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RTB: precision pays when drafting s125 offer notices

16 February 2018 • Joshua Booth

Croftons' property team advises on hundreds of right to buy disposals every year, and we come across a number of common issues that lead to queries, complications and potential delays in the transaction. But thankfully these headaches can often be avoided through good systems and clear communication.

Once the right to buy has been admitted, one of the key documents in the right to buy process is the landlord’s offer notice, issued under section 125 of the Housing Act 1985. Although errors or omissions in the initial offer notice are resolvable under section 177, they can still cause RPs unnecessary headaches, so it is important to ensure that the details contained in the notice are accurate.

Key details that must be contained in the offer notice

  • Property description to which the application relates;
  • Name of tenant(s) for which the right to buy has been established;
  • Purchase price – being the value of the dwelling-house at the date the tenant serves notice on the landlord to exercise the right to buy, less the discount the purchaser is entitled to (when determining the open market value, tenant’s improvements are to be disregarded);
  • Estimates of the service charges or improvement costs the purchaser will have to pay during the first five years after buying the property, where applicable; and
  • Any structural defects that the landlord knows about.

Sharing the Right to Buy

Who at the property can share in the right to buy is a common query RPs raise when tenants begin to explore the possibility of buying their home.

The right to buy belongs to all joint tenants and the right can be exercised by one or more of them as they may agree between themselves, provided that at least one of the tenants to whom the right belongs lives at the property as their principal or only home.

Up to three members of the tenant’s family, who are not joint tenants but who occupy the dwelling-house as their principal or only home are also able to join in the right to buy. The right to buy can be shared only if:

  • The family member is a spouse or civil partner;
  • The family member has been residing with the secure tenant at the property for the last 12 months; or
  • The landlord consents to the participation of the family member.

In addition to spouses and civil partners, family members include parents, grandparents, children siblings, uncles and aunts, and nephews and nieces.

Freehold or leasehold?

Another query commonly raised by RPs and tenants alike is what interest the tenants will acquire – leasehold or freehold? The way to ascertain what interest a tenant is able to acquire is to look at the type of property they currently live in and the landlord’s title to the property.

Section 138 of the Housing Act provides clarity regarding this:

  • If the dwelling-house is a house and the landlord owns the freehold, the tenant will be entitled to the freehold interest, or
  • If the landlord does not own the freehold or if the dwelling-house is a flat (whether or not the landlord owns the freehold), the tenant will be entitled to a grant of a lease of the dwelling-house.

Service charges

Service charges, for tenants of both flats and houses can be a contentious subject. Although figures in the offer notice are generally estimated, the important factor is that they are included. By including estimated figures, tenants are aware from the start that service charges will be payable, which in turn helps prevent disputes between RPs and former tenants post-completion.

Think before you offer - have you got an appropriate system in place?

Ensuring tenants are eligible for what is about to be offered may seem like an obvious, early-stage in the process. However, the importance of checking tenants meet the relevant criteria should not be underestimated.

Making sure that all tenants’ applications and details correlate with the relevant criteria can help avoid the awkwardness and unnecessary headache of having to withdraw a tenant’s offer following admission of a right to buy application, when the right did not exist in the first place.

One potential solution that may iron out these issues is a right to buy information pack, provided to tenants by RPs and containing the information they need about the right to buy and the right to buy process before they submit an application. This would provide tenants with a greater understanding as to what is involved, should they start an application. Having a clear information pack would also likely reduce the number of queries raised by tenants regarding the process, thus enabling RPs to operate more efficiently.

For more information regarding right to buy offer notices, advice on the right to buy process in general, or assistance in providing an information pack for tenants, contact Joshua via email at the following address: Joshua.booth@croftons.co.uk

 


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