Considering the Enhanced Long Term Lease Scheme to Approved Housing Bodies and Local Authorities

by Jackie Buckley May-06-2021 in Property, Approved Housing Bodies (AHBs)

The Government’s Social Housing Construction Project Status Report Q3 2020 confirmed that over 138,000 additional social housing homes are to be delivered by the end of 2021. This is to include 10,000 homes which will be leased by local authorities (LAs) and approved housing bodies (AHBs) from the private sector. 

Traditionally, the Standard Long Term Lease was used for these lease agreements, however a new scheme has emerged which gives greater comfort to investors/developers and which should garner greater investment to the social housing market in Ireland. This article will set out and compare the terms of the Standard Lease to that of the Enhanced Long Term Lease.

Standard Lease

The Standard Long Term Lease to AHBs or LAs is generally for a term of 20 years with no break options permitted.  The long-term tenure is in exchange for a rent set initially at a proportion of the open market rent typically at 80-85%. There is scope as to the types of properties to be leased under the Standard Leasing scheme and there is no restrictive limit on the number of units/properties.

There is no direct relationship between the developer and the occupier of the property as the AHB/LA becomes the lessee. The rent is reviewed every 3 years in line with the Consumer Price Index and all rental payments are guaranteed by the LA/AHB for the duration of the lease including periods when the property is vacant. The LA/AHB is responsible for the internal maintenance and repair of the property which makes the Standard Lease attractive to developers.

The negative to the Standard Lease however is the maximum rent at 80-85% of the open market rent and as such the Enhanced Long Term Leasing Scheme seeks to address this cap.

Enhanced Long Term Lease Scheme

The Enhanced Leasing Scheme was introduced in 2018 specifically with a view to attracting newly built or yet to be built properties with planning permission which have not been leased or rented within the previous 12 months. This is to ensure new stock and units come on to the housing market.

The Enhanced Long Term Lease is generally for a term of 25 years and targets investors with a minimum of 20 units (houses or apartments) which are required to be within the same development or dispersed within the same local authority area.  The rents achieved under the Enhanced Lease are significantly higher than those under the Standard Lease at generally 95% of the open market rent.  Similar to the Standard Lease, the lessee under the Enhanced Lease is the LA and no break options are permitted. 

In return for the high rental yield and the 25-year term, the repair provisions under the Enhanced Lease are significantly more onerous in that the property owner/developer is responsible for the structural repair, external and interior repair and maintenance. Where the management services are not performed as required by the LA, penalties will apply at a proportion of the monthly rent, generally at 12.5% of monthly rent. In many cases, the LA will seek an independent facilities or property management service provider to be engaged to manage the repair and maintenance obligations.

There are 3 different maintenance services response types:

• Immediate Repair Issues – 24 hour response required to ensure continued safe occupation or prevent significant damage to property (example: heating systems failure)
• Responsive Repair Issues- 5 day response required to ensure continued comfortable occupation of full use of property (example: broken light in common area).
• Periodic Repair Issues – 15 working day response for any other issues to ensure continued comfortable occupation of the property (example: faulty radiator).

Summary table

Conclusion

The Government’s ambitious social housing targets have brought a significant change to the social housing market. The State is interested in attracting private investment to social housing where the focus on collaborated delivery between the private and public sector will seek to achieve targets while the off-balance sheet nature of the Enhanced Leasing Scheme is an essential element from the Government’s perspective. 

The benefits to the institutional investors/developers are the Government covenant, the long term nature of the leases and the high yield return. There is also the advantage that the LA/AHB is the lessee and will manage the occupier. 

The difficulties or disadvantages are equally clear in that there is limited scope to negotiate the wording of the Enhanced Lease which may cause issues for funders and there is a significant proposal process which must be adhered to. The onerous responsibility of the repair, maintenance and management of the units will be something which will need to be seriously considered by the developer. Should the costs begin to outweigh the rental yield then the investment may not be as attractive.  It remains to be seen whether there is scope for a hybrid type lease between the Standard and Enhanced lease which will lessen the load for the landlord.

For further information please contact Jackie Buckley jbuckley@hayes-solicitors.ie.

---

Share this article:

---

About the Author

Jackie Buckley

Jackie is Head of the Property team at Hayes solicitors. She is a highly experienced adviser to clients in the banking, public and retail sectors on all aspects of the sale, purchase, leasing, development and financing of properties. She has extensive experience of advising landlords and tenants in insolvency situations and has advised in recent high profile examinerships.