Terms & Conditions

[drolfe]

Hi
I am being asked to approve a new scheme in our area for a single tenant with extremely complex needs.
The landlords are registered on the registered provider list as a non profit CIC – which ticks the right boxes.
A developer will convert the property so it has a bed for the tenant and a live in carer plus a sensory room due to his significant issues with autism. They want to charge £951.00 per week as a base rent. The total charge is £1245.23 per week (yes per week) – so the refurb company buy the property do it up and then sell to a pension provider for the purchase + refurbishment fee, then the pension fund charge about 7% of the total purchase fee to get the base rent so at 7% the purchase price was around £725,000.
The new landlords who are the CIC have provided all the right ‘info’ at this stage including information relating to care homes within the local area that would be more expensive.
I have read the referral report for the tenant and it would appear that this facility would be suited to his needs but at whose cost ?
I do not think subsidy would be an issue but we are considering a rent which is way more than double anything we pay now.
I have spoken with another authority who have dealt with this CIC before and they have provided some very helpful info.
Just wondering if anyone had any thoughts or similar experiences
I am concerned that one, brings two and so on
Thanks

[Andy Thurman]

There is a lot to unpick from this…
Firstly, is £725k a reasonable valuation? What ‘refurb’ is there? Setting up a sensory room is clearly important but how much does that actually cost? If not, why are the pension fund prepared to pay so much for it (and who is making the excessive profit for a resale after minimal work?
Is a 7% yield reasonable – it is higher than current averages and does not (I’m assuming) need to cover many of the usual expenses as these will be borne by the HA and added on as service charges.
What other options have the CIC considered? How/why are they entering into this arrangement?

Comparison to a care home is not directly relevant. What is relevant is that the base rent is far higher (approx 50%) than the most expensive 3-bed rent for the area.

[John Boxall]

As Peter has pointed out there seem to be a lot of purchases of property for use as supported accommodation at inflated prices.

While it takes 3 months to appear you can get the declared sale prices via HM Land Registry or Rightmove – which is free!

Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. The blossom is blighted, the leaf is withered, the god of day goes down upon the dreary scene, and—and in short you are for ever floored.

Wilkins Micawber, Ch12 David Copperfield

[drolfe]

Thanks Both
So further information obtained regarding this:
Property is a 3 bed – developer purchase price is £500k
Resale to Pension Provider is £845k (development costs were 157,500)
I asked about profit for pension provider and the response was that all profits received go to deliver Local authority pension funds.
It is quite clear from the info provided that the proposed tenant has high functioning autism and does require a facility suitable to their high needs. The plans for the property shows one bed with attached wet room, sensory room, kitchen, dinning room, living room, bedroom for support worker (en suite) and a utility room.
The CIC are being pushed by the NHS as the current accommodation is deemed unsuitable.
I had previously pointed out that we have no rents remotely close to this figure and therefore this is why I did not feel we could support this using HB.
The property in question has been sourced especially for the tenant and commissioned by the NHS and integrated care board.
I have been told that whist it is accepted that the lease cost is high it is cheaper than any secure alternative that may be required due to the needs of proposed tenant. Hospital care has already been ruled out as being a viable long term alternative.
I am being pushed by the CIC as they are being pushed by the NHS and the developers as they think they will lose the property.
They have asked if we can ‘agree’ to this or is there a total we will go to.
With regard to the 7% – I enquired if lower values had been considered – the response was that 7% has always been the case despite the current increases in loans etc
not sure if any of this helps but I am still concerned even though I think a full subsidy reclaim would be viable?

[John Boxall]

How does the resale to the Pension Provider price compare to the price of similar properties in the relevant area?

The bottom line though is what is the property actually ‘worth’ bear in mind that houses are a bit like cars, they have a ‘book value’ and no amount of hot tubs, swimming pools etc will turn a £500K house into a £845K in in most cases

Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. The blossom is blighted, the leaf is withered, the god of day goes down upon the dreary scene, and—and in short you are for ever floored.

Wilkins Micawber, Ch12 David Copperfield

[markg]

so they’ve agreed the sale price (after refurb) before the refurb has even been done?
Sounds odd to me. How do they know what the property market will be like once the refurb has been done. Its like the pension provider is agreeing, in advance, to massively overpay for the refurbed property. Hmmmmm….

And the ‘pressure’ being put on ‘ we might lose the property’ – all this emotional blackmail stuff: far too much of it going on. The NHS arent helping in this regard, by the sounds of it.

Disengage, tell them you’ll only make a decision on HB once you’ve got a fully completed HB claim from from a tenant. See what happens.

I’ll probably get flamed for saying all that, and I know the tenant needs specialist accommodation, but the purpose of HB is not to create profits for investors. We’ve been here so many times before though……

[peterdelamothe]

“the purpose of HB is not to create profits for investors…..”

https://www.bbc.co.uk/programmes/m0018c0c

The Panorama program The Housing Benefit Millionaire springs to mind!

£65,000 per year for one person is extraordinary and yes I understand the person is vulnerable and needs extra help but this is about the highest around. Yes you may get subsidy but if DWP do take over exempt what then? Is the developer going to come back and argue the Council is liable? Increase the charges next year to £75,000 because of inflation and interest rates?

The best piece of advice I was ever given was never take risks on subsidy but that is an aside.

I suspect that plenty of providers could supply a 5 star service for a max of £30,000 …..so the rest is sheer profiteering. But then this is why the exempt bill is eye watering.

Not easy for decision makers though.

[drolfe]

Thanks for the replies
Ultimately no new claim has been received so they are only asking for a yes or no as to whether we would consider this.
I am leaning towards the fact that I do not think we can support this.
But if there is no claim and I provide an explanation as to why we think we cannot support this scheme, do they still have any right of appeal as at this stage it is technically only a recommendation ?
Was also thinking of emailing Housing Policy at the DWP to see if they had an opinion?

[mickbullock]

I’ve had a similar case (apart from the costs!). Assume costs exclude Care? The case I had the rent for HB was agreed at under 50% of these proposals but is still much higher than anything we have paid before.

If I’ve understood this right the developer is charging £154k to basically repurpose a couple of rooms but plans to make an additional nearly £200k profit by doing these refurbs?

I’m assuming the property is in a very expensive area but it would seem very unlike that the planned refurbs would increase the value (possible decrease value) so it would be useful to see valuations evidencing this.

I would look at SAA with a view to restrict or at least challenge costs. Make sure you see proposed plans/costing’s lease etc

regarding agreeing a rent in principal, it is common practice but no obligation on LA’s to do this and in this case I would be wary of doing so.

Hope that helps.

[markg]

If you’ve not made a decision on a claim, then there is nothing to appeal against. Just be careful how you word any emails/ letters about the ‘proposals’ being put to you.

[Author]

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