HOUSING ASSOCIATIONS: TENANTED STOCK PURCHASE GUIDELINES (Hansard, 19 April 1989)

The Minister of State, Department of the Environment (The Earl of Caithness)

Housing associations now have wider opportunities to acquire tenanted stock from public authorities in three ways:

— under the tenants' choice provisions of the Housing Act 1988,
— proposals by a number of local housing authorities to dispose of their dwelling stock,
— the forthcoming wind-up of the remaining new town development corporations in England.

The Department of the Environment and the Housing Corporation, in consultation with the Charity Commissioners, have prepared the following guidance for charitable housing associations with regard to the acquisition by them of tenanted housing stock.

The main objects of many charitable housing associations are on the following lines: To carry on for the benefit of the community the business of providing housing and any associated amenities for persons in necessitous circumstances upon terms appropriate to their means and/or providing for aged persons in need thereof housing and any associated amenities specially designed or adapted to meet the disabilities and requirements of such persons".

This guidance relates to associations with main objects expressed in the terms set out in paragraph 2 or terms which do not depart substantially from them. However, in all cases, an associations's purposes, objects and powers must be carefully considered by its governing body, if necessary seeking legal advice and advice from the commissioners, before the acquisition of tenanted stock is embarked upon. Moreover they must be construed as a whole and a proposed acquisition must be consistent not only with the main objects and powers but also with any others there may be.

This guidance will refer to the various categories of qualifying needy or aged persons as "beneficiaries".

The purpose of the proposed acquisition

(i) In order to abide by the requirements both of its rules (or other governing instrument) and of general charity law, a charitable association may only purchase tenanted housing stock when it is satisfied that the acquisition will enable it to further its charitable objects and where the acquisition is capable of being regarded objectively in this way.
(ii) A charitable association is likely to have two main reasons for contemplating an acquisition of tenanted stock: to provide a better service for the existing tenants than the present or, in some circumstances, some other alternative landlord; and to increase the association's ability to provide, in the longer term, for beneficiaries of the kinds specified in its objects as vacancies arise in the acquired stock. A purchase for these reasons is capable of being within the association's main objects, depending on the circumstances. If for some reason one of them does not apply in a particular case (for example, if the association is not confident of being able to provide better or more efficient management for existing tenants) correspondingly greater weight 863 would have to be attached to the other for the transaction to be compatible with the objects.
(iii) If the main reason for the acquisition of the tenanted stock is to provide vacant possession gradually over a long period the association may to that extent also be looking at the acquisition as an investment. Accordingly, it may be considered desirable for associations contemplating the acquisition of public sector housing to ensure that their constitution allows the acquisition and holding of land as an investment.

Factors to be considered by the association in assessing a proposed acquisition

In assessing the compatibility of a proposed acquisition with its objects, the association's governing body will need to consider the following factors in good faith and with open minds (although the list is not intended to be exhaustive):—

(i) how the acquisition fits in with the association's policy for fulfilling its objectives. The association must consider what the purchase is really likely to achieve for present and future beneficiaries, and whether it is an effective use of money and manpower which might otherwise be used elsewhere;
(ii) the proportion of non-beneficiaries to the existing tenants as a whole. This will be a major factor. It is impossible to lay down a maximum acceptable percentage, because circumstances will vary too much from case to case, but beneficiaries should normally be a substantial majority;
(iii) the extent to which the association may pick and choose particular dwellings within the portfolio on offer, and, conversely, the extent to which this might lead to difficult or inefficient management or other disadvantages to the beneficiaries. Where the portfolio on offer contains a substantial number of dwellings occupied by those who do not qualify as beneficiaries, the association may want to see if some or all of them can be excluded from the purchase. However, the vendor will not always be prepared to sell on this basis and there may in any event be management or social considerations which would make acquisition of selected properties only relatively disadvantageous to the beneficiaries.
(iv) the expected rate of turn-over of non-beneficiary tenants. The higher the proportion of non-beneficiary tenants, the more important this will be. But the rate of turnover of beneficiary tenants may also be important if one of the reasons for the purchase was to get long-term access to vacant housing stock.
(v) the opportunity to buy on advantageous terms. These transactions will normally take place not at unrestricted market value but at a lower "tenanted market value", assuming, amongst other things, that the dwellings will generally be kept available for letting and that rents will be kept down to levels within the reach of the lower paid.

The preserved right to buy and other rights of tenants

Existing tenants taken over from the public sector may have a preserved right to buy under Sections 171A to 171H of the Housing Act 1985 and Section 127 of the Housing Act 1988. The association will need to take this factor into account (and indeed the rights of, or attributable to, sitting tenants more generally, including security of tenure and a surviving spouse's right of succession) in considering how far the acquisition will enable it to provide for beneficiaries in the longer term (though these matters may of course be reflected in the purchase price). The right to buy might be disadvantageous if the association wanted a portfolio of properties as an integrated whole, to be kept intact as long-term housing stock for present and future beneficiaries, and the association would have to consider how far its plans might be undermined by some tenants exercising their right to buy. But the fact that existing tenants, beneficiaries or non-beneficiaries, will have statutory rights including the right to buy does not of itself make the purchase inconsistent with the association's charitable objects.