
- Tenants who are the subject of a ‘suspension order’ or ‘suspension status’.
2.4.6 Tenants meeting the applicant eligibility criteria at the date of their application must continue to do so up to the exchange of contracts.
2.5 Suspensions for anti-social behaviour
2.5.1 Applications for Right to Acquire can be suspended on the grounds of anti-social behaviour. Please refer to the guidance for further information.
Suspensions for anti-social behaviour
Sections 192 -193 of the Housing Act 2004 (effective from 6 June 2005) allows for Right to Buy/Acquire applications to be suspended on the grounds of anti-social behaviour.
Following an application from a provider the courts may make a ‘suspension’ order in respect of a tenancy. A suspension order may be granted only if the court is satisfied that the tenant or a person living in the property, or visiting the property, has engaged or threatened to engage in anti-social behaviour (which includes using the premises for unlawful purposes), and that it is reasonable for an order to be made.
Once issued, a suspension order will have the effect of suspending existing Right to Acquire applications and/or preventing new applications being made during the period the order covers. A provider may also apply to the courts for an existing suspension order to be extended.
2.5.2 Providers must clearly set out their policy stating the circumstances under which ‘suspension status’ will be applied to relevant tenancies. The provider’s policies should state that ‘suspension status’ will be applied only in the circumstances outlined in paragraph 2.5.1 (above).
2.5.3 Where providers decide to apply ‘suspension status’ to a tenancy, the reasons and evidence for the decision should be fully documented and the existing tenants notified that it has been applied to their tenancy for Right to Acquire purposes.
2.5.4 Once applied, ‘suspension status’ will have the effect of suspending an existing Right to Acquire application and/or preventing new applications and claims being made during the period of suspension.
2.5.5 Application of ‘suspension status’ will also remove providers’ obligations to complete Right to Acquire sales (e.g. convey the freehold or grant a lease) during the period of suspension.
2.5.6 The existence of a ‘suspension order’ or ‘suspension status’ does not affect the accumulation of a tenant’s qualifying period.
3. Property Eligibility
3.1.1 Not all rental properties owned by Registered Providers are eligible for Right to Acquire. Eligible, ineligible and excluded properties are set out below.
3.2 Eligible, Ineligible and Excluded Properties
3.2.1 Specific terms are used to describe the status of properties under the Right to Acquire. They are:
Eligible: Properties part funded with Social Housing Assistance, Social Housing Grant or Disposal Proceeds Fund – see section 3.2.2.
Ineligible: Right to Acquire does not apply to properties funded before 1 April 1997, as they were not developed with Social Housing Grant or Social Housing Allowance, but with Housing Association Grant or some other form of subsidy.
Excluded: Some properties that were part funded with Social Housing Grant or Social Housing Allowance are nevertheless ineligible for the Right to Acquire by virtue of their location, design etc. For details see section 3.3 below.
3.2.2 Only properties provided through grant funding on or after 1 April 1997, including properties provided with the receipts from the Disposal Proceeds Fund and property transferred from public sector landlords on or after that date will be eligible. Please see below for additional guidance on how this will work.
Providers should note that the scheme approval notification will, for Affordable and Social Rent schemes, give details of potential Right to Acquire eligibility. How this is administered will vary depending on whether the scheme is being delivered under the Affordable Homes Programme 2015-18 or an earlier programme – please see Social Rent section 1.4. Details of the notification for a particular scheme can be requested from the operating area. However, it should be noted that the details refer only to potential Right to Acquire eligibility – it will still be necessary to seek appropriate legal guidance as per section 1.2.3 above. As well as this, providers should note that IMS was introduced in 1999 – there may be schemes that were funded before this and which are eligible for Right to Acquire for which an online approval notification is not available.
3.2.3 The Agency has a statutory obligation to inform grant recipients whether that grant is to be treated as public funds for Right to Acquire purposes. It will do so by including an appropriate grant condition in the grant agreement.
3.2.4 Properties that were subject to grant confirmation before 1 April 1997 are ineligible from Right to Acquire. Schemes for which bids were received before 1 April 1997 are not exempt from Right to Acquire where grant confirmation was on or after 1 April 1997.
3.2.5 Right to Acquire does not apply where a non-public sector body owns the freehold interest (subject to the exception noted in sectipn 3.2.6).
3.2.6 Right to Acquire legislation requires that the freehold interest in the dwelling must at all times have been held by a Registered Provider (ex-Registered Social Landlord) or public sector landlord. However, under provisions of the Leasehold Reform, Housing and Urban Development Act 1993 qualifying tenants of flats (i.e. those with long leaseholds) were given rights to collective enfranchisement, which meant that if exercised they became the new freeholder. As the freehold interest would no longer be held by a Registered Provider or other public sector landlord, the assured tenants in the block, who were eligible for the Right to Acquire, would be unable to exercise their Right in respect of their flats. This was an unintended consequence of that legislation. This was remedied in the Housing Act 2004 and since 18 January 2005, Section 202 of that Act no longer denies assured tenants their Right to Acquire in respect of the flats they rent.
3.3 Excluded properties
3.3.1 As per section 3.2.2 above dwellings provided with the benefit of Social Housing Grant, Social Housing Assistance, from the Disposals Proceeds Fund (in whole or in part) or transferred from a public sector landlord since 1 April 1997 are subject to Right to Acquire unless they are excluded by legislation.
3.3.2 For a list of property types that the Agency believes legislation excludes from the Right to Acquire please see below.
Exclusion from Right to Acquire is outlined in the following legislation:
- Schedule V of the Housing Act 1985 as amended by The Housing Act 2004
- The Housing (Right to Acquire) Regulations 1997
- The Housing (Right to Acquire or Enfranchisement) (Designated Rural Areas) Orders 1997
Properties excluded from Right to Acquire include the following:
- Properties where the landlord has insufficient legal interest i.e. where the property is a house, a lease with a term under 21 years and for a flat, a lease with a term under 50 years;
- Properties where the landlord is a co-operative housing association;
- Properties situated in a rural area designated by order of the Secretary of State under Section 17(1)(b) (Right to Acquire: Supplementary Provisions) of the Housing Act 1996;
- Properties let in connection with employment;
- Properties designed with special features for letting to people with physical disabilities. To gain exemption the property should be one of a group of properties normally let to people with physical disabilities and a social service or special facility is provided close by wholly or partly to assist the tenants;
- Properties with special facilities let to tenants who are suffering or have suffered from a mental disorder. As above the property must be one of a group of properties and a social service or special facility must be provided close by wholly or partly to assist the tenants;
- Properties which are one of a group of properties which it is the practice of the landlord to keep for occupation by persons who have special needs and require intensive housing assistance and such intensive housing assistance is provided either directly or indirectly by the landlord;
- Properties let to persons of pensionable age. Such properties must be one of a group of properties let to the elderly and have special facilities consisting of or including a resident warden or non-resident warden with a calling facility, and/or a common room close by;
- Properties held on Crown tenancies;
- Properties where the attributable loan debt is equal to or greater that its current market value; and
- Properties that are due to be demolished within 24 months of a provider serving a final demolition notice, and having followed the prescribed notification process as contained in s182 of the Housing Act 2004.
However, providers are advised to take their own legal advice in determining the full extent of the legislation and whether a property is excluded from the provisions of Right to Acquire.
3.4 Properties to be demolished
3.4.1 The following paragraphs provide a brief outline of the procedures relating to Right to Acquire eligibility in respect of properties to be demolished. Please refer to the guidance for further information.
Section 183 of the Housing Act 2004 introduced new procedures and amended s138 of the Housing Act 1985. This has since been further amended by section 305 and schedule 13 of the Housing and Regeneration Act 2008. Landlords should familiarise themselves with the contents and requirements of these revisions and in particular the publicity requirements.
3.4.2 When providers decide to demolish a property within the next seven years an initial demolition notice must be sent to tenants. For guidance on the contents of the notice please see below.
This notice should include
- Details of the intention to demolish;
- The reasons for demolition; and
- The intended timetable.
Providers should also notify tenants of the effects of the initial demolition notice, i.e:
- That while it is in force, the landlord’s obligation to complete an Right to Acquire sale is suspended;
- It does not prevent new Right to Acquire applications being made; and that
- Where a valid Right to Acquire claim has been made the tenant may be compensated for expenditure reasonably incurred before the notice was served.
3.4.3 When providers subsequently decide not to demolish the property a revocation notice must be served as soon as is reasonably practical.
3.4.4 Important: If an initial demolition notice expires and demolition has not taken place, no further demolition notice can be served on that property for a period of five years unless the Secretary of State consents to a further notice being issued.
Where a landlord wishes to serve a further initial demolition notice, they will need to make a formal application to the Department for Communities and Local Government.
4. Application processing
4.1.1 For the purposes of this section of the guide, the term landlord will be used instead of the term provider or Registered Provider, and applicants will be referred to as tenants. This is to avoid any confusion over which part of the process applies to which party.
4.1.2 All landlord applications for confirmation of grant and claims for payment of grant must be submitted via the internet using the Agency’s Investment Management System (IMS).
4.1.3 As per section 1.3.10 above, receipts from Right to Acquire sales are required to be credited to the landlord’s Disposal Proceeds Fund. In the event that a tenant’s application for Right to Acquire does not complete, landlords are advised that the cost of abortive valuation, legal and survey fees may be deducted from the sale proceeds of a subsequent sale which does go ahead, provided this does not result in a negative balance for the Fund. If deductions would lead to a negative amount, the balance of abortive costs must be deferred until the next sale that proceeds.
4.2 Letters and application forms
4.2.1 The Agency has produced standard forms including tenant’s applications and landlord notifications to assist processing applications. Links to these forms can be found in section 7 below. These are not statutory forms and providers may produce their own, but in doing so must satisfy themselves that they meet any legal requirements.
4.2.2 Landlords must draft their own standard letters for seeking the tenant’s confirmation to proceed with Right to Acquire, and for notifying their lenders of a sale.
4.3.1 Landlords must ensure that all tenants living in Right to Acquire eligible properties are given information on Right to Acquire. Please refer to the Right to Acquire information booklet produced by the Agency. Providers should seek their own legal guidance on any information contained within the booklet.
4.3.2 Landlords must ensure that the requirements of Statutory Instrument 2005/1735 to provide tenants with information on the Right to Acquire are met. Landlords should note that they will not comply with this obligation by simply issuing the Agency’s information booklet, but will need to address all the information requirements set out in the Statutory Instrument. These include:
- An outline of Right to Acquire;
- Notification that initial costs are likely to be incurred upon exercising Right to Acquire;
- The likely regular payments to be incurred by a homeowner;
- The risk of repossession; and
- The requirement for, and likely level of, expenditure in relation to good repair and maintenance of a property, which may include the payment of a service charge.
4.4 Exercising Right to Acquire: Action by the tenant
4.4.1 To exercise their Right to Acquire the tenant must serve a written notice on the landlord, claiming their Right. The effective date of the notice is taken to be its date, rather than when it is received by the landlord. This is important for calculating qualifying periods of residency, valuation periods etc.
4.4.2 Landlords must obtain certain information from tenants. It will assist landlords in their processing if, where tenants have not provided all of the required information in their initial written claim for Right to Acquire, Form RTA-1: Tenant’s notice of intention to claim the Right to Acquire is used or one of their own design. However, tenants are not obliged to use a form, and can serve a notice on the landlord by writing to them. Where the tenant has already made an application in writing, the landlord should ask the tenant to complete the form, but should accept the date of the original letter for the purposes of valuation and establishing the qualifying period (see section 2.2 above).
4.4.3 The notice may be withdrawn at any time by the tenant by serving a written notice to this effect on the landlord.
4.4.4 A tenant who has already claimed the Right to Buy or Preserved Right to Buy will not be able to apply for Right to Acquire until such time as the Right to Buy/Preserved Right to Buy application is withdrawn or the landlord responds denying the Right to Buy. The tenant may withdraw an existing Right to Buy application and submit an application for Right to Acquire at any time.
4.4.5 A tenant claiming Right to Acquire may include up to three members of the family, who are not joint tenants but who occupy the dwelling as their only or main residence, in the purchase. Please refer to the guidance for further information.
This is provided that: * The family members are either the spouse of or have been residing with the tenant for twelve months prior to the application; or * The landlord consents. * Whether to allow family members to be included in the purchase where they have not been residing with the tenant for the requisite period is at the landlord’s discretion.
4.5 Action by the landlord
4.5.1 On receipt of the tenant’s application the landlord must check:
- That the tenant(s) has/have secure, assured or assured shorthold tenancies (where the tenancy began on or after 1 April 2012);
- Whether it is a joint tenancy;
- That the application has been correctly completed and signed by the tenant and where appropriate, others joining in the application;
- That each tenant has been a public sector tenant for the appropriate qualifying period. (Where there is a joint tenancy only one tenant needs to satisfy the qualifying period – section 119 (2) of the Right to Acquire regulations);
- Whether any tenant on the application is an undischarged bankrupt or has made a compromise or an arrangement with his/her creditors.
- Whether there is an effective possession order;
- Whether there is an effective suspension order (on the grounds of anti- social behaviour);
- That the property is not excluded from the scheme;
- Whether the tenant or co-purchasers have previously received a discount to purchase a property from a public sector landlord. This is not applicable to cases where the tenant repaid the whole of the discount on disposal within a repayment period.
- (Please see below for guidance on this issue.)
- Whether it must consult with its own lender in accordance with the arrangements stated in the Housing (Right to Acquire) Regulations 1997. See section 4.14.2 above.
Tenants are not eligible for more than one discount when buying property from a public sector landlord. Discounts can come in a range of forms e.g. a cash incentive through a Local Authority, or a discount under the Right to Buy/ Preserved Right to Buy, Right to Acquire or Voluntary Purchase Grant (no longer available).
Where a tenant has previously received a discount to purchase a property from a public sector landlord, the amount of discount due under Right to Acquire is reduced by the amount previously received.
Tenant lives in an area where the discount is currently £16,000. The tenant previously purchased a property through the Right to Buy and received a £10,000 discount.
Discount due for Right to Acquire £16,000 Previous discount/Grant £10,000 Right to Acquire discount £6,000
The landlord should therefore check their records to try to find out whether the applicant has received a discount on previous property.
However, this may be impossible if the tenant obtained a discount to purchase property in the past, at a different place, with a different landlord.
4.5.2 Landlords must respond in writing to the tenant’s claim to exercise Right to Acquire, either admitting or denying the right. If the landlord does not consider the tenant has Right to Acquire it must state the reasons in the notice (please see Form RTA2: Notice in Reply to the Tenant’s Right to Acquire Application).
4.5.3 Landlords must respond to tenants’ applications within four weeks if they have been the tenant’s landlord for the qualifying period (please see section 2.2 above), or eight weeks in any other case e.g. if landlords are still seeking clarification over the tenant’s records from a previous landlord.
4.5.4 At this stage, when responding to the tenant, landlords may offer the tenant an alternative property to purchase under the scheme. Where this is the case, landlords must make clear that there is no obligation placed on the tenant to accept the alternative property. This option is only applicable in cases where the tenant is eligible.
4.5.5 If an alternative property is offered the tenant will not be eligible for a higher discount. The level of discount applicable to the alternative property is established by reference to the Local Authority area in which it is located, except where the discount would be greater than the amount the tenant would receive by purchasing their current home, in which case the maximum discount would be the amount applicable to the property where the tenant lives.
4.5.6 Only naturally occurring voids can be offered as alternative properties; landlords must not keep homes vacant for this purpose nor offer newly developed properties for rent or sale that have been grant funded.
4.5.7 Landlords must commission a valuation of the property from a suitably qualified independent valuer. The valuation must take in to account:
- The nature of the title being sold (for example the terms of a lease);
- Any improvements to the property carried out by the tenant (which must be disregarded in the valuation);
- The provisions which, in the opinion of the landlord, should be contained in the conveyance or grant
- Service charge estimates and repair and improvement costs (where they are payable) (see section 4.8 below for the details of these requirements); and
- Details of any known structural defects.
4.6 Offer notice
4.6.1 After notifying the tenant of their eligibility, landlords can prepare the formal offer notice, detailing the terms of sale and confirming the purchase price.
4.6.2 The Agency has produced a standard offer for landlords’ use based on the provisions of section 125 (as amended) of the Housing Act 1985 (please see Form RTA 3 Offer Notice/Revised Offer Notice following a determination by the District Valuer).
4.6.3 Landlords must serve an offer notice on the tenant within eight weeks (where the tenant is acquiring the freehold) or twelve weeks (where the tenant is acquiring the property on a leasehold basis).
4.6.4 The offer notice must contain the following information:
- A description of the property to enable the tenant to identify the property and land to be sold;
- The sale price and how it was calculated;
- The value of the property at the date of the tenant’s application;
- Details of any improvements to the property carried out by the tenant which have been disregarded in the valuation;
- The tenant’s discount entitlement. Where the discount has been reduced to take account of previous discount paid the landlord should provide details;
- The provisions which, in the opinion of the landlord, should be contained in the conveyance or grant;
- Comprehensive service charge estimates and improvement costs (where they are payable);
- Details of any known structural defects; and
- Advice for the tenant on the effect of sections of Right to Acquire Regulations 1997. Please refer to the guidance for further information.
The relevant sections of Right to Acquire Regulations 1997 are:
- 125D and 125E (1) and (4);
- Section 128 (determination/redetermination of value);
- Section 136(2) (change of tenant after service of the offer notice); and
- Sections 140 and 141 (1), (2) and (4) (landlords’ notices to complete and effect of failure to comply), as amended by section 184 of The Housing Act 2004.
4.6.5 Landlords must ensure that they understand the effect of the Right to Acquire Regulations 1997 (cited in the section above).
4.6.6 Tenants will have twelve weeks in which to respond to the offer notice, or the offer will be withdrawn (please see 4.9 below).
4.7 Purchase price
4.7.1 To establish the purchase price of a property under Right to Acquire, landlords must first determine the market value of the property at the date of the tenant’s application, and then deduct the appropriate discount.
4.7.2 Discounts, and the areas they apply to, may be subject to review and revised orders may be made from time to time. Currently they are set out in Statutory Instrument 2002 No. 1091.
4.7.3 The value of the dwelling must be based on its market value at the time of the tenant’s claim and based on the following assumptions:
- the tenant’s improvements and the failure of the tenant to keep the dwelling in good internal repair will be disregarded;
- any service charges or improvement contributions payable will not be less than the estimates contained in the landlord’s offer notice;
- (for freehold property) the landlord is selling a freehold interest with vacant possession;
- (for leasehold property) the landlord is selling with vacant possession for the appropriate term, i.e. not less than 125 years or, where the landlord’s lease has less than 125 years and 5 days left to run, a term expiring 5 days before the term of the landlord’s lease is to expire.
4.7.4 Where the Right to Acquire discount represents more than 50% of the value of the property the maximum amount of discount is capped at 50% of the value of the property. Please see below for an example.
The following is an example of how a discount might be capped at 50%.
Where the discount entitlement is £9,000 and the property subject to the Right to Acquire is valued at £15,000, the maximum discount that can be approved to the purchaser is £7,500, Although it is an unlikely scenario, this is still a requirement, should the situation arise.
4.7.5 Landlords’ valuation fees must not be charged to the tenant, but should be deducted from the gross proceeds of sale when calculating the net receipt to transfer to the Disposal Proceeds Fund (please see the Regulator’s Disposal Proceeds Fund guidance).
4.8 Service charges
4.8.1 Where landlords are selling flats and maisonettes on a leasehold basis they will continue to be responsible for the repair and maintenance of the building and the provision of services such as lighting in communal areas. Landlords will need to apportion these costs to the individual unit and recover the costs from the leaseholders by way of the service charges. Please see below for details of the relevant legislation.
Landlords have to comply with the service charge requirements as detailed in legislation, namely the Housing Act 1985 (paragraphs 16A, 16B, 16C and 16D of Schedule 6) and should obtain legal advice on what these requirements mean.
4.8.2 Landlords are required to provide accurate estimates of service charges for tenants wishing to purchase. In particular:
- Estimates of the predicted repairs and improvements for the first five years of the lease; and
- Details of any known structural defects affecting the building - landlords must ensure that if they are to be repaired in the first five years they are included in the service charge estimates for repairs.
Any service charges or improvement contributions payable must not be less than the estimates contained in the landlord’s offer notice.
4.8.3 The annual service charge for repairs and improvements can only be increased to take account of inflation according to a set formula (not inaccurate predictions) within the first five years of the lease. Please refer to the guidance for further information.
The formula for calculating the inflation cost is to be the same as it is for the Right to Buy. The formula is set out in the Housing (Right to Buy) (Service Charges) (Amendment) (England) Order 2010 (SI 2010/2769).
4.8.4 Estimates of other service charges, apart from repairs and improvements, such as amounts to be charged for caretaking or communal lighting, must also be provided but are not binding. Please see below for guidance.
Landlords may wish to seek their own legal and professional advice on deciding the various elements making up the service charge. When setting service charges landlords may wish to bear in mind that under Right to Acquire legislation there is no provision entitling tenants to apply for a loan to cover payment of service charges.
4.9 Tenant’s response
4.9.1 After the landlord has served a formal offer notice, the tenant must respond in writing within twelve weeks, confirming either that they will pursue their application or that they wish to withdraw it.
4.9.2 The tenant may appeal against their landlord’s valuation within three months of receipt of the formal offer notice. Landlords must refer any appeal to the District Valuer for a determination.
4.9.3 Where a tenant has applied for a determination of the value of the property, the landlord is required to serve an updated offer notice to the tenant when the new valuation has been obtained. The tenant has a further twelve week acceptance period from the date of the updated offer (please see Form RTA 3: Offer Notice/Revised Offer Notice following a determination by the District Valuer). 4.9.3a Following a determination by the District Valuer tenants and landlords have 28 days to lodge a request in writing for that determination to be reviewed. This is known as a re-determination.
A re-determination can only be requested and carried out where the facts used to decide the determination of the value of the property were incorrect. The District Valuer must reply within 14 days to both the tenant and the landlord with either
- a review notice
- a notice stating that the District Valuer has decided not comply with the request, giving reasons accordingly.
4.9.4 No response from tenant Should the tenant not respond to the formal offer notice within the acceptance period, the landlord must serve a further written notice giving the tenant a further 28 days to state in writing whether they wishes to pursue the claim.
4.9.5 The notice served on the tenant should explain that failure to respond within 28 days will lead to the landlord treating the application as withdrawn.
4.9.6 Before the 28 day period expires, landlords may use their discretion to extend this period rather than treat applications as being withdrawn if tenants do not reply within the 28 days stated in the formal offer notice. Where landlords choose to allow a longer period to elapse they must send a further written notice to tenants explaining the extension, including details of the revised deadline and deemed application withdrawal.
4.10.1 Delays to completion Where the tenant has confirmed their intention to pursue an application (see 4.9.1 above) but fail to progress their purchase within a reasonable time, landlords must try to maintain progress by serving the tenant with ‘notices to complete.’ (see Form RTA 4: Prior Notice). 4.10.2 Landlords may serve a first ‘notice to complete’ at any time once the twelve week acceptance period has expired. The first notice to complete must be in writing and:
- Include a request for a tenant to specify any matters that may be outstanding;
- Give the tenant a reasonable period in which to complete (at least 56 days); and
- Inform the tenant of the effect of Sections 140 and 141 of the Housing Act 1985 that is the likelihood of a second notice to complete.
4.10.3 If the tenant failed to comply with a first notice to complete, landlords may serve a second notice to complete (see Form RTA 5: Notice to Complete) in writing:
- Giving tenants a further reasonable period to complete (at least 56 days);
- Repeating the effect of Sections 140 and 141 of the Housing Act 1985; and
- Highlighting that failure to comply with the second notice to complete allows the landlord to deem the application to be withdrawn.
4.10.4 Action following an appropriate response from the tenant Once the tenant has issued appropriate instructions to their mortgage lender (see guidance below) and legal representative, landlords will be in a position to dispose of the property. Landlords should check the following before completion takes place:
- That a possession or suspension order has not been obtained during the period of processing a tenant’s application;
- That tenant’s mortgage offers is from an authorised mortgage lenders, entitled to register tenants’ mortgages as a first charge or that the lender is taking a second charge; and
- That they have consulted their own lender(s) in accordance with the arrangements stated in The Housing (Right to Acquire) Regulations 1997 unless otherwise agreed in writing with the lender.
Tenants do not have to use an authorised mortgage lender. If their chosen lender is happy to have a second (rather than first) charge, the tenant can use any lender they wish.
4.11 Grant claim
4.11.1 After the sale of the property, landlords will be in a position to a claim grant to cover the Right to Acquire discount from the Agency. The claim must be submitted within six months of the date of sale. The amount of grant claimed must correspond to the relevant cash discount published in the current Right to Acquire Discount Order. Less any reductions for previous discounts received - please see 4.5.1 (9th bullet point) above or reductions due to the 50% cap. The discount should be that current at the date of the service of the formal offer notice – see paragraphs 4.4.2 and 4.6.4.
4.11.2 Landlords’ claims must be submitted to the Agency using the Agency’s Investment Management System (IMS).
4.11.3 The scheme submission must comply with conditions set out in IMS and in this Capital Funding Guide.
4.11.4 Landlords must also be able to confirm acceptance of the four certifications that appear within the Right to Acquire certification screen of IMS:
- The contents of the application are correct;
- This property is subject to Right to Acquire under Sections 180-185 of the Housing and Regeneration Act 2008 and Section 16 of the Housing Act 1996 and has been sold in accordance with the current Right to Acquire regulations as amended; and
- The sale of the property has been completed.
4.11.5 Payment will be made in accordance with Finance 3.12.
4.12 Restrictions on resale and covenants
4.12.1 Landlords must ensure that their conveyances include an appropriate repayment of discount covenant. The Agency has produced a model repayment of discount clause.
However, if using the Agency’s model repayment of discount clause, landlords must satisfy themselves by taking their own legal advice that the model clause is adequate for their purposes.
Restrictions on resale and covenants - the charge
(1) The Purchaser/Transferee/Lessee hereby covenants for himself and his successors in title that if within a period of 5 years from the date hereof there shall be a relevant disposal, which is not an exempted disposal, (the terms relevant and exempted disposal being defined, respectively, in sections 159 and 160 of the Housing Act 1985), the Purchaser/ Transferee/Lessee will pay to the Registered Provider on demand such as the Registered Provider demands, not being greater than an amount (hereinafter “the maximum amount”) to be calculated on the basis of (2) below but reduced by 20% for each complete year which shall elapse between the date hereof and the date of such disposal PROVIDED THAT if there is more than one such disposal the Registered Provider shall be entitled to demand payment only on the first of them.
(2) The maximum amount is a sum equal to x% of the value of the Property on the relevant disposal, where the value is the price or premium paid for the Property on the said disposal less such amount (as may be agreed or determined in accordance with section 155C of the Housing Act 1985) of that price or premium paid as is attributable to improvements made to the Property by the person by whom the disposal is or is to be made between the date hereof and the said disposal.
NOTE 1: Landlords’ Solicitors will need to define the Purchaser/Transferee/Lessee, Provider and Property.
NOTE 2: The repayment of discount covenant will take effect as a charge on the property by virtue of sections 156 of the Housing Act 1985 and is protected by entry of a notice or caution on the register of the purchaser’s title.
NOTE 3: Section 155 of the Housing Act is modified as it applies to Right to Acquire by means of Schedule 2 (Regulation 2(2)) of The Housing (Right to Acquire) Regulations 1997.
NOTE 4: Landlords’ solicitors must calculate the % figure to be used in clause (2) above. This figure must equate to the percentage value of the available discount compared to the property’s sale price at the time of the Right to Acquire purchase.
Example (at the time of the Right to Acquire purchase) – Property sale price = £150,000 Available discount = £ 10,000 Percentage value = 15%, (£150,000 divided by £10,000).
4.12.2 The requirement to repay the discount is a charge that will rank immediately after that of the tenant’s authorised mortgage lender. If, in the future, the new owner wishes to extend their mortgage to fund works to the property, landlords may postpone their repayment of discount charge in favour of the lender; however the charge should not be postponed for any other reason. Should the tenant use an unauthorised lender, the landlord’s charge will be a first charge – ahead of the lender’s.
4.12.3 Landlords must retain the right of first refusal if/when the new owner sells the property. Under section 156A of the Housing Act 1985 (as amended by section 188 of the Housing Act 2004) landlords must set a covenant requiring that, during the period of ten years from the date of conveyance the tenant (purchaser) or any successor in title, such as where the property is inherited.
Note that this does not apply following an open market sale, the seller must make an offer of first refusal to the former landlord.
4.12.4 The right of first refusal covenant must be registered by the landlord’s solicitor as a local land charge and must be entered in to the property’s register of title by the Chief Land Registrar. This will prevent the covenant from being overlooked at the point of resale.
4.13 Conveyance of freehold and grant of lease
4.13.1 Landlords must refer to The Housing (Right to Acquire) Regulations 1997 which contain the statutory requirements for conveying the freehold or granting leasehold. Please see below for additional guidance on leases.
The Agency does not produce a model lease for Right to Acquire scheme but a plain English model lease can be purchased from the National Housing Federation.
4.14 Legal charges
4.14.1 Landlords must dispose of their property to tenants free of any other legal charges e.g. a secured mortgage.
4.14.2 Landlords must therefore agree with their own lenders whether they will redeem their mortgages or provide alternative security for existing loans against the affected property. This process is a requirement of The Housing (Right to Acquire) Regulations 1997; the notification process is summarised below.
4.14.3 When tenants notify their landlord of their intention to proceed with the purchase, landlords must, within seven days of receipt of the tenant’s notification, give written notice to their lender. Please refer to the guidance for further information.
Lender notification details
The notice should contain information about the purchase price and value and set out whether the loan applicable to the property is to be redeemed. If it is not to be redeemed, the notice should give the lender the option of either taking alternative security or being paid the market value of the property. Any property offered as alternative security must have sufficient equity to cover the market value of the property being sold. Where the landlord’s notice states that the landlord does not intend to redeem the charge and gives the lender the options referred to above, the lender has 14 days to respond setting out which option is acceptable.
Landlord and their lenders may agree alternative arrangements for dealing with notification of sales, providing the arrangement is in writing and has regard to the 21 day period mentioned below.
Where the lender accepts the option of alternative security in the form of a property, the lender must be given 21 days to secure a charge. Where the 21 day period is insufficient, the lender either accepts that it will secure the charge after the sale has been allowed to complete or if the landlord has failed to take reasonable steps to enable a charge to be secured, the lender can insist on payment of the equivalent to Right to Acquire property’s market value within seven days. In circumstances where the lender rejects an alternative property as security, it may require the landlord to pay an amount equal to the market value of Right to Acquire property within 21 days of the lenders notice rejecting the alternative property, or at the date of Right to Acquire purchase whichever is the later. Any disputes over the lender’s security should not be allowed to delay the sale beyond the notice periods stated above. The landlord’s obligations under the terms of the loan agreement with the lender will continue to apply after the sale.
4.15 Authorised lenders for Right to Acquire purposes
4.15.1 Section 156 of the Housing Act 1985 enables lenders to social tenants exercising their Right to Acquire to secure the first charge on a property ahead of the landlord. Under the Housing and Regeneration Act 2008, high street banks and building societies have automatic approved lending institution status and, since 22 September 2008, all authorised mortgage lenders, as defined in section 622(1) of the Housing Act 1985, also have automatic approved lending institution status.
For further information please refer to the Department for Communities and Local Government website.
For information regarding authorised mortgage lenders please see below.
An authorised mortgage lender means a person who has permission under Part 4 of the Financial Services and Markets Act 2000 to enter in to a regulated mortgage contract as a lender. For further information refer to the Financial Conduct Authority’s website.
5. Right to Acquire - Post Sales Procedures
5.1.1 Providers must claim grant to cover the Right to Acquire discount from the Agency within six months of the date of sale.
5.1.2 Net proceeds from sales must be retained by the providers in a ring-fenced Disposal Proceeds Fund as required by s177 of the Housing and Regeneration Act 2008.
5.1.3 For details of how to calculate the net sales proceeds, together with the rules and administration of a Disposal Proceeds Fund please refer to Regulator’s Disposal Proceeds Fund guidance.
5.2 Repayment of Right to Acquire discount
5.2.1 The Right to Acquire discount becomes repayable if the property is sold within five years from the date of purchase. The amount to be repaid reduces according to the year in which the property is sold.
5.2.2 Following the original purchase the discount is treated as an equity investment – a share in the property. The amount to be repaid is based on a percentage of the resale value equal to the percentage of the discount received by the tenant on purchasing the property. Repayment is as follows;
- Sale within year 1: an amount equal to the % value as above;
- Sale within year 2: 80% of the amount calculated above;
- Sale within year 3: 60% of the amount calculated above;
- Sale within year 4: 40% of the amount calculated above;
- Sale within year 5: 20% of the amount calculated above;
- No repayment is required after year 5.
Please refer to the guidance for a.worked example.
Market value of the property at initial purchase = £160,000, the available discount = £16,000. The discount expressed as a percentage would equate to 10% of the property’s market value.
The property value subsequently rises and is sold for £180,000 during year 1. Repayment is calculated on using the original percentage value, that is, current value £180,000 x 10% = £18,000.
If the same property was not sold until year 3 when its value was £220,000, the repayment due would be £220,000 x 10%, = £22,000, x 60% = £13,200. Where property values fall the same calculation method is to be followed. Continuing the above example, if the property value dropped to £150,000 and was sold within year 1 the repayment would be £150,000 x 10% = £15,000.
However landlords should note paragraph 5.4 when improvements have been made to the property since initial sale.
5.2.3 Exempted Disposals Not all sales trigger the repayment of discount. Exempted disposals are detailed in the Housing (Right to Acquire) Regulations 1997. Providers should seek legal guidance to ascertain whether or not a disposal can be treated as exempt for repayment purposes.
Please refer to guidance for further details.
The following is a brief summary of those disposals the Agency considers would be exempt from the repayment provisions:
- Disposal to any member of the family who joined in the original application or who has resided in the property twelve months immediately before the date of disposal;
- Disposal to a spouse;
- Disposal to a person under the terms of a will or on a intestacy;
- Disposal arising from compulsory purchase by a public body; and
- Disposal of the whole of the property in pursuance of an order under Section 24 of the Matrimonial Causes Act 1973.
The above is for guidance only, and providers should consider seeking a legal opinion as and when required.
5.3 Waiving repayment of Right to Acquire discount
5.3.1 Providers have discretion to waive repayment of some or all of the discount, regardless of when the tenant originally acquired the property, as per section 185 of the Housing Act 2004.
5.3.2 Such discretion must only be used in exceptional circumstances. It is for providers to decide whether the circumstances of individual cases would justify the exercise of discretion. Providers will be expected to establish and maintain procedures for:
- Considering cases;
- Making decisions; and
- Ensuring their process is open, fair and transparent.
Providers should bear in mind the possibility of a judicial review or Independent Housing Ombudsman scrutiny. Please see guidance below.
Providers should decide what procedures to use and whether their decisions should be subject to an internal review process, and if so by what means. Options might include deciding on the basis of written representations or holding formal hearings (in which case allowing the applicant to bring a representative or adviser).
5.3.3 When considering waivers, landlords should bear in mind the net cost to the public purse, and clear decisions with their auditors. Please refer to the guidance for further information.
The Regulator’s Governance and Financial Viability standard requires providers to safeguard taxpayers’ interests and the reputation of the sector.
5.3.4 Use of discretion is most likely to be justified in circumstances where demonstrable personal hardship would otherwise result. In each case it will normally be necessary to establish both the facts justifying a move, and that such a move could not take place unless part or all of the discount repayment were to be waived. Please refer to the guidance below for further information.
Examples of such circumstances include the following. (a) Where an owner of the property wishes to move because otherwise he or she and/or other family members (especially children) face a demonstrable threat of violence or of significant harm; for example, due to:
- Relationship breakdowns involving actual or threatened domestic violence;
- Racial, faith, homophobic or any other kind of harassment;
- Extreme anti-social behaviour, such as persistent drug dealing in an adjoining or nearby property; (b) where the sudden onset of a severe medical condition or serious deterioration of an existing condition makes a move essential on medical grounds; (c) where an early move is essential to return to employment; for instance where an individual has a firm offer of a job in another area and would thereby be able to return to work, either:
- After long term unemployment; or
- After having been made redundant, when his/her skills are such that there is no prospect of getting another job locally. (d) where a traumatic personal event (for example, sudden bereavement) makes a move essential for emotional or psychological reasons.
Evidence supporting any decisions should be clear and objective, e.g. from a local police force, doctor, psychiatrist or employer.
5.4 Disregarding improvements for Right to Acquire discount repayment purposes
5.4.1 Any increase in a property’s value solely attributable to improvements made by the owner after acquiring it, is to be disregarded for the purpose of calculating any discount repayment if the property is then sold within the five-year repayment period. This allows owners to obtain full value for the improvements and not be penalised for improving the property. Providers must brief the valuer accordingly when instructing them to undertake valuations.
5.4.2 Where the value of any improvements is disputed, providers must refer the matter to a qualified independent valuer to arbitrate, where it is reasonably practicable to do so. Any costs associated with reference to the valuer are to be borne by the person disposing of the property. If the arbitrating valuer does not make a determination, no disregard for the value of improvements is allowed.
6. Reporting and audit requirements
6.1.1 It is a condition of grant that providers:
- Complete and maintain accurate records;
- Report regularly on activity; and
- Make records available for audit (please see the checklist on the Compliance Audit page for details).
6.2 Reporting on annual outputs
6.2.1 Providers are required to provide the Agency and local authorities with monitoring information on Right to Acquire transactions. Please see section 4 of the Regulator’s Disposal Proceeds Fund guidance.
7. RTA forms
7.1 Landlords can now download the Agency’s suite of Right to Acquire forms from the Agency’s website.
7.2 The forms are for use when processing Right to Acquire applications. The forms are as follows:
- RTA1: Applications are legally required to be made in writing; RTA1 can be used for this purpose
- RTA2: Landlord’s formal response to a Right To Acquire application
- RTA3: Landlord’s Offer Notice
- RTA4: Landlord’s first reminder to an applicant to complete their application
- RTA5: Landlord’s second reminder to an applicant to complete their application