Right to Buy changes may affect registered providers

Right to Buy changes may affect registered providers


Author: David Perry

Following recent changes, Preserved Right to Buy (PRTB) claimants may qualify for a significantly higher level of discount, leaving reduced receipts available to registered providers (RPs) to recycle into affordable housing provision

Any RP who has taken tenanted stock from a local authority will be familiar with PRTB claims and the effects of the discount and cost floor rules on sales receipts.

The national one for one replacement policy for affordable rented housing may not be deliverable at a local level if PRTB receipts are too low to cover replacement costs. RPs may therefore see a substantial reduction in stock and an increase in costs across their remaining accommodation, without the prospect of new stock to rebalance their affordable rented portfolio.

Tenants buying their property by exercising PRTB pay a discounted price, which may be limited to a 'cost floor' - allowing the RP to take into account certain qualifying costs in settling the price paid.

Historically, the discount was determined on a combination of qualifying tenancy period and location - different regions qualified for different financial discounts. In many cases, the level of discount meant that cost floor calculations had limited effect on the price paid by the PRTB buyer.

That position has now been swept away with the introduction in England of a uniform, and significantly higher maximum discount figure, of £75,000. The discount is still subject to a cost floor limit and is still calculated on a base figure plus annual adjustment for each full year of qualifying tenancy.

However, the basis for calculating cost floors has not changed - so the extent to which RPs can offset their input costs against the price paid by the PRTB buyer has not altered.

Consequently, the increased financial discount which may apply represents a significant benefit to PRTB buyers. Importantly, the new rules apply to any claim in progress on 2 April 2012, even if the process had started prior to that date (and therefore under the previous rules).

As a result, when considering a PRTB claim from a tenant, accurate cost floor calculations are now more important in establishing whether the claimant's discount may be limited.

The period for calculating cost floors is still 15 years prior to the claim - and it is possible that detailed records may not have been retained throughout that period - but it is important that RPs do all they can to identify relevant expenditure relating to PRTB properties, should a claim be made.

Additionally, as a risk management exercise, RPs should consider whether they can analyse their tenant records to put some figures against any potential claims and to scope the extent of any reduction in capital receipts under the new discount regime.

While every tenant may not make a claim, the significant uplift in discount may make a claim look more attractive to PRTB tenants.

RPs could usefully spend some time analysing their tenancy and financial records to scope and prepare for the effects of an increased discount regime on receipts from sales to PRTB tenants in the future.