evonshires
solicitors
IT’S THE LAW:S172: Episode 1 Avoiding
the spiral of misery
S172 of the Housing and Regeneration Act 2008 (“the Act”) means that
most Registered Providers in England need to obtain a consent from
the Homes and Communities Agency for the disposal of certain types
of land. The HCA has issued what’s known as the ‘General Consent
2015’. That acts as a consent to over 30 common types of disposal –
as long as you comply with the conditions it imposes. If your proposed
disposal is caught by s172, but it isn’t one of the types covered by
the General Consent, you will need to apply to the HCA for a specific
consent.
1
If you seek to dispose of a piece of land covered by s172 without either
bringing the transaction within the General Consent or securing specific
consent, bad things may happen to you. Firstly, the transaction is likely to
be void. That means that the person you sold the land to is going to be
pretty angry. They’ll almost certainly be in a position to sue you. Secondly,
the HCA is likely to take a very dim view. They will say that you have failed
to meet their expectations on governance, effective risk management
and internal control. You may face a governance downgrade. That, in
turn, may put you in breach of your arrangements with your funders and
banks; a spiral of misery.
The 4 questions: yes, no, yes and yes
The easiest way of working out whether you need s172 consent is to
ask yourself the following four questions in the following order.
1. Is what you are doing a disposal?
2. Is it a disposal that is exempted or excepted from the s172
consent regime?
3. Are you disposing of a dwelling?
4. Is the dwelling in question social housing?
What is a Disposal?
The Act says that, in relation to a property, a disposal means “selling it,
leasing it, mortgaging it, making it subject to a charge, or disposing of it,
or any interest in it, in any other way”.
This edition of IT’S THE LAW does not apply to Wales. Wales is still
covered by the more restrictive (but, frankly, much simpler) s9 consent
regime. It does not apply to local authorities or ALMOS - in relation to
which different consent regimes apply. This edition only looks at the s172
consent regime. There are other potential land disposal consent regimes
that crop up from time to time and may impact a disposal by an RP.
That includes the obvious, such as selling a house or granting a lease
of a flat – but it goes much further than that. Giving a house away
(rather than selling it) would be disposing of it in another way. Granting
an easement (say, a right of way across the back garden) amounts to
disposing of an interest in it. The HCA takes the view that giving up rights
(for example releasing a restrictive covenant you have the benefit of or
surrendering rights of light) amounts to a disposal. The Act specifically
says that granting an option is to be treated as a disposal. Sometimes
when you vary a lease the law says that what you are actually doing is
bringing one lease to an end and granting a new one on different terms –
that can therefore amount to a disposal.
And the award for understatement of the year goes to…
So, all in all, it’s a pretty wide definition. But it doesn’t cover everything.
The s172 consent regime is not particularly straightforward.
Staircasing is not, in itself, a disposal - although when a shared owner
staircases to 100% a disposal often then takes place (but more of that
later).
S172 states “Disposal of a dwelling by a registered provider requires the
regulator’s consent if the dwelling is social housing”. That’s quite a short
sentence, but it packs a lot of complication.
Granting someone a licence is not a disposal. A licence is a contractual
right to use a piece of land and it’s treated as a contractual right to
do something, not as an interest in land. But you need to be careful
here. The law itself will determine whether what you have granted is a
contractual right or an interest in land – regardless of what you call it.
So even if you sign a document headed ‘licence’ you may find you are
accidentally entering into a disposal and so triggering s172 issues.
or a communal garden would both be included within that definition.
Corridors in blocks of flats fall within that definition (even the lifts and lift
shafts). Bin stores, bike sheds, areas for drying washing. All are included
within that definition.
Changing a building’s use does not amount to a disposal. Even
demolishing it is not a disposal. So decanting a building of tenants,
demolishing it and turning the land into a car park does not give rise to
s172 issues. Although it is a perfect example of the adage ‘just because
you can, doesn’t mean you should’.
The HCA has specifically said that in its view a dwelling includes shared
accommodation such as hostels and shared housing. They have also
said that their view is that ‘dwelling’ includes the subsoil below the floor
and the airspace above the roof. The Act does not go into that level of
detail, and the HCA can’t, technically, dictate what the law means – but
if you get into an argument with them on the interpretation of the Act
“you’ve gotta ask yourself one question: “Do I feel lucky?” Well, do ya?”
The exception(s) to the rule
The ‘is it a dwelling question’ gives rise to two sub questions.
S172 isn’t an issue with respect to all disposals; some are excepted.
S173 of the Act lists four types of exception.
Firstly: When does a building start to become a dwelling? Again,
the Act doesn’t go into great detail. And, again, the HCA has a view.
The HCA’s view is that a dwelling is not a dwelling until it has reached
the stage that it is capable of being let or sold, as a dwelling. Its view
is that that happens at practical completion. So sites part way through
development, where no units have yet been completed, do not fall under
the s172 consent regime. This can be a useful interpretation. A number
of construction/payment structures on development projects will involve
Exception 1: Assured tenancies, assured agricultural
occupancies, various arrangements that are close to being
assured tenancies (but only fail to fall within that category of tenancy
because of certain exemptions to that status of tenancy that
are laid down by the Housing Act 1985), secure tenancies and
various arrangements that are close to being secure tenancies (but
only fail to fall within that category of tenancy because of certain
exemptions to that status of tenancy laid down by the Housing Act
1985).
Exception 2: If the disposal is covered by any of the following
alternative disposal consent regimes then, effectively, those other
regimes take precedence and you don’t need to deal with s172 as
well: s81 Housing Act 1988 (disposal of land formerly owned by a
Housing Action Trust), s133 Housing Act 1988 (disposal of certain
land formerly owned by a local authority), s173 Local Government
and Housing Act 1989 (disposal of certain land formerly held by a
New Town Corporation).
Exception 3: A right to buy disposal under Part V Housing Act
1985.
Exception 4: A right to acquire disposal in specified
circumstances.
So that means that if your disposal falls into any of the exceptions
above, then it falls outside the s172 regime and you can go home for
the afternoon.
The most important of the exceptions above is that for assured
tenancies – meaning that the day to day operation of granting tenancies
falls outside the regime. Almost all shared ownership leases are assured
tenancies and so they too fall outside the consent regime.
Next question: is it a dwelling?
S275 of the Act defines a dwelling as being “a house, flat or other
building or part of a building occupied or intended to be occupied as
a separate dwelling and includes any garden, yard, outhouse or other
appurtenance belonging to, or usually enjoyed with, the dwelling”.
That therefore includes the obvious – being a house or a flat. But it also
includes ‘things’ associated with them. A garden of an individual house
the RP acquiring the site prior to development (or at golden brick stage)
and mortgaging it back to the developer/contractor to protect payments
under the building contract as the construction progresses. Because the
mortgage is being given before practical completion, the site does not fall
within the definition of a dwelling and so the s172 Regime is not relevant.
Secondly: When does a building stop being a dwelling? The answer
is relatively easy; it doesn’t. S187 of the Act states that once s172
applies to a dwelling then it continues to apply to any disposal of the land
on which the dwelling sits – whether the dwelling itself continues to be
used as a dwelling and whether, in fact, the dwelling is still there. So that
means that s172 will continue to apply – even if the dwelling is no longer
used and even if the dwelling in question has actually been demolished.
This does lead to a potential problem. If the RP bought land that used to
be a social housing dwelling the HCA will continue to treat that land as
a social housing dwelling. Even if the RP doesn’t use it for that purpose.
But you don’t always know, with certainty, what the land was used for
prior to your acquisition. The HCA has said that as long as the RP is able
to certify that, to the best of its knowledge, the land was not used as a
social dwelling before its ownership then it will not take action against
the RP for breach of s172, even if it turns out that the RP had made a
mistake.
The final question: is the dwelling social housing?
We now come to the most difficult question – which is: What is social
housing? The answer starts off relatively easy and then gets more
complicated. Much more complicated.
S68 of the Act creates three principles. These are:Social housing is low cost rental accommodation (defined in s69 of
the Act) and low cost home ownership accommodation (defined in
s70 of the Act).
Legacy Land is also to be treated as social housing.
Once a dwelling has become social housing as above, it remains
social housing until one of the events specified in s73, s74, s75 or
s76 occurs.
What is low cost rental accommodation? Low cost rental
accommodation is accommodation made available for rent, where
the rent is below market rent and where the accommodation is made
available in accordance with rules designed to ensure that it is made
available to people whose needs are not adequately served by the
commercial housing market.
What is low cost home ownership accommodation? The definition
of this is slightly more complicated. Very broadly, it covers shared
ownership and shared equity products - but if you are considering any
specific product which is in any way out of the ordinary, you would need
to go back to s70 to see whether it falls within the precise definition.
What is Legacy Land? Legacy Land is a sweep up which covers most
land owned by a RP before 1 April 2010. Broadly, it covers all land other
than:
cover the scenario where the tenant staircases and gets granted a new
lease.
S73: Low cost home ownership of the equity percentage kind ceases
to be social housing when the buyer exercises a statutory or contractual
right under which the equity arrangement comes to an end.
S73: Low cost home ownership accommodation of the shared
ownership trust kind comes to an end when the purchaser exercises a
statutory or contractual right as a result of which the trust comes to an
end.
S74: A dwelling held on a lease by a RP ceases to be a social dwelling
when their lease expires.
S75: A dwelling ceases to be a social dwelling if it is disposed of with
s172 consent (or if disposed of with the appropriate consent under
some of the other consent regimes mentioned earlier).
S76: The HCA is permitted to issue a direction that a specified dwelling
is to cease to be a social housing dwelling.
Open market accommodation (unless grant funded);
In Summary...
Accommodation made available to students in full-time education (unless
S172 is important. Failure to comply can result in heaps of misery.
grant funded);
To determine whether it applies, you should ask yourself four questions:
Care homes (with nursing care) (unless grant funded)
1. Is what you are doing a disposal?
Asylum seeker accommodation (unless grant funded)
2. Is it a disposal that is exempted or excepted from the s172
consent regime?
In addition, the Secretary of State can make regulations specifying other
non-grant funded land that will fall out of the Legacy Land status – but as
yet he has not made any such regulation.
When does social housing cease to be social housing? This is
governed by s73, s74, s75 and s76 of the Act.
S73: Low cost rental accommodation ceases to be social housing
when it is sold to the tenant under a statutory or contractual right. Note
that that means that the dwelling automatically ceases to be social
housing, so s172 automatically doesn’t apply to that disposal, because
it’s not treated as a disposal of social housing.
S73: Low cost home ownership accommodation of the shared
ownership kind ceases to be social housing when the shared owner
acquires the freehold or head leasehold interest in the property by
exercising their statutory or contractual rights. Note, again, that that
means that the dwelling automatically ceases to be social housing and
so s172 automatically doesn’t apply to that disposal – because it’s not
treated as a disposal of social housing. This is particularly relevant on
final staircasings where often the tenant is entitled to acquire the freehold
(where of a house) or the head leasehold (of a flat). Note that it doesn’t
3. Are you disposing of a dwelling?
4. Is the dwelling in question social housing?
If your answers are yes, no, yes and yes then s172 applies.
If your transaction is covered by s172, you may be able to bring it within
the General Consent 2015. If you can’t, you will need to obtain specific
consent from the HCA.
Further reading
The HCA have published Disposing of Land 2015. It’s unlikely to make
it to the Bollinger Everyman Wodehouse prize for comic fiction shortlist
this year. But it includes a helpful explanation (in lengthy detail) of the
s172 consent regime.
https://www.gov.uk/government/uploads/system/uploads/attachment_
data/file/420447/Disposing_of_Land_2015.pdf
The tiny print
This is one of a series of leaflets published by Devonshires Solicitors LLP’s Real
Estate & Projects Department aimed at our developer clients. No action should
be taken on the matters covered by this leaflet without taking specific legal
advice.
Find out more
Neil Toner
Partner, Head of Real Estate
T: 020 7065 1823
[email protected]
neil.toner
aruna.sarwar
matthew.webb