Under most construction contracts, the contractor takes on the ground conditions risk. However, a recent case has demonstrated that the risk can fall on the employer.
The provisions caused great controversy in the last stages of debating the Bill before it was enacted, and particular provisions have now been included in relation to the potential for local authorities to offset the requirement to make payments to the Secretary of State (“SoS”) where agreement is reached that they will provide further social housing.
Duty to Consider Selling
The Act imposes a duty on local authorities (with housing that falls within a Housing Revenue Account) to consider selling their interest in any “higher value” housing that becomes vacant.
“Higher value” is still not defined within the Act and clarification on what will be considered to be higher value housing is to be included in regulations issued by the SoS.
Housing that “becomes vacant” is defined in a common-sense way (where a tenancy comes to an end and is not renewed) but there is the potential for the SoS to make regulations specifying circumstances that do not count as having “become vacant”.
The SoS can exclude housing from this duty under regulations, and may also provide statutory guidance for local housing authorities to follow. In reality, it is the subsequent statutory guidance that will determine how much discretion local housing authorities have over the decision to sell.
Payments to the Secretary of State
The Act enables the SoS (through regulations) to require local housing authorities to pay to the SoS an estimate of the market value of any higher-value housing that is likely to become vacant during the year (less costs and deductions stipulated by the SoS in regulations). Note that the SoS can treat the local housing authority as still having housing that it disposes under sections 32 or 43 of the Housing Act 1985 to a registered provider, or treat the housing as being likely to become vacant if it would have become vacant but for the local housing authority disposing of it to a registered provider – meaning that local housing authorities cannot avoid this provision by pursuing a stock transfer and that in seeking consent to transfer, this issue will need to be addressed. Payments may be reduced by agreement between the SoS and the local housing authority, with the intention that the local housing authority uses the amount by which the payment is reduced for the provision of housing. In Greater London, the local housing authority must ensure that this provides at least two new affordable homes for each old dwelling.
The devil is in the detail…
The key factors in relation to how these requirements will operate will be contained in regulations to be made by the SoS, which must be consulted on widely (and individual local housing authorities will need to be consulted with if specific determinations are to be made in relation to them). However, as funding for the VRTB is to be derived (at least in part) from these payments, it is expected that details should follow shortly.
For more information
Please contact Gayle Monk
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