Many CLH schemes involve the transfer of land or buildings on a leasehold basis by local authorities; they may also involve housing associations working in partnership with CLH groups, with the latter leasing land to the association to enable them to secure long-term finance.
This section looks at the issues for local authorities in entering into long-term leases with CLH organisations and provides a template lease, which may be helpful in certain circumstances. It also provides two case studies of local authority leases for empty properties and a housing association lease, both to CLH organisations.
The Template Lease
- A long-term lease is usually linked to an option agreement as it may not always be in the best interests of the local authority or the CLH organisation to simply grant a lease and hand over the land to be developed as CLH. Planning permission for the development and capital funding for the project are both a pre-requisite, since if either of these fall through then the CLH organisation is left with land which it cannot develop and which the Council cannot make use of either. Therefore an option or development agreement may be needed
- From the council’s perspective, the key consideration will be to ensure that there are sufficient controls in the lease to ensure the land or buildings are used for the intended purpose. The draft lease is based on land with buildings on, but it can be quickly and simply amended for the transfer of land only
- The amount of control that the council need to exercise through the lease is an important point to consider. Equally the CLH organisation will need property that is suitable for their group and any funders that require step in rights
- The council’s control in the lease can be exercised in a number of ways and the model lease is drafted with clauses that control use, re-entry for breach of the lease terms by the tenant (see comments below re funders and forfeiture) and restrictions around alterations
- There are currently no restrictions drafted around assignment of the lease to another CLH group or under-lettings that can be granted. The council may want to place restrictions on this or could rely on the permitted use being complied with. The council will also have to consider the point below regarding funders, when considering whether to restrict alienation
- The council may be relaxed on the form of under-lettings, but further conditions could limit any constructed units to being used for assured tenancies, assured shorthold tenancies or shared ownership leases. The intention behind only permitting these would be to limit the type of disposals to occupiers and keep the ultimate ownership of the long lease in the hands of the CLH organisation
- If the CLH organisation was to pair up with a registered provider and social housing is involved, a further stipulation could also be added that no voluntary arrangement or scheme (including right to buy) would be offered to ensure that no properties would be taken out via this route and to cap any staircasing under a shared ownership lease
- The template lease is a long lease and the control in it is diminished from a much shorter lease to enable the CLH organisation to obtain secured capital grant funding. There may be some variations required by particular funders and these should be considered on a case-by-case basis
- In general, councils should be aware that lenders will typically be looking at mortgagee exclusion (see below), term (is it long enough and this will vary depending on the lender), no undue alienation restrictions, and an opportunity to remedy a forfeiture event for breach and no breaks
- A funder who is a mortgagee is also likely to require mortgagee exclusion wording. This would dis-apply the restrictions on alienation for a mortgagee realising its security. A funder will also require the opportunity to remedy an event which would lead to forfeiture before the lease can be forfeited. This same wording would be required in the Section 106 agreement as it could restrict use, but that would be for the CLH organisation to agree