Knocking down the right-to-buy barrier

Many Landlords working on regeneration schemes are pleased that the Housing Act 2004 allows suspension of the right to buy when homes are to be demolished. Councils and registered social landlords that had demolition plans had found some tenants would exploit the situation, buying flats in the knowledge that the landlord would have to buy them back if demolition were to go ahead.

In fact, evidence of such practices is patchy, but the stories illustrate the problems the right to buy was causing for demolitions: the costs of buying out right-to-buy owners on estates were increasing, and landlords could never be sure how many people would have to be bought out.

The Housing Act 2004 contains provisions that are intended to remove the uncertainty. They came into force on 18 January 2005 and do not affect any right-to-buy application made before that date. But it’s not clear how much they will improve the situation.

The act produces two separate processes. First, an initial demolition notice. Under this a tenant still has the right to buy, but the landlord doesn’t have to sell. Second, the final demolition notice, which removes right to buy. The landlord must serve an initial notice on all secure tenants in a building it plans to demolish. The notice must explain why the landlord intends to demolish and specify the period in which it will happen. This can be up to five years but has to be reasonable – you cannot just put five years down for safety. The notice must also state that during this period the landlord does not have to complete any right-to-buy sales.

At the same time, the landlord must put a notice in a local newspaper, as well as in any paper it publishes, and on its website if it has one. In addition to the other details, this notice must explain that compensation for legal and survey costs may be available to tenants who have already applied to buy.

Wasting time

Because an initial notice does not stop people from exercising their right to buy, it could be misleading. Tenants may spend time and money on applying, but if demolition goes ahead, as it usually will, they will gain nothing because the landlord does not have to complete. And landlords will still have the costs of dealing with applications, getting valuations and serving notices.

Landlords must be careful to get initial notices right. One problem is likely to be deciding the notice period: you may think demolition within three years is reasonable but then have problems decanting the first phase, and suddenly three years is not long enough. Then you’ll need the consent of the secretary of state – at present, that means John Prescott – to serve another notice. Meanwhile, your first notice will have expired and you will have to complete outstanding right-to-buy applications. Landlords must also take care to put all the necessary information in the notices – the act is very specific about what is needed.

An initial notice does not stop people from exercising right to buy, so it could be misleading. Tenants may spend time and money on applying but gain nothing

The more powerful tool is the final notice – but there is a major barrier in its way, and another potential timing problem. A landlord can’t serve a final notice unless it either owns all the interests in a condemned building, or has contracted to own them, or unless notice of compulsory purchase has been given. So where a block of flats is condemned and the landlord is still buying out existing leaseholders, a final notice cannot be served – and new right-to-buy applications may still be made. Most landlords would not want to rush to use a compulsory purchase order. Does the ODPM want them to?

The proposed demolition date must be within two years of the final notice. But unlike initial notice periods, the secretary of state can extend the final notice period as long as the notice is still in force.

Confusingly, there is no need to serve a final notice after serving an initial notice.

The initial notice will prevent anyone from completing their right-to-buy acquisition while the landlord ends the tenancy and demolishes. It is not immediately obvious why we need the two separate systems.

And what about preserved right to buy, which ensures the right is maintained when council stock is transferred to an RSL?

The relevant sections of the 2004 act do not mention it. In principle they should apply to preserved right, but clarification of this issue from the ODPM would be welcome.