If the affordable housing element of your development includes shared ownership and your development site is in a Designated Protected Area (DPA) then the registered provider (RP) granting the shared ownership leases will, if the properties form part of their grant-funded programme, have to include certain clauses in the shared ownership leases, which seek to ensure the preservation of the proprieties for shared ownership indefinitely.
As the DPA status of a site can impact on viability for an RP, developers, as well RPs should be alert to the DPA status of a site so that the implications can be considered early and, if necessary, an application for waiver can be submitted in good time.
Below, we consider some frequently asked questions in relation to DPAs:
Why and how were DPAs introduced?
Under a shared ownership lease, the shared owner will acquire a 'share' of the property and pay rent on the rest, which remains in the ownership of the RP landlord. The shared ownership lease entitles the shared owner to purchase additional shares in the property (known as staircasing), until it owns 100% and it has 'staircased out'. Once the shared owner has staircased out it can dispose of the property freely, out of the affordable housing sector, on the open market.
In some areas, shared ownership leases that are staircased out and then sold on the open market are difficult to replace, but if the terms of the lease are changed to either limit the % share a leaseholder can acquire, or to include a mandatory buy back right in favour of the landlord, this would take the lease outside of the protection from enfranchisement provisions included in Schedule 4A of the Leasehold Reform Act 1967 (as amended) (the LRA 1967), meaning that the leases would be subject to enfranchisement rights (which would enable the leaseholder to circumvent the restrictions imposed by acquiring the freehold of the property, possibly at a lower price, and to determine the lease).
To remove this enfranchisement risk, and enable landlords to include provisions in shared ownership leases which would ensure that in certain areas shared ownership properties are retained as such and made available for local people unable to afford to buy at full market price, the LRA was amended by Section 302 of the Housing and Regeneration Act 2008, which introduced a new paragraph 4 to Schedule 4A of the LRA 1967.
Schedule 4A requires that to be excluded from enfranchisement the shared ownership lease must 'meet any other prescribed conditions'. Those prescribed conditions, which include the limit of 80% on staircasing, and a mandatory buy-back right in favour of the landlord, were then set out in the Housing (Shared Ownership Leases) (Exclusion from Leasehold Reform Act 1967) (England) Regulations 2009 (SI 2009/2097) (the Regulations), and the Housing (Right to Enfranchisement (Designated Protected Areas) (England) Order 2009 (Statutory Instrument 2009/2098) (the Order) specified the areas in which such shared ownership leases could be granted.
How do I know if my development site is in a DPA?
The Order designates certain areas as DPAs. These are the areas also currently designated as being exempt from the Right to Acquire. Some of these are defined by entire Parish or local authority areas and others are designated by specific maps. Where they are designated by maps, the maps are available from Homes England. Typically, although not exclusively, DPAs are in rural areas.
The Secretary of State can amend the Order to remove/designate further areas. The overriding criterion is whether the area is one in which social housing would be hard to replace.
The Regulations and the Order apply to England only.
What does it mean if my development site is in a DPA?
Home England's Capital Funding Guide requires that if a development site is in a DPA, the RP granting the shared ownership lease must, if the scheme is grant-funded, include one of the two DPA fundamental clauses, either:
- to restrict staircasing to a maximum of 80%; or
- if the lease allows staircasing to exceed 80%, an obligation for the leaseholder to sell their share back to their RP landlord (or a nominee, which must also be an RP) at market value when they wish to sell the property (to enable the RP to resell the property on shared ownership terms to another local person in housing need).
(the DPA Clauses).
It is a matter for the RP to decide which of the DPA clauses is included in relation to a specific site, although, it should be borne in mind that if the right to staircase is restricted, the number of mortgage products available to prospective purchasers may be more limited, and there may also be an impact on saleability, for those purchasers who aspire eventually to own 'the whole' of their home.
It is also worth noting that Homes England states in the Capital Funding Guide that it will positively consider applications for grant to fund the repurchase of shared ownership properties by the RP where the RP has exhausted all other funding routes, but the original lease must contain certain specified information to ensure that any such repurchase grant is not to be recoverable by Homes England. It is important to bear this in mind when dealing with the initial shared ownership sales.
Do the rules relating to DPAs apply to flats as well as houses?
Yes, although the Regulations only apply to houses, it is Homes England's policy that it will apply the requirements for retention in the legislation to grant funded shared ownership schemes for both flats and houses developed in DPAs.
Can the DPA conditions of grant be waived?
As the availability of shared ownership stock is no longer such an issue in some of the areas designated as DPAs under the Order (such as planned urban extensions, new towns and many suburban sites where levels of existing or proposed development indicate that shared ownership homes would not be hard to replace), in certain circumstances, on application by the local authority, Homes England is able to waive the particular conditions of grant relating to the DPA status of a site.
Where a waiver is granted, the RP can grant shared ownership leases without the requirement to include one of the two DPA Clauses however, all other conditions of grant remain.
As Homes England will not consider applications received directly, if a developer or RP considers their proposed development does not require protection, they should approach the local authority in the first instance.
What if my site is not grant funded?
Confusingly, some of the guidance issued on this issue gives the impression that the inclusion of one of the DPA Clauses is mandatory in all shared ownership leases granted in DPAs, irrespective of whether a site is grant funded. However, the Regulations do not actually impose an obligation to include one of the DPA Clauses. As such, if a site does not form part of the RP's grant funding programme, the RP can grant shared ownership leases which do not contain either of the DPA Clauses if it wishes to do so.