Capital Funding Guide

10. Finance

This chapter sets out the conditions and procedural requirements for the use of public subsidy.

1. Overview

1.1 Purpose

1.1.1 This chapter sets out the conditions and procedural requirements which aim to ensure that public subsidy is:

  • Used correctly and in accordance with general fiscal legislation
  • Accounted for accurately
  • Administered in line with the correct procedures

1.2 Context

1.2.1 Use of Social Housing Assistance/Social Housing Grant is governed by the Agency’s terms and conditions, and principles as described in Programme Management 1.4 and clauses in the Affordable Homes Grant Agreement.

1.2.2 Grant Recovery is governed by the Recovery of Capital Grants and Recycled Capital Grant Fund General Determination 2015 and/or clauses in the 2015 to 18 Affordable Homes Grant Agreement (for 2015 to 2018 delivery) and the 2011 to 2015 Framework Delivery Agreement (for 2011 to 2015 delivery).

1.2.3 The use of grants paid in respect of Right to Acquire and Social HomeBuy is governed by statute. Please refer to the guidance for further information.

Section 35 of the Housing and Regeneration Act 2008 requires the Agency to specify:

  • The procedure to be followed in relation to applications for grant
  • The method for calculating, and any limitation on, the amount of grant
  • The manner in which, and time or times at which, grant is to be paid
  • Any other terms and conditions on which such a grant is given

These details can be found in the Right to Acquire and Social HomeBuy chapters of this Guide.

1.2.4 Financial Assistance paid in respect of Right to Acquire and Social HomeBuy discounts will be subject to the rules of the Disposal Proceeds fund. Please see the Regulator’s Disposal Proceeds Fund guidance for details.

1.3 Other sources of funding

1.3.1 Social Housing Assistance/Social Housing Grant can be combined with other sources of funding, including:

  • Long-term loan from a bank/building society/other (a mortgage, the bond market or other borrowing facilities)
  • Recycled Capital Grant Fund - where permitted, see the Grant Recovery chapter
  • Disposal Proceeds Fund - see the DPF guidance on the Agency’s website
  • Other public subsidy e.g. gap-funding grant from a Local Authority
  • Discount on land from the public sector
  • Discount on land from the private sector (arising from the local authority planners imposing a Planning Obligation, enforced through a section 106 Agreement). Although the Agency expects that section 106 schemes will be delivered at nil grant. For further details on the funding for S106 schemes please refer to paragraph 75 of the AHP 2015 to 2018 Prospectus
  • Providers’ own funds
  • Charitable donations

1.4 Other Public Subsidy

1.4.1 Previously the Capital Funding Guide (CFG) has drawn a distinction between deductible and non-deductible other public subsidy with deductible other public subsidy reducing entitlement to grant. This concept is no longer relevant, with grant levels for schemes set through competitive bidding rather than a formula. Grant is not adjusted due to the receipt of other public subsidy.

1.4.2 For information on how the Office of the Gas and Electricity Markets’ Feed in Tariff impacts on the Affordable Homes Programme please refer to guidance published on the Agency’s website.

1.5 Other Public Subsidy: Discounted Land

1.5.1 When recording details of other public subsidy: discounted land, the discount is the difference between the total consideration paid by the provider and the restricted value of the property. The restricted value takes in to account any reduction in value brought about by any fettering of the future use of the property by the seller. If no such restrictions are placed on the property, the restricted value will be the same as the unrestricted value. For an example see below.

Other Public Subsidy: Discounted Land

Example

If a local authority sells land subject to a nomination agreement which requires more than the baseline 50% nominations for grant funded schemes, this will restrict the value of the property. Without this restriction a site may be worth, say, £1.5 million (the unrestricted value). However, with the requirement to enter in to a long-term nomination agreement providing, say, 100% of initial lettings and 75% of true voids, the Restricted Value of the site will fall to (say) £1.3 million. If the provider pays £1.3 million, they will NOT be considered as having received £200,000 of other public subsidy, as they will have paid full value for the site, given that it is fettered with the nomination agreement.

Definition

Consideration is the thing of value that one party gives to another under a contract. Often, it comes in the form of money, but it can also come in the form of goods or services. Thus, the total consideration paid by one party under a contract to the other party may be a mixture of monetary-consideration and consideration-in-kind. An example might be a Registered Provider offering nomination rights to affordable housing to an employer, a local authority or other body. Having the right to nominate someone in to affordable accommodation has a value. Thus, nomination rights can be consideration-in-kind.

1.5.2 Both the restricted value and the unrestricted value should reflect the uses for which a planning permission is likely to be obtained.

1.5.3 Providers must obtain professional valuation advice on the effect on value of any restrictions placed on land by the seller.

1.5.4 Providers must also note the difference between ‘total consideration’ and ‘price’. The Agency will count the organisation’s scheme as being in receipt of other public subsidy if the value of the monetary consideration paid (the price) and the consideration-in-kind provided is less than the restricted value of the property.

2. Funding conditions

2.1 General

2.1.1 Shared Ownership and Affordable Homes Programme (SOAHP) providers are not required to sign up to separate Funding Conditions via IMS. Instead the Funding Conditions have been incorporated into the 2015 to 2018 Affordable Homes Grant Agreement.

2.1.2 Previous funding conditions refer Registered Providers to their responsibilities in respect of the 2012 Construction Commitments – Affordable Housing Provider version.

2.1.3 For the SOAHP, where providers are undertaking the role of Employer/Client on developments for which Grant has been requested, funding is conditional upon providers undertaking grant funded projects in accordance with the principles set out in the 2012 Construction Commitments - Affordable Housing Provider version or subsequent Clients’ Commitments Best Practice Guide.

2.1.4 Further detail is available at Client Commitments. The Agency will exercise discretion in relation to Registered Providers undertaking small or occasional projects with insignificant construction activity.

2012 construction commitments - Affordable housing providers

Procurement and integration A successful procurement policy requires ethical sourcing, enables best value to be achieved and encourages the early involvement of the supply chain. An integrated project team works together to achieve the best possible solution in terms of design, buildability, environmental performance and sustainable development.

  • Procurement decisions will be transparent, made on best value rather than lower cost, use evaluation criteria and where appropriate, specialist advisors, whilst encouraging the contribution of smaller, specialist, or Black and Minority Ethnic organisations
  • All members of the construction team will be identified and involved at an early stage, particularly during the design process, and encouraged to work collaboratively
  • Supply chain partners will be required to demonstrate their competency, their commitment to integrated working, innovation, sustainability and to a culture of trust and transparency
  • To ensure effective and equitable cash flow for all those involved, all contracts will incorporate fair payment practices, such as payment periods of 30 days, no unfair withholding of retentions, project bank accounts, where practicable and cost effective, and will include mechanisms to encourage defects free construction
  • The duties of each project team member will be identified and shared at the outset of the project and appropriate insurance policies, such as project insurance, put in place
  • Risks will be clearly identified, financially quantified and allocated in line with each party’s ownership and ability to manage the risk
  • All contracts will have an informal and non-confrontational mechanism to manage out disputes
  • The client is expected to have an equality and diversity policy, promote its principles to its supply chain partners and monitor supply chain application

Client leadership

Client leadership is vital to the success of any project and enables the construction industry to perform at its best.

  • The client structure and responsibilities will be clearly identified and adequately resourced to ensure continuity in leadership for the duration of the project
  • There will be client commitment to best practice guidelines and engendering cooperation with all organisations involved in the project
  • A clearly expressed, well researched impact and financial appraisal for the project will be developed for major development proposals
  • A detailed brief with clear financial objectives, programme and definition of what is meant by success will be developed by the client before the design stage for all projects and this will be shared at the outset with all those involved
  • The client will champion best practice in design, team-working, innovation, health and safety, and sustainability, and demand an appropriately trained and qualified workforce
  • A clear, collaborative and flexible procurement policy will be developed by the client
  • The client will work within the project team from the outset of the project to identify and manage project risks and
  • The client will strive towards a zero defects policy and ensure that any defects which might adversely affect the occupier’s enjoyment of the home are rectified prior to handover

Design quality

The design should be creative, imaginative, sustainable and capable of meeting delivery objectives. Quality in design and construction utilising the best of modern methods will ensure that construction projects meet the needs of all stakeholders, both functionally and architecturally, for 2012 and beyond.

  • The client will produce a clear brief before design commences
  • Designers will be selected according to ability and quality, together with other criteria appropriate to the scale and complexity of the project
  • Every opportunity will be taken to encourage visionary designs, including green spaces, good landscaping, art and sculpture, and high quality public realm
  • The design must suit the needs outlined in the project brief and ensure that whole-life value is delivered by addressing buildability, maintainability and usability, whilst driving health and safety throughout
  • Project briefs will specify performance criteria to encourage innovation in order to deliver cost-effective solutions, taking advantage of opportunities, where appropriate, for standardisation, prefabrication, off-site manufacture and adopting modern logistics principles
  • The client should regularly test its design approaches by means of 3rd party design reviews and other tools for assessing design quality
  • The client should consider using collaborative tools and communication technologies on a regular basis

Commitment to people

Valuing people leads to a more productive and engaged workforce, facilitates recruitment and retention of staff and engages local communities positively in construction projects.

  • Local employment projects and local training initiatives will be utilised wherever possible in order to create sustainable communities
  • Local communities will be fully involved and engaged from the outset of all projects
  • Training and development will be offered to all staff, including where appropriate supply chain partners, to meet individual and project needs
  • Supply chain partners will be encouraged to offer opportunities for apprenticeships and work experience
  • A policy of equal opportunities will be adopted to encourage a diverse workforce across all supply chain partners
  • Supply chain partners will be encouraged to regularly review and seek improvement through better employment practices, including training as well as health and safety
  • Construction sites will be regularly monitored to ensure that they are clean, tidy and provide good quality facilities, including catering, appropriate to the diverse needs of the workforce
  • Sites will be regularly monitored to ensure that they are run considerately without causing nuisance to local communities

Sustainability

Sustainability lies at the heart of the delivery of communities in which people want to live and work. A sustainable approach will bring full and lasting environmental, social and economic benefits through regeneration and legacy (see also Commitment to People).

  • The projects will be designed in accordance with the concept of ‘One Planet Living’
  • An overarching Sustainable Development Strategy will be developed with relevant stakeholder
  • Each major project will have a specific Sustainability Action Plan which will address environmental, social and economic aspects, and aim to attain the highest levels within relevant standards and include all aspects of the supply chain
  • Targets will be set and performance will be monitored and appraised regularly
  • Projects will incorporate best practice approaches to resource use, waste minimisation, low-carbon performance, employment, training and community engagement
  • Development plans will seek to enhance, create and protect the local natural environment
  • Projects will actively aim to enhance the vitality and viability of local communities

Health and safety

Health and safety is integral to the success of any project, from design and construction to subsequent operation and maintenance.

  • All designs will address health and safety issues and all projects will have a risk register
  • Construction projects will aspire to be injury and incident-free
  • Every major project will have a strategy to deal with occupational health and provide qualified medical staff on site
  • All health and safety risks, including those relating to occupational health, will be assessed, managed, action taken and communicated from inception to design

Supply chain partners will be encouraged to sign up to and implement the Strategic Forum Health and Safety Code.

  • All professional and site staff will be encouraged to hold Construction Skills Certification Scheme (CSCS) cards or equivalent

2.1.5 The Affordable Homes Grant Agreement includes a requirement that providers follow the Agency’s published criteria, procedures and audit arrangements as set out in the CFG for all scheme/programme submissions, (re)forecasting milestones, scheme variations, use and recovery of grant.

2.2 Acceptance of the Affordable Homes Grant Agreement

2.2.1 Providers developing a programme of schemes under the Agency’s SOAHP must formally accept the Agency’s terms and conditions as contained within the Affordable Homes Grant Agreement. This will require a Board decision and providers must retain a minute of the Board’s decision on file for compliance audit purposes.

2.2.2 Signing the grant agreement will be deemed as acceptance of the Agency’s terms and conditions.

2.2.3 Providers will not be able to claim grant unless the grant agreement has been agreed and signed.

2.3 Personal, proprietary and pecuniary interest

2.3.1 Providers should ensure their members, employees, agents or consultants, or those of any of their partner organisations must not have any personal, proprietary and pecuniary interest in:

  • Any person from whom the provider is purchasing land or property
  • Any contractor engaged by the provider or
  • Any land or property to be acquired or developed

in connection with their SOAHP.

2.3.2 Providers must also ensure their members, employees, agents or consultants or those of any of their partner organisation are not given preferential treatment by virtue of their position or associations whether in terms of access to land and properties developed, rehabilitated or disposed of, or the prices at which such land and properties are let or disposed of.

2.4 Breaches of the Affordable Homes grant agreement

2.4.1 The Agency may impose penalties including changes to the level of or suspension of funding if its terms and conditions as outlined in the grant agreement are not met.

2.4.2 Where providers fail to comply with terms and conditions as set out in the grant agreement, or if there is any cause for serious concern about the provider’s performance or financial viability, the Agency reserves the right to suspend funding. This may also trigger grant repayment (plus interest where applicable) as outlined in the grant agreement.

2.5 Funding Conditions prior to the SOAHP

2.5.1 The Agency’s affordable housing programmes prior to the SOAHP were subject to Funding Conditions, and:

  • The Framework Delivery Agreement (for schemes being delivered under the AHP 2011 to 2015) or
  • The Programme Partnering Agreement (for schemes being delivered under the NAHP 2008 to 2011)

2.5.2 As there is no possibility of new schemes starting under these previous programme arrangements, there no longer is a requirement for providers to sign up to the Funding Conditions via IMS. All new schemes delivered through the SOAHP will be subject to the grant funding conditions that are included in the relevant form of grant agreement.

2.6 Consequences of breaching Grant Funding Conditions and the Affordable Homes Programme Grant Agreement

2.6.1 The Agency may impose penalties including changes to the level of funding provided for a scheme or terminating the scheme if forecast milestones are not met.

2.6.2 Where providers fail to comply with these grant funding conditions or if there is any cause for serious concern about the provider’s performance or financial viability, the Agency reserves the right to suspend funding. This may trigger grant recovery.

3. Grant claims and payments

3.1 General

3.1.1 Providers must not claim grant:

  • If they do not have a secure legal interest in the property
  • In advance of need i.e.:
    • When the provider has not entered into the commitment for which the grant payment is intended OR
    • Even though contractually committed, the provider does not yet have to make payments
    • Before the relevant payment milestone has been achieved (please see Milestones entry)

For guidance on ‘a secure legal interest in the property’ please see below:

For schemes being delivered under the SOAHP, a secure legal interest in the property means that the provider owns either the:

  • Freehold title registered with title absolute
  • Leasehold title (where the lease has at least 60 years’ unexpired duration) registered with title absolute or in the case of any Firm or Indicative scheme comprising Affordable Home Ownership Dwellings 99 years unexpired duration from the projected purchase point
  • Freehold title registered with possessory title or good leasehold title and defective title indemnity insurance in favour of the provider with a limit of indemnity to at least the Total Grant Required for that site or
  • A binding contract with the owner of the legal and beneficial interest in the site (owning either a freehold interest or a leasehold interest of at least 60 years’ unexpired duration) to secure one of the interests above and that securing that interest is conditional only upon matters that are within the direct and unilateral control of the provider.

Please see also Procurement and Scheme Issues 4.3 for additional information on good title.

For schemes being developed under the NAHP 2008 to 2011, a secure legal interest in property means that the provider either:

  • Already owns the property (with good title - please see Procurement and Scheme Issues 4.3) or
  • Is in a binding contract with the owner of the property to secure that good title and that, completion of the purchase is only conditional upon issues that are under the direct control of the provider, not other people or organisations

For example, the scheme may involve a local authority selling land to the provider on completion of the construction of the dwellings to the standards required by the local authority. Therefore, at the start of the building contract, the local authority still owns the land, not the provider. In order to be able to go on to the local authority’s land and hand possession of the site to the builder, the provider will need permission to do so from the local authority, as they are the landowner or it will be guilty of trespass. This permission is usually granted in a document called a Building Licence i.e. the landowner licences somebody else (the provider) to go on their land and undertake the Works. The provider, in turn, licences the building contractor to go on the land and undertake the Works on their behalf, through the building contract.

A Building Licence itself does not mean that when the dwellings are completed the provider has any legal interest in the property; it is simply the local authority granting permission to the provider to construct dwellings on its (the local authority’s) land. If other appropriate steps are not taken, the provider could end up having paid for the construction of the dwellings which are then retained by the local authority.

To avoid this, the provider will only undertake the construction of the properties once it binds the local authority in to a contract to sell the land upon completion of the dwellings. This may be by the provider and the local authority exchanging contracts for the sale of the land to the provider, with a condition that the provider undertakes the construction of the dwellings to an agreed standard.

As the provider is in control of the terms of the building contract, they can control whether the condition in the land contract is fulfilled or not. It is this control over the conditional contract that gives the provider sufficient legal interest in the property.

When the dwellings are complete, the condition has been fulfilled, and the land contract becomes unconditional and completion will then take place automatically.

An alternative approach, rather than exchange a conditional contract, is for the provider and the local authority to enter into an Agreement for Sale. This is a separate contract from the contract for sale of the land, whereby the local authority formally agrees that when the provider has constructed the properties to the agreed standard, they (the local authority) will sell the land and properties to the provider on agreed terms.

There are variations on both of these themes, but they share the underlying purpose of providing the provider with certainty that they will become the eventual owners of the property. This certainty is what provides the ‘secure legal interest’.

Clearly, land contracts which contain conditions that are beyond the control of the provider provide much less certainty that the provider will eventually become the owner of the land. For example, exchanging contracts with a condition that the provider will obtain a planning permission that is deemed ‘suitable’ by the provider and/or the seller is much less certain. Under these arrangements, it is quite possible that the provider may never be able to meet that condition, and so may never obtain the land. Thus, even though they are in contract with the landowner, they would not have obtained a secure legal interest.

Providers should seek legal advice on the best contractual mechanism to ensure that they obtain a secure legal interest in the property. If the provider is not already the landowner at the time of claiming grant, they must explain to the Agency exactly how they have a “secure legal interest in the property”.

3.1.2 For properties delivered under the SOAHP by registered providers, then grant will be paid on a per scheme basis, in two tranches, at start on site and at practical completion. For unregistered bodies the organisation may choose between (i) receiving 100% of the funding at practical completion of the scheme or (ii) receiving 50% at start on site and 50% upon practical completion and offering one of the forms of security accepted by the Agency.

3.1.3 For properties delivered under the AHP 2011 to 2015, grant will be paid on start on site and practical completion, unless start on site is achieved after 31 March 2012 or before 23 July 2012, in which case grant will only be paid on practical completion.

3.1.4 For schemes still being built out following approval under the NAHP 2008 to 2011, payment will continue to be in two tranches – one at start on site and one at practical completion.

3.1.5 Under the 2015 to 2018 Affordable Homes Grant Agreement, the 2011 to 2015 Framework Delivery Agreement or the 2008 to 2011 Programme Partnering Agreement where still appropriate) grant can be paid via the Lead Partner to other providers within the consortium/partnership. In such cases, the Lead Partner is deemed to be a conduit for payment and not a grant recipient. Lead Partners do not, therefore, need an interest in the site to enable this transaction.

3.1.6 Under the AHP 2011 to 2015, a distinction is made between the total grant required and the agreed payment rate.

3.1.7 Total grant requirement refers to the amount of funding agreed to make a scheme financially viable, as agreed in the provider’s programme offer.

3.1.8 The agreed payment rate refered to the amount of grant actually paid in respect of each unit, upon completion, regardless of the total grant required and was only in use during the AHP 2011 to 2015. Depending on the nature of the offer, there were up to two agreed payment rates:

  • Affordable Rent (outside London)
  • Affordable Home Ownership (outside London)

3.1.9 Agreed payment rates were therefore be more or less than total grant rate for any individual unit.

NB From 2015 the concept of an agreed payment rate was replaced by scheme by scheme payments.

3.2 Bank details

3.2.1 When providers are due to receive grant from the Agency for the first time, they must provide details of the bank account to be credited, and notify any subsequent change of bank or account details. Why?

The Agency pays grant directly in to the providers’ bank account. Therefore the Agency requires details of the provider’s bank accounts; otherwise grant cannot be paid to the provider.

3.2.2 Providers must provide their bank details in writing on company headed notepaper, or direct from the organisation’s business email address, to the Agency’s Finance Department.

3.2.3 If bank details are provided by email they must be sent directly to creditors@hca.gsi.gov.uk and the email address from which they are sent must be clearly identifiable as coming from the organisation. Forwarded emails and those from personal email addresses are NOT accepted.

The following details are required:

  • Bank name
  • Bank branch/address
  • Bank sort code
  • Bank account number
  • Bank account name

3.2.4 Providers nominating another body to receive payments, e.g. a solicitor, must notify the Agency’s Finance Department of the payee’s details. The payee must then provide their bank details as described above, quoting the RP’s name and IMS Provider Code (this should not be confused with an IMS scheme number).

3.2.5 All providers’ claims for payment of grant must be submitted through the IMS. IMS guidance documents are on the IMS website.

3.3 General procedural requirements

3.3.1 At the point of claiming grant providers must confirm:

  • That the application for grant payment is correct and conforms with the Affordable Homes Grant Agreement (or previous conditions, contract or agreement is applicable) plus any further conditions issued by the Agency in year (if the provider is unable to confirm this, the application for grant payment will be rejected)
  • Acceptance of the certifications that appear on the IMS screen when the scheme has been submitted
  • For outstanding schemes, that the operating area has been notified of any change that has occurred to the scheme since bid stage
  • That they (i.e. the provider) have (or will have) good title to the property
  • That all necessary consents have been obtained prior to exchange of contract (for Off the Shelf and HOLD schemes)

3.3.2 In the case of Off the Shelf and HOLD, the single tranche of grant can be claimed upon exchange of purchase contracts, provided that the property is fully developed and immediately available for occupation. Please see Programme Management section 4.2.4

3.3.3 Providers will need to obtain approval from their operating area for any scheme variation, including changes to milestone dates.

3.3.4 For schemes that fail to reach completion, providers must contact their operating areas as grant may be recoverable. See the Recovery Determination, relevant events, paragraph 7(e).

3.3.5 Operating areas will check that all comments made on IMS for any variations from the bid/offer stage are consistent with previously agreed changes for that scheme.

3.3.6 The Agency may terminate a programme/scheme and recover any grant paid on the scheme where:

  • The programme/scheme no longer meets a strategic need
  • The programme/scheme no longer offers value for money
  • The provider has not previously told the operating area of the changes, even if the changes are not fundamental

3.4 Start on Site claim

3.4.1 The following requirements do not apply to schemes delivered by unregistered providers where they have elected to be paid 100% at practical completion, off the shelf or through the AHP 2011 to 2015 where the start on site was achieved on or after 1 April 2012 and on or before 22 July 2012.

3.4.2 The trigger for claiming grant at start on site is the date of the start on site of the main contract works. Homes funded under the SOAHP must have started on site by 31 March 2021 and completed by 31 March 2022.

3.4.3 For schemes being delivered under the SOAHP, this is deemed to be the date when the contractor takes possession of the site/property AND both parties have signed and dated the main building contract. Further, there is an additional condition that start on site works must have commenced. Start on sites works are defined as:

a) Excavation for strip or trench foundations or for pad footings

b) Digging out and preparation of ground for raft foundations

c) Vibrofloatation, piling, boring for piles or pile driving

d) Drainage works specific for the buildings forming part of the Firm Scheme or

e) Such works of demolition or service diversion as are expressly and strictly contemplated in the Finance – Grant Claims and Payments section

3.4.4 It is not intended that the definition of start on site works in the Affordable Homes Grant Agreement excludes schemes where demolition works have begun or where infrastructure works (such as excavations to install drainage or highways infrastructure works including where such works are the subject of a section 278 or section 104 agreement) to support the scheme have commenced, subject to the conditions below. Starts on Site can therefore be recorded (and where relevant a grant claim submitted) in circumstances where:

Either:

a) A building contract has been signed and dated with a single building contractor to undertake both demolition and construction works or infrastructure and construction works

b) Demolition or infrastructure works have commenced

c) Upon completion of demolition works and site clearance, or of infrastructure works, construction works which meet one of the definitions in the Affordable Homes Grant Agreement and repeated above (a-e) will immediately follow on

Or

d) A separate contract for demolition works or for infrastructure works has been signed and dated and a building contract with a building contractor has been signed and dated

e) Demolition works or infrastructure works have commenced

f) Upon completion of demolition works and site clearance or upon completion of infrastructure works, the building contract with the building contractor will be unconditional

g) As soon as the building contract becomes unconditional, start on site works which meet one of the definitions in the relevant Affordable Grant Agreement will proceed

3.4.5 For schemes being delivered under the AHP 2011 to 2015, the above requirements apply and providers should refer to their Framework Delivery Agreement.

3.4.6 For schemes being delivered under the NAHP 2008 to 2011, the above requirements apply with the exception that there is no requirement for start on site works to have commenced.

3.4.7 Service diversions Where a building contract has been signed and dated with a single building contractor and the building contract requires service diversion works to be carried out before works which meet one of the definitions in the 2015 to 18 Affordable Homes Grant Agreement (a-e) above, starts on site can be recorded (and where relevant, a claim submitted), provided always that the service diversion works will be undertaken within the agreed contract period, and works which meet the definitions in the Affordable Homes Grant Agreement or (a-e) above will immediately follow on from service diversions.

3.4.8 The amount of grant payable at start on site will be set out on the relevant payments screen of IMS.

3.4.9 Where the start on site grant tranche has been drawn down too soon the provider may be charged interest for the period between the date when the tranche was received by the provider and two weeks after the correct closing date for start on site. In such cases the provider must notify the relevant operating area.

3.5 Start on Site – grey areas

3.5.1 Building Licence/Agreement to lease or buy Where providers wish to start building works on land that they do not yet own, they must demonstrate that they have a secure legal interest in the property for grant to be payable. Specifically they must:

  • Ensure there is a legally binding agreement that the legal interest in the property will be transferred to the provider immediately or within a reasonable timescale following completion of the development
  • Seek legal advice to ensure they have sufficient security to proceed
  • Be aware that if the scheme fails to complete, or the legal interest is not transferred to them, the Agency will recover any grant paid

3.5.2 In addition to the requirements on obtaining a secure legal interest in the property, the provider must not claim grant in advance of need (please see 3.1.1 above).

3.5.3 Golden Brick schemes For an explanation of ‘Golden Brick’ please see below.

Golden Brick

A landowner may incur professional fees if, for example, they obtain a planning permission on their land or undertake investigatory work. These fees are likely to attract VAT. The landowner may wish to reduce these expenses by electing to charge VAT on the land when they sell it. VAT on the sale of land is charged at the standard rate of 20%.

However, the VAT rate for the sale of land and buildings that are part-constructed is 0%. The definition of ‘part-constructed’ is that ‘… a building is being constructed when work has progressed above foundation level. This is usually when walls begin to be constructed upon the foundations. These walls need not be above ground level. However, simply digging and concreting foundations is not sufficient.’ (paragraph 4.7.4, V1-8A, HM Revenue & Customs).

Therefore, the purchaser of properties constructed to at least this ’golden brick’ level pays VAT at 0% (i.e. no cost to them), while allowing the seller to reclaim the VAT which they paid on professional fees.

3.5.4 Providers can normally only claim grant when work has progressed from Golden Brick level onwards, so long as they also satisfy the conditions about secure legal interest and having signed the contract set out above. Where golden brick level has been reached, this would normally mean that the start on site works would have commenced (please see 3.4.2 above, on schemes being delivered under the SOAHP).

3.5.5 Providers must confirm the date when they completed on the purchase of the land under the Golden Brick arrangement. Grant is not normally claimable prior to that date.

3.5.6 For some guidance on Golden Brick scenarios and grant claims, please see below.

Under ‘Golden Brick’ arrangements, the provider enters in to a building contract for the completion of a development which is in the process of construction i.e. up to Golden Brick level.

Building work up to Golden Brick level has to be undertaken by the seller, not the provider. Therefore, by definition, the provider’s builder cannot have started work under the contract that they have with the provider prior to the buildings reaching Golden Brick level.

Grant is therefore claimable when the provider has signed the building contract for the completion project with their contractor, and the contractor has taken possession on site in order to undertake the work of completing the dwellings from Golden Brick level onwards.

The start on site grant claim is not payable when the seller’s contractor begins work on site, as for the grant to be claimed all three of the following requirements must be achieved:

  • Providers must have a secure legal interest in the property
  • Providers must have entered into their contract with their builder, to undertake the building works from Golden Brick level onwards
  • Providers’ builders must have possession of the site and be undertaking the work from Golden Brick level onwards

As providers’ contractors cannot be simultaneously undertaking work on the properties that are ‘up to Golden Brick level’ and ‘from Golden Brick level onwards’, providers can only claim grant when work is ‘from Golden Brick level onwards’.

There may however, be occasions where the organization selling the land and undertaking works to Golden Brick level is the same as that which the provider will contract with to undertake works beyond Golden Brick level. Under such circumstances, start on site may be claimed provided the following conditions are satisfied:

  • The provider can demonstrate that it will be entitled to a secure legal interest in the property at the point at which Golden Brick is reached, for example, by entering into a legally binding agreement (such as an Agreement for Sale) with the vendor to complete the land acquisition/purchase with the achievement of Golden Brick providing the trigger for purchase completion. The Agreement for Sale (or other legal agreement) should include a backstop date allowing for either completion of land acquisition or termination if Golden Brick has not been achieved by that backstop date
  • Grant tranches should not be claimed in advance of need. Thus providers should be paying money out for the works being undertaken to Golden Brick stage, as well as towards the land acquisition costs providers may choose to pay towards the latter in proportion to and with payments being made for works. Providers should have an obligation to make such payments before claiming grant. However, providers may wish to safeguard such monies until Golden Brick has been achieved, and it has completed purchase of the land and has a works contract secured for works post Golden Brick. Providers may choose to do this by holding the money in an escrow account, held to the benefit of the developer or as stakeholder, subject to achievement of the Golden Brick stage within the agreed timescale
  • Where an provider wishes to claim start on site under a Golden Brick arrangement, as well as meeting the Golden Brick requirements set out above, they must also ensure that the definition of start on site set out in the 2015 to 18 Affordable Homes Grant Agreement, and set out in 3.4.6 have been achieved

3.6 Final (Practical Completion) claim

3.6.1 For grant purposes, practical completion is when the last dwelling is handed over, the scheme having been completed in accordance with the terms of the relevant building contract, as being fit for occupation as a residential development, in accordance with NHBC requirements. For schemes funded under the SOAHP, this excludes minor defects and/or minor omissions at the time of inspection that are capable of being made good or carried out without interfering with the beneficial use and enjoyment of the scheme. For instance, a scheme can be classed as completed even though external works such as landscaping may remain to be completed.

Any planning conditions or reserved matters must also be signed off in order for practical completion to be achieved – please see Procurement and Scheme Issues 6.1.1.

3.6.2 In the case of a new Off The Shelf development, a claim for grant should not normally be made prior to the completion date (as specified on the practical completion certificate issued by the duly authorised contractual party). However, the claim can be submitted against the issue of a certificate of partial completion provided all of the dwellings in the scheme, or phase, have been handed over.

3.6.3 Under the NAHP 2008 to 2011, the claim can be submitted after the date that scheme completion is confirmed in writing or by confirmation notice issued from the client or the client’s representative.

3.6.4 Providers must input the following data in to IMS, based upon their forecast final costs (see IMS guidance for details):

  • Rents and service charges, setting out any details that have changed since grant confirmation stage (not required for Reimprovements, Rehabilitation Works Only)
  • Costs at practical completion
  • Final cost calculation of grant
  • Actual on-costs (fees, interest, minor works, insurance/bonds etc.)

3.6.5 At the point of claiming grant providers must confirm that their application for grant payment is correct and conforms to the conditions incorporated in to the Affordable Homes Grant Agreement as accepted by them when signing up to the AHP.

3.6.6 For completions delivered under the AHP 2011 to 2015 or the NAHP 2008 to 2011 the grant claim must be correct and conform to the funding conditions as accepted by providers at the beginning of the financial year.

3.6.7 For any outstanding development of Social Rent schemes approved under the NAHP 2008 to 2011 the rents at practical completion must be equal to or less than those agreed at confirmation of bid stage.

3.6.8 For Affordable Rent schemes, rents will be calculated according to market rents at the time of letting.

3.6.9 For any Social Rent schemes agreed in exceptional circumstances under the SOAHP providers should refer to Housing for Rent - Social Rent.

3.7 Social HomeBuy

3.7.1 Initial Sales Following legal completion of the initial sale Registered Providers must notify the Agency and can then claim grant based on the discount available to the purchaser. The amount of grant claimed should be calculated as per Social HomeBuy section 1.3.5.

3.7.2 Registered Providers must claim grant within ten working days of the date of legal completion and can only apply for grant after the legal completion of the sale, not before.

3.7.3 Staircasing Sales The same principles that apply to initial sales apply to the first and subsequent staircasing sales.

3.8 Right to Acquire

3.8.1 Following legal completion Registered Providers must notify the Agency, and can then claim grant based on the discount available to the purchaser as per Right to Acquire section 1.3.6.

3.8.2 Registered Providers must claim grant within six months of the date of legal completion and can only apply for grant after the legal completion of the sale, not before.

3.9 Leasehold repurchase

3.9.1 Shared Ownership - General: Total grant payable will be up to 70% of the value of the shares being repurchased. Payment will be in a single tranche, payable on practical completion.

3.9.2 Shared Ownership - Rural Repurchase: Total grant payable will be equal to the market value of the shares being purchased, less any surpluses from previous staircasing receipts and other subsidy or recycled grant (please see Help to Buy: Shared Ownership section 8.4. Payment will be in a single tranche, payable on practical completion.

3.9.3 Shared Ownership - Protected Area Repurchase: Total grant payable will be equal to the market value of the shares being purchased, less any surpluses from previous staircasing receipts and other subsidy or recycled grant (please see Help to Buy: Shared Ownership section 9.4). Payment will be in a single tranche, payable on practical completion.

3.10 Payment

3.10.1 The Agency will pay grant within ten working days of the claim being approved for payment.

3.10.2 The Agency will compensate the provider for any late grant payment that is the sole responsibility of the Homes and Communities Agency. The compensation will be for any interest charges suffered or for any potential loss of interest that would have been earned by the provider. It is payable upon receipt of a claim from the provider supported by evidence that such loss has been incurred. The claim can be in the form of a letter addressed to the Agency’s Finance Department containing an explanation of the amount of the loss, how it has been incurred together with relevant calculations.

3.10.3 The interest rate payable will be at the maximum of the Bank of England base rate plus 4%.

4. VAT

4.1 General

4.1.1 VAT (input tax) is payable on works to existing stock and some works in new build contracts (e.g. landscaping, equipment, furnishings). Providers’ outputs under the AHP are for Affordable Rent and Shared Ownership, which the Agency understands is an exempt supply.

4.1.2 Providers should always seek their own ‘advice’ in relation to matters of taxation, but with reference to the above statement, providers should refer to VAT Notice 708, which advises that ‘the initial payment by the occupier for his share of the equity can be zero rated. The subsequent rental payments and any additional ‘staircase’ payments are not zero rated but exempt.’

4.1.3 The Agency strongly recommends that providers refer to the wide range of free public notices on various aspects of VAT and the network of local VAT Business Advice Centres that are available to traders and public. Further guidance on VAT is available from local VAT offices at the HMRC website.

4.2 VAT on major repairs

4.2.1 If the provider reclaims VAT on major repairs schemes which have already received 100% grant funding, the grant paid in relation to VAT will be reclaimed as unexpended grant.

4.2.2 The provider may retain reasonable costs incurred in recovering the VAT where these can be justified. Each case will be considered on its merits.

5. Money laundering regulations

5.1 General

5.1.1 Providers must ensure that they are aware of these regulations, and adhere to them. Please refer to the guidance for further information:

Providers’ activities may mean that they come under the ambit of the Money Laundering Regulations 2007. For example, some providers may be treated as undertaking estate agency activities. Providers will need to obtain legal advice on the extent to which their activities are covered by these regulations, and ensure that they comply with them.

5.1.2 Regulations 25-30 of the Money Laundering Regulations relate to persons who act as high value dealers. It is unlikely that providers would be considered high value dealers when undertaking Affordable Home Ownership activity, but they must ensure that they satisfy any requirements of the above regulations.

Providers must seek their own advice as necessary in order to ensure compliance.

5.2 The regulations

5.2.1 For details of the Money Laundering Regulations please refer to the Money Laundering Regulations 2007 and the amended Money Laundering Regulations 2012.