In the Queen’s speech, the newly elected Conservative government announced that ‘legislation will be introduced to support home ownership and give housing association tenants the chance to own their own home”.

The legislation will (initially) only apply to England. It will require housing associations to sell their homes to those tenants who wish to buy them at a discounted rate from the open market. The housing associations would then be compensated with funds raised by councils selling their most valuable homes.

Sufficient compensation?

There is concern that if such compensation only equates to the amount of discount provided to the tenant, then this is insufficient compensation as the housing association will also lose an income stream (in the form of lost rent) and, given the structured nature of most debt, the housing association is unlikely to be able to use the capital sum it receives (ie the sale price plus the compensation) to repay the debt immediately so as to reduce its interest costs.

The proposals may require the revaluation of housing stock based on the use value of the stock rather than its market value subject to tenancy. This could result in some associations becoming insolvent or being in breach of their banking covenants.

Clash with charity law principles

For charitable housing associations, there are additional issues to consider. Charitable housing associations’ board members are under a primary duty to act in the best interests of the charity at all times, furthering their charitable objectives. In addition, they must safeguard the assets of their charity, act prudently, and act independently of external influence.

It is difficult to see how these duties can be reconciled with a requirement to sell charitable assets at less than market value even if a suitable compensatory payment is received later. Such legislation would also erode the fundamental position that whilst charities are accountable to the public, they must act independently of third party interference. Lord Best recently reminded colleagues that when Right to Buy was first introduced, the House firmly rejected its extension of Right to Buy to charitable housing associations, on the grounds that “Government should not be ordering independent charitable bodies to dispose of their assets to the benefit of some tenants of today but at the cost of diminishing the charity’s capacity to help others in need in the future”. 

What does the future hold?

Housing stock is a crucial part of the business of a housing association, not only for housing their tenants, but also for acting as security for financing arrangements that allows them to develop and improve the services and homes they provide. It remains unclear what changes will be introduced but with the law as it currently stands, it is difficult to see how the proposed policy will dovetail with fundamental tenets of charity law and the duties and responsibilities of trustees. There may also be an avenue of challenge under human rights law if the proposal goes ahead. We await full details of the proposal and would not be surprised in light of the level of debate surrounding this if there are significant amendments and concessions to charity law before the proposal reaches the statute books.