Real Estate Update: Enhanced Long Term Social Housing Leasing Scheme – What Property Owners Need To Know
18 October 2018
The Enhanced Long Term Social Housing Leasing Scheme targets private sector investors holding tranches of a minimum of 20 houses or apartments (Units). Proposers submit details of properties to the Housing Agency.
However, to ensure that the Scheme encourages construction of new stock, Proposers may only put forward Units newly built or yet to be built and which have not been leased or rented within the previous 12 months. The Units must be contained either in one development or dispersed within the local authority area.
The Proposer constructs the Units, if not already built, according to an Agreement for Lease with the local authority. The Proposer must comply with the provisions of the Multi-Unit Development Acts 2011 relating to the establishment of owners’ management companies where appropriate. The Scheme does not remove a Proposer's obligations under Part V of the Planning and Development Act 2000 (as amended).
On practical completion of construction, the Proposer grants a Lease to the local authority for a term up to 25 years. The Proposer has no contractual relationship with the home occupier. The local authority is the Landlord for the occupier.
Agreement for lease and lease
There is limited scope for negotiation of the Agreement for Lease and Lease by the Proposer with the local authority except for non-material amendments.
The Proposer must make rent free concessions to the local authority where the Units are not delivered by the “target date” in the Agreement for Lease.
The local authority pays rent directly to the Proposer. The maximum proposed rental yield is 95% of the current market value rent. Rent reviews occur every 3 years in line with CPI.
The Proposer as landlord is responsible under the Lease for the following:
- structural repair
- property taxes
- service charge
- management services
- interior repair and maintenance
- unilateral rent suspension and penalties for breach of management services.
The local authority is liable for a contribution towards repair costs incurred by a Proposer for damage caused willfully or intentionally by a home occupier. The repair costs must exceed a "Qualifying Threshold" proposed to be calculated as a percentage of annual rent. The local authority's contribution is capped in the Lease at 50%.
The local authority will manage the home occupier. The Proposer can sell the Units with the prior written consent of the local authority. The Proposer must provide the Housing Agency with evidence of funding to acquire and construct the Units.
The Government anticipates that this scheme will see the delivery of 10,000 social houses as part of its ‘Rebuilding Ireland: An Action Plan for Housing and Homelessness'. For investors and funders alike, the scheme provides rent and repayment certainty based on a Government covenant. Given the limited scope to negotiate on the legal documents, investors would be wise to review the proposed legal structure in conjunction with their funders in detail before submitting proposals. The dividing line between responsibility for repair and management of the Units is where Proposers will need to get comfortable.
For more information about the scope of the Scheme and how you may potentially qualify as a Proposer, contact our Real Estate team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.