2 Nature of Land Interest to be Transferred

This guidance assumes that a substantial interest in land is transferred by the Authority to the private sector. This contrasts with the normal HRA structure where, a licence is granted for the duration of the concession period which merely permits the Contractor to access Dwellings to provide the works and services.

Authorities therefore need to carefully consider:

(a) the timing of any land transfer to be made;

(b) the party to whom the land transfer is made; and

Taking each of the above 3 issues in turn:

(a) Authorities should not transfer a substantial interest in land until the Dwellings/Common Parts/Apartment Blocks have been constructed. A licence should be granted during the construction period. This is often in line with many Authorities' policies on land transfer and provides the Authority with security that it will ultimately be acquiring what it has contracted to buy before disposing of the interest in the land. This is particularly of concern if the Authority is transferring its land interest for less than market value consideration. Non-HRA Projects have been funded utilising this land transfer position with funders taking security by way of an assignment of the Project Agreement. Suitable drafting for this land transfer position is set out at paragraph 25 of this Guidance;2

However, in the case of general needs housing and other dwellings that are not exempt from the Right to Acquire, Authorities should be mindful of section 16 of the Housing Act 1996 (particularly section 16(2)(c)) or the equivalent provisions in sections 180 and 181(4) of the Housing and Regeneration Act 2008. In such cases it will be appropriate to complete the disposal before Dwellings are capable of being let as separate dwellings and the HCA will review the proposals on a project by project basis. The HCA will normally expect Authorities to defer the disposal until such time as Dwellings are substantially complete but not capable of being let3. On larger sites the HCA will discuss with Authorities the implications of phasing of works and whether one or more disposals might be undertaken.

(b) the party to whom land is transferred by the Authority will be dictated by a bidder's structure for delivering the Project. Authorities should carefully review structures advanced by bidders to ensure that any land transfer is made in a tax efficient manner; and

(c) it is recommended that land is transferred on non-HRA Projects by way of long leasehold (terms of 99 years or 125 years have commonly been used). Transfer by leasehold permits Authorities to retain an element of control over the assets (being able to impose and enforce covenants with a key covenant for many Authorities being a requirement that land is used during the lease term for social housing). A lease also permits the use of options whereby the Authority can require assignment, surrender or termination of the lease (see paragraph 4 of the Guidance for detail on the inclusion of options in a non-HRA Project). It is likely that any option included in the Project Agreement would be invalid given that the concession periods of most PFI contracts are 25 or 30 years (any option over land is invalid if it lasts longer than 21 years unless included in a lease).4

Authorities will need to ensure that any covenants included in a lease do not impose double obligations or conflicting obligations on the Contractor during the period for which the Project Agreement also persists (for example in relation to maintenance obligations) - see also the comments in paragraph 4(c) below.

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2 Although the Contractor/Housing Management Contractor will not have a legal interest in the land until the Lease is granted, Tenancy Agreements can still be entered into which will be binding as between the Contractor/Housing Management Contractor as landlord on the one hand and the tenants on the other. Authorities and bidders will need to give careful consideration to the status of tenants in the event of early termination prior to the grant of the Lease.

3 For example, ready for internal fit out with external works (other than planting/landscaping) and internal walls completed, services to meters and drainage connected, roads provided to the boundary of the Dwellings and otherwise wind and watertight

4 Note though that this will change if the Perpetuities and Accumulations Act 2009 is brought into force.