CLTs

Hi Laurence,
 
interested to see your support for CLTs in the SENSCOT bulletin for 21st May 2010.  I had proposed the idea to our local community land owner, Storas Uibhist on South Uist and Benbecula, who are keen to build community housing, but there seem significant barriers in the Scottish context.  I followed up with my old colleague, Pat Conaty, a pioneer for CLTs in England, and a great social enterpreneur, who seems to confirm the challenges.  I give all the correspondence below.  If you can follow up with others in the sector, that would be great.
 
Cheers, Thomas
 
Thomas Fisher
Cothrom Ltd, South Uist
01878 700918 (Wed, Thu am, Fri)
 
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Thomas to Pat Conaty:

Hiya Pat,

I picked up some news about community land trusts, and sent it on to the community company that owns our island of South Uist (as well as Eriskay and most of Benbecula — the biggest community buyout so far).  I was just speaking to someone from Eriskay, who says the community, just revived through the causeway, will soon be going into decline, because so many houses on this tiny island have been bought as holiday homes.

The community company Storas Uibhist are interested in developing affordable housing, but above is the response I got about CLTs.  Do you have any views on this?

Cheers, Thomas

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Pat Conaty to Thomas: 
 
Hi Thomas

On the CLT matter, a very challenging problem this and I was not aware of this restrictive problem in Scottish law viz. leasehold homeownership. Clearly the community company can develop housing on its land to rent. CLTs in rural Scotland, from my information, have tended to work in partnership with housing associations. Be interesting to see how this is structured between the community company owning the land and the social landlord partner. Perhaps the housing reverts to the community company at the end of 20 years. This would make sense once the debt is repaid by the rental income.

In England and Wales, there is no limit on the leasehold period. So you typically get 99 year renewable leases and even  longer. Anything over 125 years is regarded as the equivalent of freehold. A long lease enables you to raise the finance to build of course. A short lease clearly restricts this. Otherwise without a long lease it is very difficult indeed to raise mortgage finance – especially without subsidy. Clearly social landlords can get these for low income residents.

But clearly housing associations are doing some housing development on other CLT islands. Be good to check on this with the Community Land Unit in Scotland. Perhaps they give the lender a separate loan guarantee or just raise 20 year corporate mortgage finance. Otherwise you need to restrict the mortgage to the period of the lease and come up with a good down payment. However even then the fundamental issue is that people would not be comfortable buying any leasehold property with such insecurity, which rises exponentially just as they are paying off the debt; and by extension, how can people sell?

The other solution would be for the community company to sell off freehold plots, but this defeats the concept of a CLT? One viable way to do this, would be to sell off freehold plots but to put restrictive covenants on them (these normally cannot exceed 25 years). In Scotland, these covenants are called ‘burdens’ or something similar. I seem to recall in fact that this is the only way round the problem. This restriction seeks to control the resale price of the house to keep the housing permanently affordable. The CLT sets the resale price and reviews this periodically. If the restriction coincides with the lease period, then it can be renewed when the lease is renewed.

But allowing at least a 99 year lease would be a good reform I think. This length of lease is the ideally period for CLTs in the USA and England & Wales.

Pat