Right to buy is generally taken to mean the statutory right of a council tenant to buy their home at a discount. The right exists for any secure tenant who can satisfy basic eligibility criteria.
A tenant is secure if their right to occupation is protected under Part IV of the Housing Act 1985 (the 1985 Act). This means that those tenants cannot be evicted from their properties unless their local authority landlords can prove statutory grounds for gaining possession, such as rent arrears or anti-social behaviour.
Most council tenancies are secure unless they comprise service accommodation or were granted on a temporary or probationary basis. Being a secure tenant also means that after five years that tenant will become eligible to acquire their home at a discount. However, there are exceptions.
The right to buy may not apply to accommodation already let to and particularly suitable for occupation by elderly people, taking into account its location, size, design, heating system or other features and which was first let before 1990. Neither does it apply to homes where the local authority has indicated, through service of a demolition notice, that it intends to demolish the property within seven years.
Someone who has spent at least five years as a public sector tenant will become eligible to buy their house at an initial discount of 35% on the open-market value. That discount rises by 1% for each additional year that person has remained as a tenant up to a maximum of 60%. For flats and maisonettes the discount starts at a more generous 50% and rises to 70% and there are other limits on the amount of available discount.
Before the government raised the maximum discount to a flat rate of £75,000 across England and Wales on 2 April 2012, maximum discounts had been reduced to as low as £16,000 in some parts of London. It meant that no council tenant could qualify for a discount of more than £16,000 no matter how valuable their property or however long they had been a public sector tenant. Elsewhere the maximum discount might be higher.
However, overall there was little financial incentive for a secure council tenant to take the risk of buying their own home. Even with the raised maximum discount, the discounted price at which a property is sold can never be less than the price it originally cost the local authority to build and maintain it.
History of right to buy
Right to buy was introduced through the Housing Act 1980 as a means of expanding home ownership and with discounts of up to £50,000. However, prior to that legislation some local authorities had already been selling council properties voluntarily to their tenants at a discount.
There was a political divide between those councils willing to sell to their tenants, and those who were not. It was as a result of the legislation that right to buy became available to all eligible council tenants. With such generous terms, it was not surprising that the right-to-buy scheme became very popular.
By 1987, more than 1m homes had been sold to their tenants. To date, the estimated number of homes sold under right to buy is around 2m. The scheme was also less restrictive than it subsequently became: the only qualification being that if the property was resold within the first three years, the discount would have to be repaid.
If the property was resold within the first year, the whole discount would be repaid. Two-thirds would become repayable for a sale in the second year, reducing to one-third repayment for a sale in the third year. After that, the right-to-buy purchasers were free to resell and keep the whole of their discount.
The rules were changed in 1997. By that time numbers of right-to-buy transactions were already slowing down, as the best properties had already been sold. And while the government was no longer opposed to the principle of council properties being sold, it reduced the maximum discounts available to tenants buying from local authorities. This put severe pressure on their remaining housing stock, which included most of London.
From the outset, one of the problems with right to buy was that the homes sold off were not being replaced. Financial regulations prevented councils from using money from right-to-buy sales to build more social housing. Instead, the bulk of that money had to be used to repay existing local authority debt.
Further restrictions were introduced by the Housing Act 2004 (the 2004 Act). This introduced the current five-year eligibility requirement and also imposed an obligation on right-to-buy purchasers to offer their properties back to the local authorities from which they originally purchased, if they wanted to resell within 10 years. The period over which the discount on resale became repayable was also extended from three years to five years. Those rules still remain in place, notwithstanding the current government’s decision to increase discounts.
The process
The process for exercising a right-to-buy claim is now set out in the 1985 Act, which consolidated earlier legislation and also incorporates later amendments, including those brought about by the 2004 Act.
Anyone wishing to exercise their right to buy must first complete and lodge with their local authority landlord a right-to-buy form (RTB1). Within four weeks of receiving that form, the local authority must send a response notice (RTB2) stating whether or not the applicant qualifies for right to buy.
If there is no issue over the applicant’s eligibility to buy their property, the local authority must then send out a separate offer notice (a section 125 notice) setting out the price the applicant will have to pay and the terms and conditions of sale. Other critical information which a council must disclose in a section 125 notice includes information about any known structural defects and, in relation to leasehold properties, the estimated cost of service charges or improvement costs for the initial five years of the lease. These figures are critical as the local authority landlord will not be able to charge more than the quoted amounts for the first five years of the lease.
Right-to-buy applicants have the right to challenge the council’s quoted offer price and to insist on an independent valuation from the district valuer, whose valuation may be higher or lower than the price originally quoted. It is after receipt of the section 125 notice, but before completing the purchase, that the government recommends would-be buyers to commission their own structural survey of the property before they are fully committed to their purchase. It is also after receipt of the section 125 notice that buyers will need to instruct their conveyancing solicitor.
Flats and maisonettes will be sold on the basis of a 125-year lease at a fixed ground rent of £10 per year. As referred to, the biggest risk for right-to-buy leaseholders is the amount of service charges they may be required to pay over the medium to longer term: they will be shielded from excessive service charges for only the first five years of the lease.
The recent changes
One of the government’s aims in increasing maximum discounts to £75,000 is to reinvigorate the right-to-buy market, which had become unattractive to would-be buyers because of the restrictions on discount. On the government’s own estimate, the increased maximum discount is expected to generate around 20,000 additional transactions over a three-year period: barely 1% of the total number of transactions completed since its launch in 1980.
The difference in the new right-to-buy regime is this government’s stated commitment to the replacement of homes sold off by the provision of new social housing on a one-for-one basis. It remains to be seen how well its commitment to those replacement dwellings can be achieved.
Charles Ward is a solicitor and manages the London Borough of Sutton’s property and contracts team