Discounted Market Sale and ESW1

1874_

Hi all - new to this forum and kicking things off with a bit of a complicated one I hope you might be able to help me with.

I bought a flat a couple of years ago through Hammersmith and Fulham's 'Discount Market Sale' scheme - also called shared equity elsewhere I believe - at 37% of the market value. 

When I moved in, the cladding was in the process of being replaced as it had been identified as flammable in the wake of Grenfell (although the block is only 7-storeys) and this has long since been completed. Now, the freeholder is the custodian of over 150 buildings and has now placed ours on their list of 'low risk' buildings in terms of commissioning an intrusive survey in order to obtain an ESW1 Certificate, which they say might not happen until 2022. 

As a result of not having this certificate many mortagees will not lend on flats in the block so people trying to sell in the building can't, and many RICS surveyors are valuing properties in similar positions as nil.

Now, to buy the remaining share of the property, the Council requires that I submit an independent RICS valuation based on the current market value to determine the cost of the remaining 63%. 

My question is twofold. To me, this seems like a good time to buy out the remaining share/equity, so are the Council likely to accept a seriously low redbook valuation to buy the remaining share on the basis of the current circumstances? As far as I know this is unexplored territory so I am quite keen to get people's thoughts.

And second, is anyone able to advise where the clause is which says I only own 37%? This isn't specified on the lease, or the land registry and the only document I have containing this figure is the original memorandum of sale. I understand there's a S106 attached to the original planning which relates to the Discount Market Sale scheme but this was never shared with me as part of the purchase process and the one online has gaps where any detail would be relating to % ownership etc.

Any help much appreciated!

mrschaucer

Do you have an absolute right to staircase to a higher percentage ownership, or is it at the discretion of the council?

blue_max_3

That's an interesting conundrum! Can you buy the remaining 63% based on a valuation of £0. That would be £0 : )
Might be worth pursuing!

AdrianC

A mortgage valuation of £0 does not mean the market value is £0. It means the surveyor is advising the lender not to lend against it.

Turn the question round - if you could buy 63% at 0.63 x £0, then wouldn't that mean your current 37% is worth 0.37 x £0? Perhaps it's a good time for the local authority to consider compulsory purchase...

1874_

mrschaucer said:

Do you have an absolute right to staircase to a higher percentage ownership, or is it at the discretion of the council?

I understand the Council must agree to the valuation provided: 

"Please note in case of disagreement regarding the valuation figures. It is the Council and the seller who must agree a settled valuation."  

Found in the form on their website which I can't post a link to..

So I imagine some negotiation 

AdrianC said:

A mortgage valuation of £0 does not mean the market value is £0. It means the surveyor is advising the lender not to lend against it.

Turn the question round - if you could buy 63% at 0.63 x £0, then wouldn't that mean your current 37% is worth 0.37 x £0? Perhaps it's a good time for the local authority to consider compulsory purchase...

I'm obviously not expecting to get the rest of the share for free however, the circumstances do appear to be favourable to buy it out at a far low price relative to the 'normal' market value. Appreciate the 'if the shoe was on the other foot' scenario but the LA would not have a leg to stand on trying to CPO a 7-year old block that was built by a housing association, on ex-Council land to provide mostly affordable housing, and would have close to nil incentive to do so, so I'm not sure it's an entirely relevant comparison. 

Buying the remaining 'share' is all profit for the Council as I understand, as they never provided money to the developer/housing association but the developer agreed to provide the flats at a discount subject to the S106 agreement, handing the remaining equity to the Council to ensure the discounted units would be kept as 'affordable' units.

davidmcn

1874_ said:

mrschaucer said:

Do you have an absolute right to staircase to a higher percentage ownership, or is it at the discretion of the council?

I understand the Council must agree to the valuation provided: 

"Please note in case of disagreement regarding the valuation figures. It is the Council and the seller who must agree a settled valuation."  

And if the parties can't agree? You'll need to find whatever it actually says in the contract between you.

I suspect that (especially in London) there will be enough cash buyers willing to take a punt, so the valuation is likely to be much closer to "normal" levels than zero.

mrschaucer

On the one hand you are talking about buying out the remaining share, and on the other you are talking about the council ensuring the discounted units "would be kept as affordable units".  You need to find out exactly what you can and cannot do as far as staircasing is concerned before you start talking valuations.

1874_

davidmcn said:

And if the parties can't agree? You'll need to find whatever it actually says in the contract between you.

I suspect that (especially in London) there will be enough cash buyers willing to take a punt, so the valuation is likely to be much closer to "normal" levels than zero.

This was the reason for my second question - I have no idea where this contract is, if it exists. I'm aware of the S106 legal agreement between the developer and LPA which I assume I am also party to, being a leaseholder, but I haven't put my signature to anything outlining the terms of the discounted sale. I have a lease, and a land registry title, neither of which set out anything regarding a discount.

1874_

mrschaucer said:

On the one hand you are talking about buying out the remaining share, and on the other you are talking about the council ensuring the discounted units "would be kept as affordable units".  You need to find out exactly what you can and cannot do as far as staircasing is concerned before you start talking valuations.

'Staircasing' is definitely allowed, but the discount must be passed on to any subsequent buyers if I opt to maintain my share at 37%. I say 'staircasing' in inverted commas because I think the process is different to staircasing in a shared ownership scenario. I either buy the remaining equity or sell at the same discount I bought, albeit based on current market valuations. This is from LBHF's website: 

--

If you are the owner of a ‘discounted market sale’ property and would like to buy the remaining share, or sell the property, fill in the Council Shared Equity Form (formally known as DMS) (pdf).

You’ll need to include a valuation report to apply.

Your report must:

• include the date the valuation took place
• say that they are aware the property is a council shared equity unit
• confirm the report is valid for a minimum period of three months
• include a clause that “Hammersmith & Fulham Council can reply upon the contents of the report”
• include comparable evidence, including the square footage of the properties, sale price and date of sale.

We strongly recommend you get independent legal advice before completing your application.

Buying the remaining share

Please note that sale of the council’s interest in the Council Shared Equity homes is at its absolute discretion.

Once we’ve received your application and valuation report, we’ll seek approval of the report and, if approved, we’ll send you an offer letter.

If you accept, we’ll seek authority to sell. If this is approved, we’ll ask our legal team to contact your chosen solicitors.

You will have three months from the point of our offer letter to complete your purchase. After this date, we’ll need a new valuation.

mrschaucer

1874_ said:

Buying the remaining share

Please note that sale of the council’s interest in the Council Shared Equity homes is at its absolute discretion.

So how likely is it that they'll sell to you now at your hoped for £0 valuation when they can just wait until the ESW1 is available and sell to you for megabucks?