The government has made good on its promise to prepare model section 106 clauses to assist in implementing its First Homes policy. These were published on 23 December 2021, alongside updates to planning practice guidance.
The First Homes scheme aims to help first-time buyers in England purchase a discounted new-build property. Announced by written ministerial statement on 24 May 2021, transitional arrangements mean that the scheme’s implementation has been staggered across three milestones, the second of which was achieved on 28 December 2021, just after the model clauses were published.
Practitioners are increasingly likely to encounter First Homes going forward. If learning about this new form of affordable housing formed one of your new year resolutions, then this précis should be of interest.
What are First Homes?
First Homes are discounted market sale units which are:
- discounted by a minimum of 30% against the market value;
- sold to people meeting eligibility criteria (a first-time buyer having a combined annual household income not exceeding £80,000 (£90,000 in London) and with a mortgage to fund at least 50% of the discounted purchase price); and
- after the discount has been applied, capped for first sales at £250,000 (£420,000 in London).
First Homes qualify as affordable housing, and at least 25% of all affordable housing units delivered by developers should be First Homes.
What happened on 28 December 2021?
The First Homes policy does not apply to planning permissions in place (or where a right to appeal against non-determination has arisen) before 28 December 2021. It also does not apply to plans made or adopted under the transitional arrangements (broadly, plans submitted for examination before 28 June 2021 or published by that date and subsequently submitted for examination before 28 December 2021).
There is one further get-out. The policy will not apply to applications determined before 28 March 2022, provided there has been a significant element of pre-application engagement concerning affordable housing.
Why are planning obligations important?
The legal mechanism through which First Homes will be secured is a section 106 agreement. These are typically a prerequisite to the grant of planning permission and bind the land and successors in title. The intention is to ensure that First Homes requirements bind first disposals and all onward sales in perpetuity.
This is hardwired into statute through the community infrastructure levy regime. While it is possible to claim relief from CIL liability arising for First Homes, to do so there must be a planning obligation securing a discount of at least 30% to market value for onward sales.
Some headlines from the new model clauses
The template is not mandatory. It can be used as the basis for agreements prepared locally and will be a useful starting point in documenting First Homes provision, improving consistency and reducing delay. Flexibility to craft local eligibility requirements will be welcomed by authorities.
Inevitably, there will be adjustments to fit specific circumstances. Some broader considerations to be mindful of include:
- Usually, section 106 agreements are not enforceable against residential occupiers and sit with the developer. However, these obligations are designed to be enforceable by the authority against homeowners. Purchasers will need to be made aware of the restrictions and obligations they are taking on when they are thinking about acquiring a First Home – in particular, positive obligations to market onward sales as First Homes for at least six months unless undue hardship can be demonstrated, the requirement to pay 30% of sale proceeds to the authority in the event of a market sale, and restrictions protecting use as a primary residence by limiting lettings and sublets.
- The local planning authority is made responsible for approving first disposals and all subsequent sales of First Homes. The authority must certify that purchasers satisfy eligibility requirements and that the unit is being sold at the required discount within 28 days of receiving sufficient evidence. There is the obvious question as to how this new administrative burden will be resourced (and financed) by authorities, and any failure or delay in providing satisfactory evidence or issuing certificates could jeopardise onward sales.
- As expected, there is a requirement to place a restriction on the register of the title of the First Home. The restriction will prevent a disposal being registered without a certificate from the local authority or its conveyancer confirming that the First Homes requirements have been met. Title restrictions are unpopular, especially where there is no control over the certification process. This will also be a concern for purchasers who could be reluctant to exchange without the certificate in place.
- Mortgagees are able to make market disposals provided notice is served on the authority and with a contribution to affordable housing after outstanding security has been repaid. Guidance strongly recommends that this clause is used.
- It is questionable whether clauses designed to prevent “clustering” and to ensure that First Homes are not visually distinguishable from market houses are enforceable. Such matters are arguably better addressed through approved drawings and planning conditions.
Conclusions
The First Homes template seeks to translate policy aspirations into legal drafting. But in doing so, it may have created a mechanism that is particularly burdensome for the First Home owner. Owners may find that it is not as big a step onto the housing ladder as they had hoped, and there is a risk that the complexity and cost added to the onward conveyancing process will create barriers for the very people that First Homes are designed to help.
Charlie Reid is counsel in the planning and environment Team at Ashurst LLP
