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Using covenants in a land sale contract to avoid VRTB

Affordable Housing in perpetuity and the Voluntary Right to Buy

This note examines the possibility of a landowner using specific covenants to ensure that new affordable housing built on his or her land is maintained in perpetuity. The hypothetical context is that of a housing association agreeing to buy land from the landowner conditional upon obtaining planning permission.

By way of example, the landowner might stipulate that the buyer of the development site enters into the following positive covenants in the purchase contract.

“ The Buyer covenants with the Landowner:

  • to promote the Affordable Housing Dwellings as part of the Development;
  • to use all reasonable endeavours to procure that the Affordable Housing Dwellings comprised in the Development shall be maintained as Affordable Housing in perpetuity; and
  • (in the event that the Local Planning Authority shall resolve to grant Planning Permission for the Development subject to the Buyer entering into an Affordable Housing Obligation) to use reasonable endeavours to agree the terms of the Affordable Housing Obligation with the Local Planning Authority and complete the same as soon as practicable. ”

The words in bold are defined at the end of this note.

 

The purchase contract will be conditional upon detailed planning permission being obtained by the buyer for the development. It will be stipulated in the contract that the planning permission must be satisfactory to both the landowner and the buyer. If the Local Authority do not require an Affordable Housing Obligation, then the planning permission would not constitute a satisfactory planning permission for the landowner, who could then terminate the contract. That does beg the question of whether the buyer would accept the risk of abortive planning costs. In order to mitigate this risk, the parties would look at material planning considerations and discuss with the council prior to entering into a contract, so as to form a view as to whether or not a planning obligation for perpetuity will be required.

The landowner might also require the ability to terminate the contract if a suitable planning obligation has not been entered into within a certain time of the resolution to grant planning.

Details of the proposed tenure and mix of affordable housing and of the perpetuity requirement will be included in the contract.

Specific provisions would be needed if the parties intend to provide shared ownership with a cap on staircasing.

A chain of covenants (or other mechanism) is required to ensure that the purchase contract covenants are enforceable against future owners.

The landowner might also consider imposing restrictive covenants on the land. These are quite complex technically, and if they are to be enforceable, the landowner needs to own other land near the development which is capable of benefiting from the covenants. Because of the nature of the restriction, this might be tricky.

A positive covenant by the buyer in the purchase contract to use all reasonable endeavours to put in place a suitable planning obligation will normally be effective, as the local planning authority is likely to be receptive to the idea of maintaining the affordable housing in perpetuity. The restrictions in a s106 agreement or unilateral undertaking would be agreed between the housing association and local authority and would run with the land, so they would be enforceable against all future owners.

The housing association and future owners should be precluded from applying to vary the planning obligation as to perpetuity at any time in the future. 3

Given the legal restrictions in the section 106 agreement or unilateral undertaking it would be reasonable for the developing housing association to exempt the relevant properties from the voluntary right to buy.

Nigel Turner
Future Housing Review
October 2016

 

Definitions used in the purchase contract covenants.

Affordable Housing: means [specify tenure(s)].

Affordable Housing Dwellings: means [specify number of dwellings, tenure mix, house-type and specification].

Affordable Housing Obligation: means a Planning Obligation including provisions to the effect that the Affordable Housing Dwellings comprised in the Development shall be maintained as Affordable Housing in perpetuity.

Planning Obligation: means an agreement or unilateral undertaking pursuant to section 106 Town and Country Planning Act 1990 in the terms set out in the Schedule or such other terms as shall be consistent with National Planning Policy Framework and Planning Policy Guidance.

Development: means the development of [    ] by the construction of [    ] dwellings including the Affordable Housing Dwellings.

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