Renegotiating LSVT sharing agreements


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We are seeing a steady stream of stock transfer housing associations re-negotiate their historic sharing agreements that originally formed part of their transfer agreement.  For both housing associations and local authorities alike, these sharing agreements can be re-imagined in ways that can bring tangible benefits to both parties and can release resources for additional housing provision.

Of course, many of the sharing agreements (generally comprising a Right to Buy sharing agreement, a development (or disposal) clawback agreement and a VAT sharing agreement) may no longer be in force - for most associations, these sharing agreements were time limited and so in many cases may well have either ceased to have effect or might be coming to an end in the foreseeable future (in which case there may be little merit in seeking to re-negotiate terms).

For those that remain, it must be remembered that the sharing agreements create legally binding obligations so they can only be changed with both parties agreement.  It is therefore important that in formulating a re-negotiation of a sharing agreement that it creates a "win-win" for both parties.

This is all the more important for re-negotiation proposals put forward by a housing association, bearing in mind that in most cases the local authority may have little or no incentive (nor any obligation) to enter into a dialogue about re-negotiating terms. 

What are the options?

Based on our successful experience of renegotiating these arrangements on behalf of both housing associations and local authorities, we would suggest one or more of the following ideas can create tangible benefits for both parties.

One off payment - For some local authorities, the local authority might be willing to receive a one off cash payment in lieu of future potential receipts under one or all agreements; this option can work well where the local authority is facing budget constraints and where the housing association is looking to achieve complete freedom in relation to its asset management strategy. 

Longer term agreed purpose - In other cases, it may simply be a case that the local authority can be persuaded to waive its entitlement to future receipts under one or more agreements in return for the housing association agreeing to use the receipts for an agreed purpose (for example we have worked with housing associations that have agreed to commit receipts to fund new affordable housing in the local authority's area, for community purposes or for the provision or remodelling of temporary accommodation (the latter being a potentially attractive proposition for a local authority given the increased demand for (and cost of) temporary accommodation.  This does, of course, require a willingness for creativity and long term partnership working on both parties - but given the ever increasing cost of temporary accommodation we suspect many local authorities would be willing to explore proposals where (perhaps uncertain) income was sacrificed in order to deliver long term revenue savings.  It is also worth remembering that new affordable housing supply is an ever increasing political priority and local members are often keen to find new means of increasing affordable housing.

Joint venture housing company - As a variant on the previous model, parties could look to establish a joint venture housing company and for the local authority to funnel its share of receipts into that housing company; whilst this may not necessarily be the optimum outcome for the housing association it would meet the objectives of delivering more housing (of whatever tenure) in its locality and the housing association could also benefit from providing development services to the joint venture.  The option may also prove attractive to the local authority by providing an ongoing revenue stream from the joint venture. 

Re-negotiation of an agreement

If negotiations proceed to a re-negotiation of a sharing agreement, then it is probable that the housing association will need to seek lender consent to the amendments; either because existing loan agreements mandate that amendments only be made to the agreements with lender consent or else because the revised terms impact on the housing association's business plan (which may be the subject of separate consent requirements). Whist we suspect it unlikely that a lender would resist an amendment that would favour the housing association it is nevertheless important that the consent is formally documented. 

Opening up historic agreements for renegotiation won't be for everyone, but as we have seen, for many housing associations these sharing agreements offer access to resources that can be better focused on the housing needs of their area.

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