mixed tenure in extra care housing · 8 mixed tenure in extra care housing: technical brief tenure...

Mixed Tenure in Extra CareHousingTECHNICAL BRIEFA comprehensive review of the principal ways of achievingmixed tenure in extra care housing developments

April 2014

Authors: Written for the Housing Learning and Improvement Network and the Association of Retirement Community Operators by John Payne,Matters Grey and John Mills, Leashold Housing Consultant.

Editor: Jeremy Porteus, Housing LIN

Mixed Tenure in Extra Care Housing: technical brief 1

Table of ContentsPART ONE: INTRODUCTION TO MISED TENURE IN EXTRA CARE HOUSING 3

1 Introduction 42 Scope 63 Why mixed tenure? 74 Demographics and trends 85 Leasehold tenure diversification 96 Funding 10

PART TWO: LOW COST HOME OWNERSHIP AND MIXED TENURE HOUSING 13

7 Low cost home ownership in mxed tenure housing 148 Models of mixed tenure 179 Shaping shared ownership 19

PART THREE: LEGAL ISSUES IN MIXED TENURE HOUSING 23

10 Issues and clauses in leases 2411 Consultation 2812 Right to manage and enfranchise 30

PART FOUR: FINANCIAL ISSUES IN MIXED TENURE HOUSING 33

13 Service charges: fixed or variable 3414 Reserve funds 3915 Consultation repairs and mixed tenure 4216 Supporting people funding and mixed tenure 4317 Re-lets and resales 4418 Voids 45

PART FIVE: MARKETING MIXED TENURE HOUSING 47

19 Marketing and mixed tenure 4820 Product, price, place and promotion 5221 Lesson from Market Research for Design 55

CONCLUSION 57

Appendix A: Guide to leasehold legal requirements for mixed tenure 58

Appendix B: Role of Local Autority in Developing Mixed Tenure 59

Authors and Acknowledgements 60

Part One:Introduction tomixed tenure inextra care housing

This Technical Brief is intended to help housing andcare providers with mixed tenure developments toanticipate and avoid some of the problems andrisks inherent in mixed tenure, extra care housing.

In the latest Department of Health funding programme,a core element of Phase One of the £300m Care andSupport Specialised Housing Fund (CASSHF) criteria wasthe need for mixed tenure developments.1 This approachwill also play a pivotal role in the proposed next phaseof the programme specifically on the private sector, tobe announced. Furthermore, both the recent GreaterLondon Authority’s and Homes and CommunitiesAgency’s 2015-2018 affordable homes programmes, andtheir respective Prospectus’, make reference to theincreasing delivery of mixed tenure schemes, includinghousing for vulnerable and older people.2

1 www.homesandcommunities.co.uk/ourwork/care-support-specialised-housing-fund

2 www.london.gov.uk/priorities/housing-land/increasing-housing-supply/the-mayor-s-housing-covenant-2015-18-programme and www.homesandcommunities.co.uk/ourwork/affordable-homes-programme-2015-18

4 Mixed Tenure in Extra Care Housing: technical brief

This can be understood in the contextthat there is:

• Limited experience of tenure mixing inretirement housing generally.

• What there is indicates a set of newissues that will be faced by bothdevelopers and managers.

• There is even less experience of “extra care”mixed tenure, where there is the addedingredient of care provision, possibly byan organisation separate from thelandlord and for a generally frailer andmore vulnerable group of people.

Extra care housing may also add a furtherlayer of complication and opportunitiesfor things to go wrong or be established inways which may prove legally and financiallydifficult to unravel when mistakesemerge. This is because for example:

• Adult Social Services are often leadingextra care housing development butknowledge and experience of housingmay be limited. Leasehold or sharedownership for older people in an extra

care housing context is very new andknowledge is still restricted.

• Extra care housing will often incorporateshared equity or other novel fundingarrangements which bring a further,separate set of issues and complexity.

• Registered Providers acting asdevelopers of extra care housing may ormay not have experience of retirementhousing for sale. Even if they havedeveloped or managed retirementhousing, they may have no experienceof mixed tenure retirement housing.There are complex issues which may notbe known about; for example, therelationship between eligibility forHousing Benefit and other benefits andlandlord’s maintenance responsibility.

• Where private developers haveexperience of retirement leaseholdhousing, this will not normally extend to working with older people who may be eligible for benefit assistance(although there are one or twoexceptions like Retirement Security Ltd).

Introduction Nearly all the large retirement developments, including‘villages’,recently completed or under construction are now mixed tenuredevelopments. However, managing mixed tenure housing estatesgenerally has proved challenging. Managing just leasehold housingfor older people i.e. mono-tenure, for older people can also proveparticularly challenging.

1

• Private developers may have littleexperience of shared equity sales. Someprivate developers also pass themanagement of retirement schemes onto a Registered Provider:

• Revenue funding models are underregular review and this may change the way services are funded ormanaged. The key examples are:- Withdrawal of Supporting

People funding- Funding of care through

personalisation,3 and- Implications of future welfare reform.

However, despite these concerns, theHousing Learning and ImprovementNetwork (LIN) and Elderly AccommodationCounsel estimate that there will be ashortfall of 240,000 units of specialistmixed tenure accommodation for olderpeople by 2030 in England.4 Their StrategicHousing for Older People Analysis Tool(SHOP@), endorsed by the Department ofHealth, is successfully being used byplanners, commissioners, authorities anddevelopers to help them better forecast thelikely demand for specialist accommodationfor older people in their area across arange of tenures.

3 www.housinglin.org.uk/Topics/browse/HousingExtraCare/Commissioning/CareCosts/?parent=8993&child=90124 www.housinglin.org.uk/Topics/browse/HousingExtraCare/ExtraCareStrategy/SHOP/SHOPAT/

The guide also touches on but cannotaddress in detail, issues particular tomixed tenure in relation to:

• Design

• Care provision

• Marketing.

The origin for some of the difficulties thathave arisen in mixed tenure retirementcommunities has been in failing tounderstand that leaseholders havedistinct legal rights. These differ from therights of tenants.

Leaseholders also tend to articulate adifferent set of expectations andaspirations in respect of extra carehousing. This should be viewed positivelyas it creates a momentum forimprovements in service delivery.The challenge in a mixed tenuredevelopment is to ensure that residentsregardless of tenure are treated in assimilar and as a transparent way as the legal frameworks allow.

It is presumed that leaseholders are moreoften paying directly for services or care(as well as owning their homes).

This may not be the case as leaseholderscan also claim financial assistance. Insome developments, 70% of leaseholdersobtain financial assistance with theservice charge. However, leaseholders aremore likely to assert their rights whichhave been designed to offer them somecontrol and protection.

This technical brief explains and identifiesthe differences in the legal and financialframeworks. It is intended to help:

• Avoid serious mistakes in how legal andfinancial arrangements are set up.

• Offer guidance on practical solutions to address problems in arranging and managing and maintaining mixed tenure developments for frailer,older residents.

As one manager of mixed tenure extracare housing puts it:“It is not thatleaseholders challenge services, it is thatmixed tenure presents challenges tomanagers”. Having mixed tenuredevelopment is though a positivemechanism for driving up the quality ofservice and the quality of housing choicesavailable for older people.

2Scope This technical brief concentrates on legal and financial issues ofmixed tenure and the practical management and maintenanceconsequences and solutions.


• Changing demographics and the rise inolder owner occupiers. As reported byDemos, over 80% of retired people areowner occupiers and own trillions ofhousing equity.5 Going forwarddevelopers need older peoples equity tofacilitate project development. However,the care and support needs of owneroccupiers are similar to tenants forspecialised accommodation.

• Leasehold retirement housing is anaccepted model. There are in excessof 100,000 retirement for sale

dwellings in the UK.

• Encouragement by the Departmentof Health (both the 2004-2012 Extra

Care Housing Fund and the CASSHF 2012-15); encouraging tenure diversificationand increasing a range of extra carehousing choices for older people andother client groups.

• The high demand for leasehold extra carehousing found in some of the firstretirement communities that offeredshared ownership alongside rentingproviding empirical evidence of the market.

• To make social rented housing affordableby using receipts from sales to reduceborrowing and/or a route to cross subsidy.

• Regarded by institutional investors as a‘stable commodity’ and a goodinvestment to lend against.

3Why mixed tenure? The reasons for considering mixed tenure include:

5 www.demos.co.uk/projects/topoftheladder

4In order to cater for less well-off owners,whose current homes have a marketvalue which is less than the cost ofproviding a new “extra care” dwelling,shared equity arrangements are alsobeing introduced in extra care housing.Shared equity may also in effect provide a way for an older home owner to releaseequity providing a cash sum to live on – or indeed to purchase care.

TRENDSIn just 9 years between 2003- 2012:

• The number of owner occupiers 65-74 grewfrom 66 to 72% and for the 75+ age groupit grew from 64 to 70%.There was acorresponding fall in social rented housingwith a drop from 25% for the 65-74 agerange to 16%. Part of this change is theeffect of social housing tenants buyingunder “right to buy” or similar RegisteredProviders’ arrangements. This is now onesource of demand from less well off ownersseeking more specialist, extra care housing.

Demographics and trendsIt is estimated that at the point of retirement 80% of people are owner occupiers although the spread across the country varies. This isexpected to continue to rise. The market for “extra care” must thereforeencompass home owners, especially those that wish to ‘downsize’.


Tenure by age of household – Great Britain 2011-1212

55-64 65-74 75+

Owner occupied, owned outright 48 72 70

Owner occupied, with mortgage 28 7 2

Total owners 76 78 73

Rented from Council 9 8 9

Rented from Registered Provider 8 8 12

Total social rented 17 16 12

Rented privately 7 5 5

Source: Office of National Statistics

5The principle policy focus has been ontenure diversification in large, localauthority estates, and more recently new’Registered Providers’ developments andregeneration programmes. For the last 10years, mixed tenure has been associatedwith orthodoxy of “sustainablecommunities”. More importantly, theincreasing realisation that there is urgentneed to use housing equity owned byolder people to facilitate “care ready”developments that can meet the needs ofa society with an increasing number ofolder people living with long termconditions and need varying levels ofsupport. This concept has been clearly setout in two influential reports that addressthe housing needs and aspiration of anageing society, overseen by Lord Best.6

However, doubts about the viability ofdeveloping mixed tenure remain andparticularly so with some privatedevelopers. Their doubts about mixedtenure are based on the belief that social

interaction will have a negative effect theability to sell a development. Nevertheless,there are now several examples of whereprivate developers and Registered Providerpartners are overturning these pre-heldbeliefs and making mixed tenure schemesviable (with or without public subsidy),especially where schemes can be built to scaleand integrated as part of a larger retirementhousing ‘village’ and or wider regenerationproject, such as Halton Court in Kidbrooke,Greenwich. (See Housing LIN case study ).7


Leasehold: tenure diversificationSince the 1980s, housing policy has been to promote “tenurediversification”. The reasons have included concerns that mono-tenure areas were associated with social problems and lack of choice in the housing market. The means of achieving mixed tenure haveincluded Right to Buy/Acquire and Low Cost Home Ownership throughRegistered Providers.

6 www.housinglin.org.uk/Topics/browse/Design_building/HAPPI2/7 www.housinglin.org.uk/HaltonCourt_CaseStudy

6FundingThe Housing LIN Technical Brief, ‘Funding in Extra Care Housing’,provides comprehensive information on the diversity of fundingmodels, including mixed tenure.8 This paper therefore only provides a very quick overview.

In short, offering some properties for sale outright on shared ownership terms helps to make schemes financiallyviable in four ways:

i. When a property is sold, the developergets a receipt which immediately repayssome of the borrowing reducing loanrequirements.

ii. Sales using shared equity cantransform the sales programme byreducing voids and thus improvescheme surpluses, which can help makea scheme deliverable. Considerationneeds to be given to what rate ofinterest is chargeable on the unsoldbalance as compared to borrowingcosts. Managed well, rents may bebenefit-eligible.

iii. It is possible that the market value ofthe property sold will exceed the costof provision. This surplus is obviouslythe incentive for a private developer tobe in the market. In the context ofsocial housing, the margin can be usedto cross-subsidise the rented dwellingsand/or be viewed as a way of fundingthe communal facilities.

iv. To the extent that shared ownershipcan meet the same need as a purelyrented property, from theHCA/Treasury perspective, this is abetter option. This is because the socialhousing grant required is significantlyreduced from that necessary to providethe same property for rent.


8 www.housinglin.org.uk/Topics/browse/HousingExtraCare/FundingExtraCareHousing/

Part Two: Low cost homeownership andmixed tenurehousing

There have been a variety of schemes to assistpurchasers of extra care housing and retirementschemes. In general, there are two types of scheme:

i) Shared ownership means that the leaseholder buys a percentage share of the value of the home andthen pays a rent based on the remaining share.The lease may allow for the leaseholder to buy outthe whole or part of the remainder of the equity ata later date if he/she wishes to do so, and

ii) Shared equity, where the leaseholder buys a fixedpercentage of the value of the home – say 70% – but can never buy the remainder. So at resale theleaseholder only receives the same share in theequity back again. The remaining equity alwaysremains in the hands of the freeholder.


OLDER PERSON’S SHARED OWNERSHIPAs set out in its 2015-2018 AffordableHomes Programme, the Homes andCommunities Agency (HCA) is offeringpotential grant support for one scheme.A purchaser can get help from a Help toBuy shared ownership scheme called,Older Person’s Shared Ownership, ifprospective purchasers are aged 55 orover. This is a purposely designed variationof the HCA’s standard shared ownershipproduct to help older people buy a home.

Older Person’s Shared Ownership (OPSO)restricts the maximum share that can bepurchased either outright or throughstair-casing to 75% of the property. Otherconditions attached to these schemesinclude, for example, shared owners mustbe 55 years or over; there must be no rentpayable on the unsold share where themaximum share of 75% has beenacquired, and the properties must bespecifically marketed for older people.

In addition to the requirements listedabove, leases must:

• Make provision for access to person-centered services to support individuals.

Where no resident warden is availablethe lease must detail the serviceavailable to the leaseholder forobtaining emergency assistance. Thismay be provided by a peripatetic wardenemployed by the Registered Provider, aLocal Authority or a private agency:

• Restrict assignment to a person of orover the age of 55 at the date ofassignment except where assignment isto a deceased leaseholder’s spouseresiding at the dwelling at the time ofdeath. The restriction on assignmentequally applies to a mortgagee.

• Contain a covenant prohibiting underlettingof the whole or part of the dwelling.

• Not provide for the leaseholder toacquire the landlord’s interest under anoption to purchase.

• Contain a landlord’ covenant to providethe leaseholder with a list of dutiesincluded in the basic management feeand itemise and price those which are tobe charged separately.

The HCA does not produce a model leasefor these Shared Ownership for the Elderlyschemes but recommends amending oneof its other model leases.

7Low cost home ownershipschemes in mixed tenure housingThe following schemes highlight the range of options available todevelop mixed tenure accommodation for older and disabled people:


To be eligible for HCA funded sharedownership, an applicant may need to be:

• Whilst not universally sought – a tenantof a Registered Provider or Local Authority.

• On a housing waiting list and nominatedby a local authority as in housing need.

Shared ownership is financed by acombination of:

a) private mortgage taken out by theindividual purchaser.

b) Affordable Housing Grant (AHG).

c) Registered Provider’s private finance or reserves.9

HOME OWNERSHIP FOR PEOPLE WITH LONGTERM DISABILITIES Home Ownership for People with LongTerm Disabilities (HOLD) is another HCAfunded scheme under the 2015-2018Affordable Homes Programme that maybe appropriate for certain purchasers onextra care housing schemes.10

In the past there have been are a varietyof other low cost home ownershipprogrammes. Those most relevant to olderpeople have been:

LEASEHOLD SCHEMES FORTHE ELDERLYThis shared equity programme ran until1989. The purchaser acquired a fixed 70%of the equity. No rent was paid on theremaining 30%.

HOMEBUYIn England and Wales, a programme calledHomebuy was available under which a fixed75% (70% Wales) of equity is purchased.Thebalancing 25% (30% Wales) was funded bygrant and treated as an interest free loan tothe purchaser.This was therefore virtuallythe same as the old LSE arrangements butnot restricted to purchasers over 55 years.

Homebuy differs from shared ownership inthat there is no flexibility in the amount ofequity that can be purchased it thereforecannot be tailored to individual circumstances.

HELP TO BUYIn 2012, Homebuy was replaced by ‘Help toBuy’. Purchasers of certain new homescould obtain assistance which wouldmean that they only have to find 5%deposits if seeking a mortgage.

9 More information on financing extra care housing in the Housing LIN Technical Brief, Funding Extra Care Housing: Acomprehensive review of the principal ways in which Extra Care Housing is financed

10 www.homesandcommunities.co.uk/cfg?page_id=5524&page=56

In 2013, the ‘Help to Buy’ scheme wasextended to the purchase of existinghomes up to a value of £600,000 wherea mortgage was sought from specifiedmortgage providers.11 Thus far, theexplanation of shared ownership hasbeen based on grant aided, HCA / DHfunded schemes. However, there isincreasing interest in shared ownershipamongst institutional investors andpension fund manager and, as a result,it is possible for enterprising RegisteredProviders and private developers to offerpurely privately financed sharedownership. The advantages are to:

• Expand the market for extra care housing.

• Develop without the aid of grant.

• Avoid cost limits and other constraintsimplied by HCA’s regulations.

• To develop schemes in areas where theHCA will not provide an allocation, anincreasing reality.

• Reduce dependence HCA’s with leaseconstraints and with it potential equity growth if a no equity growthlease is used.

The above summarised the principle policy reasons for shared ownership.In the context of older people in extra

care housing, there are some differentor additional reasons for having shared ownership.

• Acceptable face of social housing linkedwith Section 106 agreements. Privatedevelopers may find shared ownershipmore attractive than pure social renting.

• Equity release in disguise – it is possiblefor some older people to in effectrelease equity by buying a part shareafter selling their previous home.12

Careful advice is needed because of the ongoing rental cost in some modelsand interaction with state benefits.

• Meet aspiration to continue to own.

• An option for owners in poor conditionproperty/low value. Shared ownershipcan enable some people to move to the kind of accommodation they nowneed but cannot afford to buy outright.25% of older people own properties less than £125,000.

• Meet demand from ex-”right to buy” owners.

• Way of retaining an asset and becomingeligible for range of benefits.

• Financially beneficial in revenue terms if on Housing Benefit – which will fundmanagement and maintenance if lease is appropriate.


11 www.gov.uk/affordable-home-ownership-schemes/help-to-buy-equity-loans

12 www.housinglin.org.uk/Topics/browse/HousingExtraCare/Tenants/?&msg=0&parent=3665&child=8921


8There are also at least three designoptions which a development of mixedtenure must take some decisions about.

An integrated model means propertiesavailable to buy or rent are next door toeach other usually with nothing todistinguish whether a property is ownedor rented.

A segregated model is based on somephysical separation or distinction betweenproperties offered for sale or rent.

A combination of these is a hybrid modelwhich offers some elements of both on

the same site and/or different ways ofoccupying the property.

The matrix shows there are ninepermutations of mixed tenure. Toillustrate some of the alternatives:

• An integrated model with a range oftenure is exemplified by recent ExtraCare Charitable Trust villages. They ineffect offer shared equity, outrightownership and properties for rent.The properties available for eacharrangement are pepper pottedthroughout the scheme and are broadlyindistinguishable. Indeed, it is possible

Models of mixed tenureThere are three basic tenure options – to buy all the equity outright orwith a mortgage, shared ownership (or Homebuy equivalent) where theleaseholder buys part and rents part from the landlord or to rent,normally as either a secure or assured tenant.

Mixed tenure and layout

Dwellings Outright Shared RentedLayout Ownership Ownership

Integrated

Segregated

Hybrid

for a property to switch tenure. Onepreviously owned may be let to the nextresident. High levels of care can beprovided in the individual’s own home,through personal budgets. There is noseparate care home. (See Housing LINFactsheet no.4 – Models of Extra CareHousing and Retirement Communities13).

• St Monica’s Trust Retirement village inBristol (See Housing LIN Case Study no.5– Village People: A Mixed TenureRetirement Community, Bristol 14) offers arange of tenure in the village but inphysically separate blocks – asegregated model.

• Joseph Rowntree’s Hartrigg Oaks villageis a hybrid with elements of bothintegrated and segregated buildinglayout and a range of methods ofoccupying property which in effect runfrom renting to ownership althoughthere are some special and unusualarrangements for paying for the right tooccupy the property and for care. Whiletenure is integrated across most of thedwellings there is a separate care homein the village thus an element ofsegregation. (See Housing LIN Factsheetno.4, the link is above).

• Denham Village – a large redevelopmentof a retirement village is anotherexample of a semi-segregated model.Owners and tenants are mixed acrossthe site but in groups of owned andrented properties. A key reason for this isbecause of the different legal andfinancial arrangements, in particular inrelation to accounting for and consultingon major repairs. (See Housing LINTechnical Brief no.1 – “Care in Extra CareHousing 15 ).

Furthermore, a developer of mixed tenurehas to decide:

• Which of these combinations isappropriate in all the circumstances.These will include results of local marketresearch, views of local authority, needsof the area, expertise of theprovider/developer and many similarconsiderations.

• The type of shared ownership/equitymodel to offer, if any.

• The details of the home ownershipoffering such as ‘buy back’ provision,‘stair-casing up and/or down’ limitation,minimum and maximum percentage ofequity to dispose of and other detailsset out later in this guide.


13 www.housinglin.org.uk/Topics/browse/HousingExtraCare/ExtraCareStrategy/WhatIsExtraCare/?&msg=0&parent=3660&child=1630

14 www.housinglin.org.uk/HousingRegions/SouthWest/?&msg=0&parent=1025&child=1503

15 www.housinglin.org.uk/Topics/browse/HousingExtraCare/ExtraCareProvision/SupportServices/?&msg=0&parent=990&child=1647


9CHECKLIST ON SHARED OWNERSHIP DECISIONS REQUIRED

1) Maximum equity to be sold %

2) What price to sell at between cost and full open market value? Mark up %(Note: is more complex than this and will need individual or at leastproperty type valuations in practice).

3) Will you buy back on re-sale? Yes No

4) At what price will you buy back? Full market value Other

5) Will you charge rent on equity you retain? Yes No

If so are there any implications, given any HCA subsidy in the development?

6) How are rents to be reviewed? Link to an index

(which?)

Other

7) Can people staircase up? (Unlikely for older people) Yes No Max%

8) Can people staircase down? Yes No Min%

Shaping shared ownershipWhere mixed tenure treats shared ownership as a distinct tenure the developer has to take a series of decisions about the nature of the product. To aid the process a checklist is provided overleaf to act as a guide to key decisions. There are likely to be a number of additional decisions for each scheme/circumstance/housing to be worked through. The tenancy and the lease must be drafted to ensure it matches the model derived.


9) Can people occupy by renting prior to completion of purchase? Yes No(Possible use of Assured Shorthold Tenancy)

10) What is included in service charge? (Note: see example on page 29 but needs to be prepared carefully for each scheme)

11) How are service charges reviewed?(Note: see section on service charges for possibilities)

12) How are major repairs to be funded? % purchase price p.a.

Service charge

13) Pepper-pot or segregation layout? Pepper-pot

Segregated

Hybrid

14) Will the local authority have a right to nominate to some or Yes Noall the properties both at initial lets and subsequent re- lets?

(Note: if yes consider carefully the financial impact and risk implied, how to get a processthat works smoothly in practice, how to achieve the scheme care/age profile if there isone).( Potential to vary the agreement between the first and subsequent lets).

15) Voids. How will you deal with void costs? Prior to first occupation

On re-letting

On re-sale

In relation to: Rent and management and maintenance costs

Service charges

Care costs and overhead element of care provision

(Note: if landlord and care provider are different organizations ,impact may vary).

Part Three: Legal issues in mixedtenure housingThe lessons from the existing extra care housing andmixed tenure retirement for sale schemes are that:

• The lease must be very carefully considered and debated

• The definitions of maintenance and repairresponsibilities and services to be provided needparticularly close attention – these are normally setout in a schedule(s) to the lease

• Ensure as far as possible terms of the normal tenancyand lease for properties sold are similar and consistentfor example in relation to landlord’s repairingobligation. If one decides for some reason to offertenants and leaseholders a different service be clearabout why one is doing this and what the practicalday to day implications may be for management,staff, relations with residents

• Putting details of care or support in the lease,requires careful thought as it potentially leads to theproperties being registered as a residential care homePreferably , make the agreements or contracts for careseparate from ownership (or tenancy) of the property– This is important otherwise one runs the risk ofbecoming a care home.


1) Who is an “Approved occupier”?- By age e.g. over 55, 60 or 65.- Someone in need of sheltered housing.- Someone in need of personal care(?) or

support(?).

2) Is it in plain English? – explain termse.g. “assign” if assignablelease,“successor in title”... These maybe unfamiliar jargon.

3) What’s the rent – if any i.e. in shared ownership?- how is it increased for example – link

with an index like Retail Price Index.

4) What are the elements of the servicecharge? When will it be paid and whenis the financial year end? It is likely that a variable service charge is themost appropriate.

5) Do you need to control re-sales and ifyou do how do you control re-sales? - only dispose to an “approved

occupier”? What is the approvalsprocess? Can there be an appeal to a refusal?

6) Does it provide for access to give care tooccupier in some way? Extra Care requiresby definition access to provide care but adefining feature of a person’s own homefor the purposes of a genuine tenancy(and lease) is control of who enters thepremises – the right to refuse entry.Open access to provide care may tend tosuggest registration as a care homerather than this is someone’s own homeso probably not to put in lease/tenancy.

7) Is there provision for occupier not beingan owner but without creating atenancy? This is so, for example,relatives can buy for parents. It alsoallows, in theory, for a buy to letmarket. The OFT considers that leasesthat prevent sub-lettings are potentiallyunfair contracts but the HCA does notallow it in grant-aided schemes.

10Issues and clauses for leases in mixed tenureSet out below is an initial checklist of the clauses and some of theissues to consider in drafting an extra care lease (and the paralleltenancy) which may be different to standard leases (or tenancy).Most of these points and the reasons why they are issues areconsidered in greater detail in the subsequent sections.


8) Is there an obligation to adhere toregulations “for the bettermanagement of the scheme/village”?This is to allow the landlord to setdown general rules of behaviour forthe scheme/village which have someenforceable basis – Catch all clausesare not liked by Courts.

9) Does it state clearly extent of landlordsmaintenance obligations e.g. does itextend to internal repairs? Internalredecoration? Could be a separate servicebut not an obligation under the lease.

10) Does it state clearly landlord’s serviceobligations e.g. gardens? – does thisinclude private areas? All windowcleaning? What if bungalows? If whitegoods supplied how often will they berenewed? How will you apportion costs ofservices like window cleaning to differentproperties if they vary in size/type?

11) Do you employ a manager of the extracare housing scheme, to answeremergency calls? Need to be carefulexactly what you are committingyourself to for the next 30-40 years!!

12) Is there a clause to allow you to addto or vary services?

13) Does it define who takes responsibility forarranging all aspects of the managementof the development, maintenance,cleaning and medical or personal care?

- Is there a separate care agreement –with landlord?

-With care provider?

14) Re-sales – this is a critical area andconsideration has to be given to OFTguidance – Retirement HousingInvestigation into exit fees April 2013.16

The key guidance being theimportance of consumers being able to see likely cost of any transferfee at the outset of the lease being signed.

15) How do you define what you willdeduct from sale proceeds?

- Service charges.- Rent.- Costs of resale/granting new lease.- Needs separate understanding on

care charges.- From say death to point of resale.

16) What happens if resale is extensivelydelayed? Assignable leases will mean the lessee still pays servicecharges. Surrenderable leases maymean the landlord bears costs ofvoids. This will impact on running costsincluding increasing the averageoverhead costs. In addition, voids maythreaten the viability of the financialmodel for providing care if there arelong periods when properties areempty and it becomes impossible tohave a charge for services.

16 www.oft.gov.uk/shared_oft/consumer-enforcement/retirement-homes/oft1476.pdf


MORE DETAIL ON CLAUSES IN LEASES

1) Payment Periods

The lease will require a statement ofwhen the service charge should be paid.Quarterly or half-yearly payments aretraditional for long leases. It may makesense to have the same periods as forrent payments by tenants, so calendarmonthly is a compromise option. But notethat if one pays the insurance premiumannually in advance one may run intocash flow problems. If a private landlord,the trust fund for service charges shouldnot be run in deficit. See below.

2) Financial Year End

The lease should state the financial year end to be used for drawing up service charge accounts. Use the same as for service charges for rented tenantsto avoid extra accounting costs andconfusion, but also add a condition thatthe year end may be varied in case thelandlord decides to change its accountingyear in future.If using a residents’management company for the scheme,make the service charge year end is thesame as the company year end.

3) External Accountant’s Report

What form of reassurance or externalcheck on the annual service chargeaccounts is to be in place? Current bestpractice is to require a report by anindependent accountant. Do not requirethe accounts to be certified or audited.

4) Ground Rents

Ground rents are traditional for private sectorleasehold schemes.They have been ignoredby Registered Providers but the income canbe helpful in certain circumstances. Forexample, when pursuing debtors it is notalways possible to recover the associatedcosts of tribunal or court actions.

5) Alterations and Improvements

It is common in leases to put clauses thatban all structural alterations by lesseesand make non-structural ones subject toprior written consent. A complete ban isunreasonable, especially for extra careschemes where adaptations for disabilitymay be required. The Equality Act 2010also limits the restraints that landlordscan put on alterations to within premises.Far better simply to make structural andnon-structural alterations subject toreasonable consent. Registered Providersare under a public sector equality duty.(Part 11 Equality Act 2010) and shouldfollow the Disability Equality Duty forHousing Providers Code of Practice from theEqualities and Human Rights Commission.

6) The List or Schedule of Services to be Provided

When drawing up leases and tenancyagreements it is far better to be detailed andspecific about the services one will provide.Why? Because one will only be able to recoverthrough the service charge what one namesin the lease. Sweep up or “inter alia”clauseshave been challenged in the courts; and thephrase “no say, no pay”is often used to sumup the courts’way of interpreting leases.This adage does not mean that one


cannot vary or add to services. As leaseslast for 99 or 125 years it is best to have avariation clause. But do add to the clausethat it is subject to consultation withlessees and not completely at thelandlord’s discretion.

7) Frailty Clauses

These are clauses which are designed toallow the landlord to ask a frail leaseholderto leave if they are unable to liveindependently with the services on offerfrom the provider or other agencies. Suchclauses are contentious and are probablyunenforceable today with human rights

legislation. However, up to date legaladvice may be required/advisable. It iscommonly argued, in relation to residentswho develop behaviour which becomesimpossible to manage, for example,because it involves violence to otherresidents in schemes not designed to caterfor people with severe dementia, thatbreaches of the tenancy/lease are likely tooccur which becomes the basis on which aproperty is repossessed.

8) Re-sales Clauses

See the section below on re-lets and re-sales.

Key Points about Leases

1) Lease is fundamental to defining your relationship with owner or shared -owner-it is alegally binding contract.

2) You must manage in accordance with terms of lease.

3) You must get the lease right at the outset – it is difficult/expensive and almostimpossible to vary the terms of a lease.

4) Leaseholders, courts and tribunals will enforce the terms.

5) Your ways of presenting information, accounting, and consulting will probably bedifferent for tenants.This is in itself a source of difficulty and conflict.


If one decides to charge “fixed” servicecharges for the rented units on a mixedtenure scheme one could avoid what is alengthy and costly process ofconsultation. But one cannot avoid it forthe leaseholders – their service chargesare by definition variable (freeholders ofbungalows or houses do not have theserights). Rather than treat leaseholdersand tenants differently and have toexplain why, a better choice would be togive all the same legal rights whetherthey apply or not.

GOOD PRACTICEIn addition to the above legal rights, theARHM code of practice recommends thefollowing for leaseholders.

• Managers should hold an annualmeeting to allow residents to commentupon proposed changes to the servicecharge, and the extent and quality ofservices provided. In practice, manymanagers hold a minimum of 2

meetings, one for the budget and onefor the accounts.

• A minimum of 2 weeks’ notice should begiven for any meeting.

• Papers for the meeting should arrivewith residents at least 7 days in advanceof the meeting.

• Any commitments made at a meetingshall be confirmed in writing.

Once again this does not apply to rentedtenants but it would be foolish to treatlessees and tenants differently in the longterm. Many social landlords already offersimilar good practice for their tenants, sofar better to set out similar highstandards of good practice for all.

VARIATION OF SERVICESThe ARHM code contains a specificchapter on the variation of essentialservices. It is aimed at how to handlechanges to support services andcommunal facilities.

11ConsultationLeaseholders and tenants paying variable service charges have legalrights to be consulted prior to certain types of service chargeexpenditure. In summary these rights extend to major works (over£250 per tenant) and long term agreements (contracts for more than12 months and £100 per annum per tenant). The consultation processis extensive with detailed prescribed contents of notices which mustbe sent out. Failure to follow the procedures may mean failure torecover most of the cost of works or services.

The first and most important point tomake is that if a lease contains specificwording that a service will be provided,then one or a majority of or all lesseeshave no right to remove it, unless there is avariation of service clause in the leases. Ifa lease says there shall be a residentscheme manager, then that is what thelandlord is contracted to provide (not avisiting one), and one can be sued for non-performance. Even if 99% of residents arein favour of change one is wrong inprinciple, and any complaint against you orcourt case will succeed. Even if a lesseechanges their mind after voting for achange, you will be wrong not the lessee.But what if the lease is not specific and achange is proposed, say from a resident toa non-resident scheme manager service, or

to off-site alarm monitoring. The ARHMcode sets out a process that ends in asecret ballot of residents,after written papersand a meeting given pros and cons ofvarious (always more than one) options.17

RESIDENTS’ ASSOCIATIONSAll managers usually have a commitmentto encourage the formation of residents’associations. What is less well known isthat leaseholders and tenants payingvariable service charges have a legal rightto seek recognition of an association.They can ask for a First-tier Tribunal(Property Chamber) to grant recognition.The Tribunal can give recognition to morethan one association per scheme forexample if there are several blocks.


17 www.arhm.org/pdfs/ARHM%20Code%20of%20Practice%20'05.pdf see alsowww.arhm.org/pdfs/ARHM_draft_code_of_practice.pdf


The right to manage has been found bythe courts to apply to any sharedownership lessees but it does not apply torented tenants paying variable servicecharges. The case reference is CorscombeClose Block 8 RTM Co Ltd v Roseleb Ltd.UKUT 081 2013.

The right to manage or enfranchise canbe enforced by lessees on a block by blockbasis. So if there is a large scheme built asseveral blocks with lessees concentratedor segregated in a 2/3 majority in certainblocks, the lessees of those blocks couldseek to enforce their rights against themanager or landlord.

For more information, the Housing LIN haspublished a useful viewpoint on the Rightto Manage.18

RIGHTS ABOUT SERVICE CHARGES1) Lessees and rented tenants paying

variable service charges have, on request,the right to obtain a summary of therelevant costs from which the servicecharge is calculated. BUT it is good practiceand should be the norm for all landlords to produce annual service chargeaccounts and send to all lessees andtenants without waiting for any request.

2) Once a lessee or tenant paying avariable service charge has received aset of service charge accounts, theyhave the right for a period of 6 monthsto look at the receipts and invoices andother documents that make up thefigures. For example invoices for repairs,gardeners and window cleaners.

12Right to Manage and EnfranchiseLessees have two other powerful rights called the right to manageand the right to enfranchise. Right to manage gives a majority oflessees who form a right to manage company the right to choose amanager of the scheme of their choice and remove landlord or itsagent as manager. Right to enfranchise is the right to collectivelybuy the freehold of the scheme; the effect will be the same, thelandlord will lose control of the scheme.

18 www.housinglin.org.uk/Topics/browse/HousingExtraCare/Tenants/?&msg=0&parent=3665&child=8601


The management organisation caninsist that a lessee travels to its officesto view these documents. However, it isin the ARHM code of practice and goodpractice that copies of the receipts andinvoices be made available forinspection at the scheme.

3) Lessees or tenants paying variableservice charges have the right at anytime to challenge the reasonablenessand payability of a service charge at aFirst-tier Tribunal (Property Chamber). .The Tribunal, an independent body, candecide if the service charges disputedwere reasonable or payable at all. Thereis a fee to apply to the Tribunalhowever it does have the power todirect that none, part, or all of theservice charges are payable.

4) What about budgets and estimatedcosts? Lessees and tenants payingvariable service charges can challengeestimated service charges before the money is spent. Once again theycan ask a Tribunal to decide whetherthe proposed expenditure isreasonable, or payable at all under the terms of your lease.

RIGHTS ABOUT INSURANCEThe landlord will arrange the buildinginsurance policy but it is obviously vital toyou that this is done properly. So lesseesand tenants paying a variable service

charge have the right to see the policyand proof of payment of premium.They can either ask to inspect it at therelevant office or be sent a copy. Themanagement organisation has 21 days toprovide a copy or arrange the inspection.

Right to replace a failing managementorganisation (not applicable to rentedhousing or if the landlord is a Registered Provider or Local Authority).

Any individual or a group of leaseholderswho is unhappy with the managementorganisation can ask a Tribunal to appoint another manager. To do this they would have to pay a fee to theTribunal, and prove to it that themanagement organisation is seriouslyfailing in carrying out its obligations. Forexample had it failed to follow what thelease says about service charges andaccounts, had it not followed importantparts of the ARHM’s code of practice,and not complied with relevant Landlordand Tenant Law (say failing to consultabout major works).

The right to extend or renew a lease (not applicable to rented housing).

Lessees also have a right to extend orrenew their leases at any time, but thecatch is at a price. The right gives a newlease for 90 years at a peppercorn ground rent (i.e. no money), after the end date of the existing lease.

Part Four: Financial issues in mixed tenurehousing

Managers of rented stock of Registered Providershave a choice: service charges can be fixed orvariable. The distinction is not commonly understoodbut it does matter.

Variable service charges can be varied to cover costs,certainly an annual review is possible and any deficits orsurpluses at the year end can be brought forward. Fixedservice charges are fixed for the next rental period(annually for assured tenants). If the budgeted figure istoo low then the landlord has to bear the cost of thedeficit. Many Registered Providers using fixed servicecharges lose money on the provision of services, soreducing rent surpluses. Government rent restructuringrules that apply to Registered Providers and LocalAuthorities can also restrict the ability to recover the full cost of services. This is because they limit annualincreases in charges to residents.


So what of leaseholders? There is nochoice. Service charges will be variable andleaseholders will have legal rights. Even ifone writes in the lease clauses to restrictincreases or link increases to RPI, theservice charges will still be variable in law.

So what choice to make on a mixed tenurescheme? The most obvious one is tochoose variable so all tenants and lesseesreceive a similar regime and legal rights forservice charges. However, if the lesseesand tenants are in quite separate blocks, asegregated model of mixed tenure, then itmay be easier to run different regimes. Iflessees and tenants are living side by sidein the same building, paying differentlevels of charge, as will happen with fixedand variable, this is a recipe for conflict.

WHAT SERVICES GO INTOTHE SERVICE CHARGE?Even if you have decided that the servicecharges for tenants and leaseholders willall be administered as variable ones, this

does not mean everyone will pay thesame charges.

For lessees and shared owners the servicecharge has to cover all of the costs of repair,maintenance, insurance and communalservices. (Shared owners pay a rent for theunsold equity plus a full service charge.)

For rented tenants, the rent will pay forrepairs and maintenance of the structureand exterior of the property. The servicecharge will only include upkeep ofcommon parts (halls, landings, staircases)and communal services (gardens,cleaning, door entry, alarm systems,scheme manager costs). So whenplanning the management of mixedtenure schemes one of the first steps is todraw up two lists: start with the servicesthat will be paid for by lessees, and thenone for rented tenants. If one do not dothis, one will end up with the wrongbudgets and charges, followed by endlessqueries and challenges by residents.

Included on pages 37-38, is a simpleexample based on an integrated single

13Service Charges:Fixed or VariableThe choice of fixed or variable is not straight forward. Choosingvariable service charges means detailed separate accounts for eachrented scheme, drawing up of annual accounting statements, repayingsurpluses or additional billing of deficits. In addition, tenants payingvariable service charges have legal rights to challenge service chargesat a Tribunal and inspect all invoices/receipts for expenditure.


block scheme, of how this exercise maylook for a mixed tenure scheme.

Many mixed tenure schemes are morecomplex than the example attached andmay have several different blocks withdifferent facilities in each. In such schemesit is common to have two or three parts tothe service charge. A block charge for eachof the buildings calculated separately anda communal services charge for servicesused by all residents. A similar exercise tothe example given would need to becarried out for each block charge and thecommunal services charge.

There are strong arguments for anintegrated pepper potted approach but it isacknowledged that that the complexity ofcalculating, collecting and accounting forand explaining service charges on mixedtenure schemes is reduced if lessees andtenants occupy separate blocks on the samescheme. A key consideration going forward isthe need to be driven by consumer needsrather than organizational administrationrequirements. One of the largest providers ofmixed tenure, Extra Care Charitable Trust,does this. Others have however decided thatthe legal and financial differences andcomplexities are such that it is necessary tophysically separate owners and tenants.

APPORTIONMENT OFSERVICE CHARGESBy “apportionment” is meant the way inwhich the total cost of services is splitbetween the residents.

For rented properties, the usual methodhas been to make an equalapportionment, because the servicecharge includes costs of communalfacilities and services only, services whichall residents can take advantage of.

For the courts and tribunals, there is notone approved method. The service chargefor lessees will include the cost of externaldecoration and structural repairs andmaintenance. There is a clear argumentthat schemes with several blocks shouldseparate the block charges forapportionment and not be shared equallyacross blocks, particularly if there aredifferent dwelling types, for example aterrace of bungalows and a flat block.

There is another argument about whetherapportionment should be made on size ofdwelling. It is common in the private sectorfor 1, 2 or 3 bed flats to pay differentshares. Sometimes floor area is used whichwill often result in many different figures.Or a typical ratio of difference is used; say 2bed flats pay 25% more than 1 bedrooms.

When planning the management of amixed tenure scheme a decision has to bemade on the apportionment. Whateverchoice is made, the following factorsshould be taken into account:

• Reasonableness – Can one defend,explain and justify how one haveapportioned costs to tenants, lessees or a Tribunal.

• Certainty – Anyone buying will prefer toknow exactly how their share will be


calculated, otherwise it is unfair. Afraction or a percentage (more than oneif there are layers to the service charge)is usual in leases. Just to say a “fairproportion” gives no certainty and givesevery lessee and tenant the opportunityto argue every year what is fair.

• Flexibility – Even though there is a need forcertainty of calculation it still makes senseto have a get out clause in leases andtenancy agreements that the proportionsmay be varied after due consultationwith residents. In addition, if the schemeis to be built in different phases then itmakes sense to allow variation ofapportionments if the addition ofphases alters matters. But do have aplan for any changes caused by phasesthat one can present to the first buyers.

ACCOUNTING FOR SERVICE CHARGESFor rented tenants paying a fixed servicecharge there is no legal requirement toproduce an annual account; the landlordis taking the risk that the budgetedcharge is correct.

For lessees and tenants paying variableservice charges there is no statute legalrequirement to produce an annual set ofaccounts unless required by a specificclause in the leases and agreements.There is an existing legal right for variableservice charge payers to demand asummary of relevant costs on request butthis legal right is no excuse for anylandlord to provide full transparent

annual service charge accounts. Bestpractice is to produce annual servicecharge accounts, have them examined byan independent external accountant, andthen send a copy to all lessees andtenants.

The ARHM code of practice goes further:• Accounts should be drawn up annually

using the accrual basis, and showincome receivable and received (i.e. debtors).

• The accounts should be presented in a form which follows any budgets toallow comparison.

• The ARHM has a model layout for accountswhich it recommends to members, whichincludes an income and expenditurestatement and a balance sheet.

• The accounts should be the subject ofan external accountant’s report.

• Copies of accounts should be sent toresidents within 6 months of the end ofthe financial year.

For mixed tenure schemes there will be by thenature of them quite complex breakdownsand allocations of accounts. The sameformats can be used for lessees andtenants but the actual figures will vary.

A policy of complete transparency andopenness about the accounts for servicecharges is a must for any mixed tenurescheme. The level of detail given to lesseesor tenants should be such that a resident canfollow how the total costs for the schemeor block have been allocated according tothe lease to tenants and lessees.

A PRINCIPLE EXAMPLE OF SERVICE CHARGE ANALYSIS FOR A MIXED TENURE SCHEME (Not current price base)

EXPENDITURE TOTAL RENTED COMMENT(1) (2)

SCHEME MANAGER/RELIEF 15,667 13,317 15% inc.COVER COSTS in rent

TRAVEL EXPENSES 100 0

EMERGENCY CALL MONITORING 1,841 1,841

EMERGENCY CALL MAINTENANCE 1,257 1,257

EMERGENCY CALL TELEPHONE 306 306

GARDEN MAINTENANCE 5,061 5,061

CLEANING – COMMON PARTS 5,219 5,219

CLEANING – PROPERTIES 1,796 1,796

FIRE EQUIPMENT HIRE & MAINTENANCE 630 630

LAUNDRY/KITCHEN EQUIPMENT MAINTENANCE 100 100

HEAT & LIGHT (Electric only) 2,153 2,153

WATER RATES – COMMUNAL FACILITIES 350 350

COMMUNAL LIGHTING REPAIRS 500 500

COMMUNAL AERIAL REPAIRS 0 0

CCTV MAINTENANCE 175 175

INSURANCE 4,001 307 Communalareas onlyInc. in rent

POSTAGE 0 0

STATIONERY COSTS & OFFICE EQUIPMENT 175 0 Inc. in rent

TELEPHONE 525 525


AUDIT FEE 540 0 Inc. in rent

SUNDRY COSTS 125 125

COMMUNAL RENEWALS PROVISION 3,933 3,933

GENERAL REPAIRS & MAINTENANCE 9,516 0 Inc. in rent

SCHEME IMPROVEMENTS 0 0 Inc. in rent

SUBTOTAL 53,970 37,595

MANAGEMENT FEE 13,500 5,639

TOTAL 67,470 43,234

NOTES TO EXAMPLE

1) This is a scheme of 54 units, 14 of which are leasehold. Service charges are apportionedequally between 54 units.

2) The estimated costs of services for the whole scheme is calculated first, and from thistotal the service charge for each lessee can be calculated. Each lessee pays 1/54th ofcolumn 1 total.

3) The rented column shows the total service charge less elements which are charged torent. From this column the service charge for each rented unit can be calculated. Eachtenant pays 1/54th of column 2 total.



14This might be a new roof, replacingwindows, re-surfacing the road and carpark, replacing the lift, a new ventilationsystem, renewing bathrooms andkitchens, and similar items to ensurebuildings are kept up to a goodcontemporary standard.

The usual way to provide for this type ofexpenditure is to build up a reserve orsinking fund so that when large lumps ofcapital expenditure are required thefunding is available.

Registered Providers’ finance works slightlydifferently but those providing retirementhousing for sale (and most privatedevelopers) have recognised the potentialproblem and tackled it by creating areserve from the outset of the scheme.

PRINCIPLESThe basic principle is that all those who livein a development like extra care housingshould make some contribution to theeventual major repairs. All those who live ina scheme have the “use” of the roof (andany other facilities) while they are residentsand should make a contribution to theeventual replacement. It would (in principle)be wrong for those who happen to be living

in a scheme at the time re-roofing arerequired to pay for this. Furthermore, even ifolder residents (mostly on limited fixedincomes) had the means to pay, whatmakes up the “product” in extra care issecurity and peace of mind.This includesreasonable financial security with no large,unexpected bills. In effect the charge is adeferment of a service charge item. Bear inmind the interest of the OFT who areseeking to ensure charges are reasonableand the fact that weekly payments i.e. nodeferments of sinking fund contributions,are ineligible for benefits.

HOW DO YOU BUILD UP A RESERVE? WHAT IS THE TECHNIQUE?Tenants generally will contribute to asinking fund through the rent. For ownersthere has not been one single, acceptedmethod of collecting sinking funds. Thereare three broad approaches:

i) To include an element in the service charge.

ii) To recover a capital sum when theproperty is sold and there are threemain ways of achieving this:

- Percentage of initial purchase pricemultiplied by period of ownership

Reserve FundsThe landlord will be responsible for maintaining the structure of thebuilding and the communal areas and during the life of an extra carescheme some major capital expenditure must be anticipated.

- Fixed percentage of sale price not tied to period of occupation.

iii) A mixture of the above two ways.

(Do not use a percentage based on theresale price because of the concernsexpressed by the OFT that such chargesmay be an unfair contract term.)

Those organizations which use a formulabased on purchase price multiplied by thenumber of years typically set thepercentage at 0.5% or 1.0% respectivelyand assume that re-sales will take placeevery say 12 years. In extra care the re-sales are expected to be much quicker (10years?) and this will be affected by thelettings and sales policy in relation to levelsof need, dependency and age at entry.

If it is decided to collect through theservice charge then the correct approachis to carry out a survey using a buildingsurveyor who will assess the lifeexpectancy of building elements.

Defining major repairs to be paid for fromthe reserve or sinking fund is potentially asignificant issue and there is considerablevariation in practice:

• As many organizations include cyclicalmaintenance in sinking funds as excludethis item.

• One in five managers provide for somerepairs and renewals within the curtilageof the individual dwelling.

• Some define major repairs by referenceto a minimum expenditure limit butdifferent levels were found.

• As a matter of policy one group ofmanagers have deliberately avoideddefining sinking fund items in order tomaintain more flexibility.

PROS AND CONS OFDIFFERENT METHODS OF COLLECTIONThe key advantage of approaches wherea contribution is collected from theproceeds of sale of the property is thatthey do not reduce the income of theresident. The contribution to the sinkingfund is obtained from the proceeds of there-sale, which in extra care will commonlybe on the death of the resident and thusfrom their estate, and is consequently arelatively painless way of making apayment. The disadvantage is that theprecise contribution that will be madecannot be calculated in advance by eitherthe landlord or the resident if thepercentage is based on resale value, andthe approach is not liked by the OFT.

Determining the appropriate level ofprovision to make is a second problem. Thebest approach is to either ask a surveyorto appraise each scheme using tables ofexpected component life or use a life cyclecosting model. The latter is preferable.

A clause in the lease will specify whatformula is to be used. A schedule is usuallyattached to the lease explaining what majorrepairs consist of. Note that leaseholdersmay dispute what items are legitimatelyfunded from the reserve fund and what


should come from the annual service chargemaintenance element so the schedulesneed to be carefully considered and defined.

In addition to a specific clause in the leaserequiring the setting up of a reserve fund,the lease should also have a fall backclause allowing the landlord to recoverthe additional costs of repairs in the eventthat the reserve fund is inadequate.

OTHER ISSUES ABOUTRESERVE FUNDSIt is good practice to set up a reserve fundfor leasehold properties, whatever methodfor building up the fund you use. However,collecting reserve funds raises some issuesto consider on mixed tenure schemes.

Private sector landlords are required to holdall service charge monies including reservefunds in trust (section 42 of Landlord &Tenant Act 1987). Holding funds in trust willmean that any interest earned will besubject to taxation. The current rate oftaxation is basic rate so the best approachis to ask your bank to deduct tax at source.

You will collect a reserve fund for theleasehold properties on a mixed tenurescheme, but should you do the same forthe rented ones? The large items ofexpenditure that reserve funds are usedto save up for, external decoration andreplacement of windows, doors, roofs,etc. are paid for out of rent, not anyservice charge collected from tenants.

The arguments for making a contribution toreserve funds for the rented properties are:

• It demonstrates fairness ofcontributions to the leaseholders.

• It means that the money is available forrepairs at the scheme when needed,and not subject to other priorities of thelandlord at the time it is needed.

• It reassures leaseholders that if thelandlord were ever to go into liquidationor the freehold of the scheme be sold ortransferred, the reserve funds are fullypaid into and available.

The argument against making a similarcontribution is that it ties up the money of thelandlord which might be wanted for otherpurposes .There is another difficulty. If youdecide to use a deferred payment methodbased or sales prices and payable when aleaseholders sells on, then it is impossible toshow fairness of contributions.It would still bepossible for the landlord to contribute the fairproportion of expenditure at the time it isspent, but the arguments about insecurityand other priorities are relevant.

If you do use a contribution on sale methodto build up reserve funds, you also putleaseholders who are claiming benefits in thesituation that the reserve fund contribution,which is eligible, will not be paid as a benefit.

If the different tenures are in separateblocks or buildings on the same scheme thequestion of payments to reserve funds forrented tenants will not apply to structuralrepair and maintenance if the blocks aretreated as separate accounting units.Therewill however still be the question of anyfunds used for external communal areasand shared facilities such as residents’lounges, restaurants, kitchens, etc.


They can also propose tenders areobtained from specified contractors.A manager of a mixed tenure scheme hasto decide how to manage thisconsultation if tenants do not formallyhave the same rights.

If tenants are paying variable servicecharges they must be consulted in thesame way as long leaseholders. If thetenants are paying fixed service chargesthey have no such legal rights BUT it maybe good practice to consult them in thesame way as the leaseholders.

Tenants should be contributing to a majorrepairs fund through their rent. Some ofthe residents will in practice in a socialrented scheme have the cost met throughHousing Benefit. Leaseholders will possiblybe contributing from the capital value ofthe property or their own resources wheremajor repairs are collected via a monthlycharge. In terms of presentation this maylook inequitable.


15Consultation on major worksand mixed tenureOne of the challenges to managers in mixed tenure schemes arises in relation to consultation on major repairs. Leaseholders have a rightto be consulted on major repairs before capital expenditure over athreshold level incurred.

With the demise of the ‘ring fence’ mostLocal Authorities are significantly reducingor removing this funding stream leavingproviders to solve the funding gap. Someauthorities whilst not removingaltogether the funding are tying it tothose residents with high care needs andin effect linking it to the personal budget.

This has led to a significant funding gap for those providers who have become reliant on significant fundingfrom this source.

These implications of withdrawal offunding in this area are beginning to work through but current approaches are taking 2 directions:

• Subject to current scheme rent levelssome Registered Providers are looking toincrease the rent by adding in an

intensive housing management charge.In recognition that older people aremore likely to need more intensivesupport. There are limits to thisapproach if the rent that is set, seeks to remain to be affordable underHousing benefit regulations and therealso concerns about potential futurecapping of rent and services charges in the future.

• Other providers have sought to resolvethe gap caused by withdrawal ofsupporting people funding and reducedrevenue for care due to the impact ofpersonalisation and have started tocharge a ‘wellbeing charge. Thesecharges are not benefit eligible andthese make the service less affordableand are likely to lead to an older ageprofile, taking residence.


16Supporting People funding and Mixed TenureWhilst there are schemes which have housing related support, primarilyrented schemes, the future funding using this route is only short term.


When a leasehold unit is sold the landlordwill only have control over who buys to theextent set out in the lease. If the clausesrequired in the lease are not specifiedclearly, then you will not be able to controlre-sales. Here are the main options:

1) Do not try to control re-sales.Make theleases assignable and as easy to sell on theopen market as possible.Such an approachis not a problem if the leasehold units aresold at 100% of value.Most purchasers aresensible about their care needs and youwill not be flooded with persons puttingunreasonable demands on your care andsupport services.There are some challengeswith this approach and you can facenumerous estate agent boards andbeneficiaries seeking to extract the lastfew pounds of inheritance...Overall inthe market the properties tend to fall inprice on resale mainly due to arestricted market/poor marketing.

2) Surrender or assignable lease. An optioncommonly used in the past by RegisteredProviders is to enforce surrender of thelease on resale. In effect the provider buysthe lease back and then sells a new oneto a buyer of its choice. It is also possiblewith a lease surrendered for the landlordto change the tenure of the property.The next occupant could be a tenant orshared owner rather than outright owner.

There are arguments against surrender.Surrenderable leases are not liked by manysolicitors and more importantly lenders. Soyou may make it more difficult for a buyer tobe able to release equity to boost income.If the surrender clauses are not drawn verycarefully the landlord may end up payingvoid service charges, council tax and utilitybills for properties between the date ofsurrender and completion of the resale.

3) Assignable leases can be used with severalways of giving the landlord some controlover re-sales.The most common are:

• Nomination rights for the landlord.Usually for a fixed period of say 4 weeks.

• Any assignment will need the consent of thelandlord.Consent could include an interviewand assessment process if the conditions ofhealth for residents are set out in leases.

• An additional clause can also be addedthat the landlord can request anindependent medical report to assist thedecision regarding consent.

• If the lease is assignable considerationwill be given to the price. This could eitherbe market value or alternatives such asinitial purchase price.

These are complex areas and it is importantto take appropriate legal advice and takeinto account the recommendations of theOFT report, on transfer of lease premiums.

17Re-lets and re-salesWhen a rented unit is re-let the landlord has full control over theallocation process and can make sure any tenants meet whatever criteriaare relevant for an extra care scheme. This right may have been waivedas part of a partnership deal with the Authority which may havenominations rights on initial lets and possible on a percentage of re-lets.


But what about voids in leaseholdproperties? Quite obviously for the landlordthere will only be voids on service chargepayments (except for shared ownershipschemes). There is a separate issue of theimpact on the average costs of care to thecare provider if properties remain empty.

The main period for voids for leasehold unitswill be during the initial sales period. At thedate of the first sale of the first leaseholdunit on a mixed tenure scheme, the servicecharge clock starts. It starts for drawing upservice charge accounts and for payments bythe first lessee. From that date the landlordwill have to pay an equivalent service chargefor unsold units into the service chargeaccount for the scheme. Payments should bemade at the interval for any other servicecharge payments by leaseholder, for examplemonthly in advance.

It is usual to budget for voids servicecharges in the development budget, forsay an anticipated 12 months sales period asum of half the full year’s service chargebudget should be earmarked.

But what of voids on re-sales? If the leasesare assignable, the payment of servicecharges will always be the responsibility of

a lessee and voids will never be a problem.It should always be possible to recoverarrears upon resale and no budget forarrears or voids is necessary.

If surrenderable leases are used there maybe voids. It is possible to make the surrenderclauses specific to limit the impact of voids sotake advice if you choose to use surrender.Remember any void costs will come straightout of your funds.You will have to pay theequivalent service charge for any void period,you cannot expect other leaseholders to payfor void periods and you cannot budgetfor voids in the service charge budget.

There is an argument that for propertieswhich are being sold mostly because ofdeath of the owners it is not appropriate tocharge for care services that cannot beused. If the support services are in aseparate legal agreement to the lease thenthere can be flexibility in handling voids.However, any voids will be a “loss”of incometo the landlord and one way or another willhave to be budgeted for and funded.

If the majority of support services areprovided in a hotel style menu withadditional payments upon use, then this isa fairer deal for leaseholders upon resale.

18VoidsFor those managing rented property voids are a common factor in performance measurement; re-let periods are kept as shortas possible in order to reduce loss of rent, service charge and possibly care income.

Part Five: Marketing mixedtenure in extracare housing

Recent headlines suggest that developers ofspecialist housing for older people are strugglingwith sales ‘imaging’, marketing, and the languagefor this sector.

Marketing of retirement housing is a major subject initself and the Housing LIN, in partnership with theAssociation of Director of Adult Social Service andothers, have several helpful documents that provideuseful information for planners, commissioners,developers and managers of extra care housing onproducing Market Position Statements.19 Therefore,here we simply highlight some of the lessons from those who have pioneered mixed tenure extra care housing.

19 www.housinglin.org.uk/siteSearch/index.cfm?page=doSearch&keywords=marketing

i) Taking a broad view of the marketing the“concept”of extra care may need marketingto a wide range of bodies and individuals.

ii) The rented properties – whethersubsidised local rent or market rent– may also need marketing.

The approach of ExtraCare Charitable Trust(see box) who spend considerable time andeffort in building up an understanding of the“product” with commissioners exemplifiesthe “relationship” marketing approach.

4 P’s

• Product.

• Price.

• Place.

• Promotion.

It has become a cliché but do research themarket. Do you know the customer – who is the customer? At one level if you are adeveloper or care provider the “customer”may be the commissioner in a localauthority. At another level it is the resident.A seismic shift is occurring in this area withthe focus needing to be on the individualrather than corporate customers. If you aredoing mixed tenure you will be selling someproperties direct to the resident:

• Have you researched property price differentials?

• Do you know the catchment area fromwhich purchasers will be drawn?

The importance of proper market researchis exemplified by Anchor Trusts preparatorywork before building Anchor Village.(See page 55 following).


19Marketing mixed tenureThe text book 4 P’s approach to marketing applies as much to extracare as any other product. This is obvious in respect of properties to be sold. It is perhaps less obvious that:

LESSONS FROM EXTRA CARE CHARITABLE TRUST ONMANAGING AND MARKETING MIXED TENUREThe ExtraCare Charitable Trust is pre-eminent in the development of extra carevillages. All the most recently completed villages are mixed tenure, as are villages inthe pipeline. As a matter of policy circa 75% of properties in the villages, which are


around 200-300 dwellings, are offered for sale. The Trust probably has moreexperience of mixed tenure extra care, than any other organization in the UK.

The Trust in the past offered six levels of care which range from a standard shelteredhousing service with no personal care, through to nursing care at the other end ofthe scale. Increasingly new funding arrangements are based on funding thoroughpersonal budgets. During the development phase the Trust agrees with SocialServices and housing commissioners a profile for the letting and sale of the schemebased on ability levels and age of the population. Subsequent sales and lettingsthrough a panel are designed to maintain the agreed profile, therefore ensuringthat the village doesn’t become too dependent.. The villages are always developedin partnership with the local authority and in particular Social Services.

Design/layout

The villages are based on a mix of usually apartments and sometimes bungalowslaid out around streets scenes. The Trust adopts a complete pepper pottingapproach. It is impossible to distinguish between properties for sale and those forrent. The Trust believes that any attempt to segregate owners and renters wouldbe counterproductive and tend to set up a “gladiatorial” positions betweendifferent groups. The model is of the full range of tenures, integrated.

Culture

It is fundamental to the ExtraCare Charitable Trust that all residents are supported to beas independent as possible.The philosophy of the organization is to be as person centeredas possible and to pass over responsibility to residents. Tenants and leaseholders aretreated identically for the purposes of consultation and provision of information.Consultation takes place on a street basis and other consultative forums. As part of theculture of the Trust a wide range of activities are encouraged and promoted.Around eachtype of activity interest groups are formed and these become a centre for involving andpassing over responsibility to residents. Residents are also encouraged to contributetheir skills through volunteering roles which are available in all villages.The Trust believesenabling residents to feel useful and involved contributes to a better sense of Wellbeing.

Marketing

The Partnership approach of the Trust means that marketing takes on a very widemeaning. During the development and initial feasibility phase of each village


extensive discussions take place with the local authority and other stakeholders sothat in the end all parties fully understand the model and implications. Marketingis not viewed as something unique or restricted to those properties for sale but allthe scheme is “marketed”. The Trust learnt that it is vitally important to provide thefullest information and advice to both tenants and potential leaseholders bothbefore they move in and subsequently. A purchaser’s information pack (PIP)required for leaseholders, is provided to everyone but there is substantial amountof face to face conversation, explanation and dialogue takes place.

Extensive marketing has to take place with all social care and health professionalsincluding older people’s health and social groups to raise the profile of the villageand it's care services.

The Trust has learnt that it is important to correct misunderstandings ormisinterpretations.

A significant marketing budget is required to turn the large volume of interestfound into actual purchaser. As a guide £2000 per dwelling.

Management

Key lessons:

1) View the whole of the development phase as an integral part of the ultimatemarketing scheme. The scheme has to be marketed to both tenants and owners.

2) Involve residents from the outset and inform them as accurately as possible. Explainclearly what the scheme is aimed at and what it will be like to live in the scheme. Beupfront about the fact that the scheme will house some people who are very frail.Enable potential residents to visit other village locations and meet extra careresidents to get a feel for the lifestyle therefore enabling an informed decision.

3) Correct misunderstandings as soon as possible. Do not let concerns remain orfester. Be aware that people tend to “hear what they want to hear.”

4) In consulting with residents bear in mind that the minority of the males in thescheme may seek to dominate the majority female members. Provide similarinformation to tenants and owners as well as people on a support package.

5) Communication can help take the heat out of potential disputes and disagreements.Leaseholders will tend to present demands – they want the service that they arepaying for – they may seek to challenge what you as a care provider, treating all


equally, normally do. Extra Care Charitable Trust has learnt to answer all questions in areasonable and considered way. Also giving residents the opportunity to be directlyresponsible for as much as possible of the decision making on how activities are run,how for example profits of the bar are to be spent and so on helps to meet challenges.

6) View the challenges presented by leaseholders as a challenge to management.See it as a positive mechanism for driving up standards and quality for all.

7) Everybody entering one of the Trust extra care villages shares in common witheveryone else a health or social care need or concern. This tends to have a levellingeffect and take the heat out of some issues that might otherwise arise in forexample traditional leasehold, retirement housing, mixed tenure schemes. Thescheme is providing a mechanism for meeting a health care need, it isn’t simplyhousing. Ultimately if a leaseholder does not like a service they can elect to leave.

8) Research for the Trust has said that if residents feel that they are forced tomove in and feel negative about the move they tend to remain negative. It isdifficult to win them round. It is far better for people to feel they have had areal choice. The Trust has evolved a ‘happiness guarantee’ to facilitate residentsmove out in the first year of a new scheme, with no extra care costs.

9) Pepper pot rather than segregate development. Treat all residents equally inevery respect whether it be services, care, or information.

10) Understand that the decision to enter an extra care development is a lifestyledecision for both tenants and owners.

Two problems that large mixed tenure developments face which remainunresolved are:

i) planners approach to car parking – owners in particular are likely to be also carowners and planners are tending to minimize the number of car parking spacesprovided in the belief that public transport is the answer. People moving intoretirement schemes are generally very unwilling to give up car ownership for avariety of reasons but including the ability to remain mobile. This is particularlyacute at the time of initial opening given the high volume of visitors.

ii) The ability to resell properties quickly in order to minimize voids and covering atleast the overhead costs of services, if not all the direct costs, in unstablehousing markets and chains where older people may be at the end of the chain,is a challenge for the management of mixed tenure developments.

PRODUCT• Extra care is offering a choice of a certain

lifestyle part of which is independenceand personal space. This is particularlyobvious in village communities with awide range of facilities and activities.

• The Care offering is an integral part ofthe product.

• Security means a variety of things including:- Financial – no unexpected bills.- Physical – theft, assault, warm,

good health.- Environment – can go out, no barriers.- Personal – illness, accident, emergency.- Mental health – not isolated.

The product is a holistic concept.

• Services – including care – are part of the“product”.The key point is you are not justmarketing a building – it is more complex.

PRICEPrice is not simply a case of buying aleasehold property or paying a rent.It includes a service charge and in extracare includes additional facilities.

leaseholders in particular and thoserenting without recourse to benefits willbe acutely aware of costs and will call thelandlord to account.

The cost of major repairs provision isparticularly sensitive. Mixed tenure, whichincludes shared ownership, allows one totailor to individual financial circumstancesthus widening the market. Price alsomeans value – what is long term value toperson/their estate? In developing the“product”...be aware of any aspect thatmay tend to depress the eventual re-salevalue of leasehold properties. What isprice to consumer? Will HB pay rent?

PLACEDemographics are key to deciding on asite suitable for mixed tenure extra care.Typically variables considered will include:

• Level and trends in population over 65 in area.

• Adequacy of supply of sheltered housingand residential care in area in relation topopulation using ratio of dwellings/places/1000 population over 65.


20Product, price, place and promotionCentral to traditional retirement housing “product” is security – thatis what you are selling. This in marketing speak is “the offering”.In mixed tenure extra care it is more complex:

• Level and trends in tenure of locality.

• Price differentials between 2 and 3 bedproperties characteristic of the area andselling prices of leasehold properties andtrends in values.

A private developer usually expects to sellthe majority of properties to people livingwithin 3 miles broadening to10 miles or soof a scheme. Occasionally people movemuch further primarily pulled towardsrelatives or friends already living in anarea. A good site for sheltered housing istraditionally taken as an indication of agood site for mixed tenure, extra care.However, with larger extra caredevelopments a central location may beless critical. This is because one can affordto provide/build in services of facilities tocounter balance negative features of atraditional sheltered site. For example, amore isolated site may be acceptablebecause buses can be persuaded toservice the site, a shop can be provided onsite. Place also needs to be considered inrelation to service delivery – within one’sown home.

PROMOTIONAs already explained marketing extra caremeans rather more than simply selling aphysical property.

• Market research will (or should) haveshaped the product and helped determineprices of both dwellings and services

• Be clear who you are selling to...... Mailinglists produced (or purchased), choice ofestate agent, who mail mail-outs are

sent to, which media are used, what isthe best local magazine or newspaper touse are all effected by this.

A range of traditional sales techniquesare likely to be relevant including:

• Scheme brochure.

• Mailing shots.

• Newspaper/magazine advertising.

• Show property/on-site marketing suite.

• Open days.

• Signage.

• Editorial/articles in local papers.

There are many subtleties and techniquesrelevant to marketing retirementschemes. There is also an array of newermarketing techniques.

Some points particularly to consider formixed tenure extra care are:

• A Purchasers Information Pack isrequired – keep this simple andunambiguous.

• A lease and a plain English guide to thelease are required. Ensure this is availableearly on and does not delay sales.

• If the development is to be built inphases an explanation of how the costsof communal services will beapportioned during phasing.

• Sales staff (or whoever is dealing directlywith potential residents) will need morethorough training than is common inboth the PIP and lease also in theservices and care provision and fundingof shared ownership.


• A financial and care assessment orprocess may be required.

• Make provision for seeingpurchaser/tenants several times andalso possibly relatives.

• Two unique aspects of marketing extracare will be first, the necessity to liaisewith and in some cases get prioragreement on letting or sales fromSocial Services. Second, the need to givebenefits advice to some applicants

• Location of show flat/bungalow nearentrance with accessible approach isparticularly important.

• Have a mechanism and process forgetting feedback from enquiries so youcan adjust approach/details.

• It is valuable to provide a briefing to

local solicitors also a simple guide to howextra care works and any unusual orspecial aspects of the lease.

• Prior to sales/lettings possibly part ofmarket research phase or building uprelationship with commissioners, it isoften possible to establish a substantialwaiting list. One major provider forexample routinely carries out severalmajor “consultation” events in theplanning phase. The result is that by thetime the development is completed thereare large numbers interested in viewing.

The Housing LIN has a previous modelleaflet,‘Thinking About a Move’, which canbe used to provide an introduction to extracare. It can be downloaded from ElderlyAccommodation Counsel’s website andadapted to local needs and circumstances.21

21 www.housingcare.org/downloads/kbase/2612.pdf

In the case of the £62m re-development ofDenham Village by Anchor Trust, researchinto every aspect of the ‘product’ andmarket included:

• Large scale, street interview, survey ofover 65 age group in differentgeographical areas on perceptions ofretirement housing and what was goodand bad about it. What they thought oftheir present housing and what wouldthey prefer.

• Revised plans and the ‘Vision’ for thevillage were then tested with threetargeted groups:- Tenants in the existing village.- The landlord of the present tenants.- Older owner occupiers living in

properties over a certain value.

• Details of the building design, layout,materials and fittings were all tested withadditional focus groups of older people.

• A local estate agent was appointed tohelp market the development. They wereinvolved in dwelling design at an earlystage bringing in another aspect ofmarket knowledge.

Anchor Trust learnt a considerable amountfrom the market research now reflected inextra care developments generally andindeed work with older people. To pick outa handful of lessons:

• There was a surprising lack of knowledgeof how leasehold housing worked evenamongst existing owners of retirementhousing – concepts like sinking funds,reserves, maintenance responsibility.

• Clarity of communication is critical.

• A surprise was a consistent message fromthose retiring of,“don’t treat us as oldfashioned, older people – give uscontemporary”. In concrete terms whenprospective residents had an opportunityduring the research to specify servicesand buildings they would choose whatemerged was a concept very similar to aCentre Parcs village.

• Less surprisingly (but in conflict with some aspects of present housing policy)residents did not want developments tobe monotonous, standardised buildings – they did not want developments that resembled social rented housing.


21Lessons from MarketResearch for DesignA fundamental message for mixed tenure extra care housing to be successful is “know your market”. For a large multi-milliondevelopment to make proper decisions and manage risk this means doing the market research.

The lessons lie in briefingarchitects/design team and choice of architect and possibly builder.

• The fact that the village would be mixed tenure did not discouragepurchasers. However, in this particularcase the local authority has nonomination rights, the initial cohortof tenants is already in place, and Anchor Trust will control lettings.

• The level of rents to be charged in thetenanted property was a crucial factor inmaking mixed tenure acceptable topotential owners.

• The market research influenced both thelayout and range of facilities created. Alldwellings are built to lifetime homesstandards. Detailed design and choice ofbuilding components has been directlyinfluenced by the need to minimise thelevel of sinking fund contribution required.

• Lessons for detailed design of dwellings include:

- Gas hobs were preferred to electric in this locality.

- In the houses and flats a focal pointgas fire is preferred to electric.

- Bulky low temperature radiators are not liked.

- Avoid putting a dispersed alarm unit in a prominent position.

- Level access, drive-in showers to the mainbedroom which can also be accessed fromcirculation area are liked. People wouldhowever prefer some form of enclosureto the open shower arrangement.

- Specify modern fittings that are moreeasily useable by an older person withsome physical frailty. Select amanufacturer with marketing brandappeal/fashionable then selectappropriately from the range. This choiceof fittings relates to the idea of selling aparticular “life style” in modern extracare. This applies particularly to kitchensand bathrooms.


ConclusionIn conclusion, these are 10 key issues anybody consideringmixed tenure extra care housing should be able to answer.

10 KEY ISSUES ABOUT MIXED TENURE SCHEMES

1) Why am I developing mixed tenure?

2) What model of mixed tenure scheme will I develop?

3) Will leaseholders be in a separate building or be pepper-potted?

4) Will care and/or support services be part of the leases andtenancy agreements or will they be a separate legal agreement?

5) Who will be the care/support provider?

6) Can I draw up a detailed list of the services that will be charged tothe owners and tenants? What will be the differences and why?

7) Will I charge the tenants fixed or variable service charges?

8) Who will pay for void services and what will be the budget?

9) What are the main clauses I want in leases?

10) How will reserve funds be collected?


Legislation

Right to manage

Collectiveenfranchisement

Extend leases

S20 consultation onmajor works and longterm agreements

Right of first refusalon sale of freehold

Keep service chargefunds in trust

Supply statement ofrights with servicecharge demands

Right to challengeservice charges ata Tribunal

Ground rentsdemands inprescribed form

Right to inspectinvoices and receipts

Right to inspectbuildings insurance

Appointment ofanother manager byLVT if fault proven

APPENDIX A:Guide to leasehold legalrequirements for mixed tenure

HA lesseeNon-charitable

yes

yes

yes

yes

no

no

yes

yes

yes

yes

yes

no

HA sharedowner

yes

no

no

yes

no

no

yes

yes

no groundrent

yes

yes

no

Localauthoritylessee

no

no

yes

yes

no

no

yes

yes

yes

yes

yes

no

Privatesectorlessee

yes

yes

yes

yes

yes

yes

yes

yes

yes

yes

yes

yes

Rented tenantwith variableservice charger

no

no

no

yes

no

no

yes

yes

no ground rent

yes

yes

no

Proposals have to be thought through inpartnership as mixed tenure schemes whichare predicated on significant sales proceedsmust be developed in desirable areas andlevels of frailty need to be managed to ensurelonger term sustainability of developments.

How might this work

The local Authority can play a variety of rolesin managing stakeholder expectations,assisting in the needs assessment andfacilitating multi-agency sign off todevelopments. It may be able to help in theprovision of land at lower than market valuein return for nomination rights or access tosupport services within the development.

Current development costs are in therange £1,200 – £1,400 a square metre.An apartment of 70 square metres pluslimited communal space has an indicativecost £110,000 to £130,000 but rentalyields may only drive a long term loanfacility of say £80,000.This leaves a gap ofcirca £50,000+ which has to be funded.

This could be done in a number of ways:

• Subsidised land.

• Grant from a stakeholder.

• Sales cross subsidising rent.

• On a larger development site the ExtraCarehousing development ‘soaking up’ someof the total site affordable housing.

• Flexibility on rent levels, consistent withcustomer affordability requirements.

It needs to borne in mind that in a mixedtenure scheme the requirements for deficitcapital funding may not simply apply torental properties. It can also apply to sharedownership properties. It needs to be borne inmind that 25% of older people own propertyworth less than £125,000. Experience hasshown that a scheme which seeks to sellcirca 80% of equity overall; has the potentialto maximise uptake of the scheme.Whilstrent may be payable on the balance ashared ownership property has the effect ofreducing initial capital receipts at initial saleand this may require further subsidy.


APPENDIX B:Role of Local Authority inDeveloping Mixed TenureThe Local Authority has a strategic responsibility to plan services tomeet the needs of older people who are owner occupiers. Mindful oftheir access to resources, such as land, they can play a critical role infacilitating mixed tenure developments. However, developing aproduct that is market sensitive is a relatively new area both for Local Authorities and some providers.


ABOUT THE AUTHORSJohn Payne

Following 20 years in Local Authorities and 20 years with the ExtraCare Charitable Trustis now lead consultant for Matters Grey ltd. [email protected]

John Mills

John Mills is a Leasehold Housing Consultant. [email protected]

THANKS AND ACKNOWLEDGEMENTSThe author would like to express considerable thanks to Nick Byrne, Deputy DirectorMidland Heart Housing Association, Michael Voges at ARCO and Jeremy Porteus at theHousing LIN who have respectively helped with and edited this revision.

A special thanks also goes to Midland Heart Housing Association and ExtraCareCharitable Trust for providing images for inclusion in this Technical Brief.

Note: The views expressed in this paper are those of the authors, and not necessarilythose of the Housing Learning and Improvement Network (LIN). Neither the authors northe Housing LIN accept any liability whatsoever for any loss, expense, liability,proceedings or claim arising from reliance placed upon any use, in part or in whole, of thispublication. It is not a replacement for independent specialist advice, and those who useit should ensure that they take appropriate legal, financial and technical advice.

ABOUT ARCOThe Associated Retirement Community Operators (ARCO) is the main body representingretirement community sector the UK. Retirement communities may also be referred to asretirement villages; extra care housing; housing with care; assisted living; close careapartments; or independent living.

ARCO continually strives to:

• Promote confidence in the sector, ensuring that all members are providing a highquality service to their residents. To this end, all ARCO-registered schemes have toadhere to the standards laid out in the ARCO Charter.

• Raise awareness of the retirement community model amongst older people andstakeholders alike – ensuring that all older people are aware of the variety of housingoptions available to them; and that policy makers fully understand the ways in whichthis type of housing provision can meet the lifestyle, health and social care needs of ourageing population.

• Increase the volume and quality of expertise within the sector and share this withmembers, continually investing in research to better understand and promote thesocio-economic value of the housing with care model.

For more about ARCO, visit their website at: www.arcouk.org


About the Housing LINPreviously responsible for managing the Department of Health’s Extra CareHousing Fund, the Housing Learning and Improvement Network (LIN) is theleading ‘learning lab’ for a growing network of housing, health and social careprofessionals in England involved in planning, commissioning, designing,funding, building and managing housing, care and support services for olderpeople and vulnerable adults with long term conditions, including dementia.

For further information on this and about the Housing LIN’s comprehensive list of online resources on funding specialist housing for older people areavailable on our “Funding Matters” pages at: www.housinglin.org.uk/

To participate in our learning and service improvement activities, including‘look and learn’ site visits and network meetings across housing, health and social care in your region, login to: www.housinglin.org.uk

Housing Learning and Improvement Network

c/o EAC, 3rd Floor, 89 Albert Embankment, London SE1 7TP

tel: 020 7820 8077email: info@housinglin. org. ukweb: www. housinglin. org. uktwitter: @HousingLIN

© Published by the Housing Learning and Improvement Network, 2014

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