New Supply Shared Equity administrative procedures

Section Three: Grant administration procedures

Making applications for grant funding

3.1 Registered Social Landlords will receive confirmation of the projects which can be supported in the form of a Grant Offer from the grant provider ( i.e. either Scottish Ministers or a local authority, whichever has responsibility for managing development funding in an individual local authority area)

Third party warranties

3.2 Third party warranty premiums will be eligible for grant funding. Third party warranties are a mandatory grant requirement for Type 1, Type 2 and Type 3 projects.

3.3 The grant provider ( i.e. either Scottish Ministers or a local authority, whichever has responsibility for managing development funding in an individual local authority area) will accept NHBC Buildmark, Zurich and Premier Guarantee third party warranty schemes cover; or such other third party warranty scheme as may be acceptable in terms of the Council of Mortgage Lenders' Handbook for Scotland.

3.4 In situations where the Local Authority or Registered Social Landlord owns the land which is to be developed for New Supply Shared Equity, NHBC Buildmark and Premier Guarantee each require the land owner and builder to be registered under their respective warranty schemes so that effectively a double registration premium is required. A second registration premium will be eligible for grant funding only where it can be demonstrated that this provides value for money.

Grant payments

3.5 Registered Social Landlords should refer to the terms of the Grant Offer Letter to determine when Grant payments will be made.

Post-completion procedures

The following sections will apply to all relevant projects approved under the Affordable Housing Supply Programme.

3.6 Part 5.2 of the HAG Procedures Guide describes the post completion procedures for HAG funded projects. These procedures also apply to the administration of New Supply Shared Equity projects.

3.7 Registered Social Landlords should therefore make a Form HAG/Completion submission to the grant provider within one month of the date of sale of the last house in the project or within three months of practical completion (as defined in sections 3.15 and 3.16 below), whichever is the earlier.

3.8 Type 1 and Type 3 projects reach practical completion when:

• the properties are certified as such by the project architect/ supervising officer; and
• they have been approved by the local authority for occupation.

3.9 For Type 2 projects, practical completion is the date on which grant was paid by the grant provider.

3.10 Where property sales have not been completed within these timescales, the Form HAG/Completion submitted three months after practical completion will be treated as an interim submission. Updated HAG/Completion forms should be submitted at three monthly intervals thereafter until all properties have been sold.

The following sections will apply to all relevant projects approved under the Affordable Housing Supply Programme.

3.11 There are four scenarios where a reassessment of grant may be required at completion stage. These are:

• where unavoidable and unforeseen increases in capital costs have occurred;
• where the housing or tenure mix has changed since tender submission or approval;
• where for justifiable reason sales receipts differ from projected levels; and
• where a substantial reduction in capital costs has occurred.

3.12 Detailed guidance on the reassessment of grant as a result of such circumstances is provided in Part 5.1 of the HAG Procedures Guide. HAG/Completion stage will be used for all projects to assess whether any of these circumstances apply and whether, as a result, any reassessment of the grant limit calculated at tender stage is needed. If this is the case, the information contained in the HAG/Completion form will be used to determine the revised grant limit.

3.13 Annexe D (example 4) illustrates how a re-assessment of grant at completion stage could work in practice for a Type 1 property. In this example, less grant was required at completion stage than had been approved at tender stage. The difference between these two sums must therefore be returned to the grant provider. The principles set out in this example would apply equally to a Type 2 or Type 3 project.

The following sections will apply to all relevant projects approved under the More Homes Scotland Programme.

Consumer Code for Home Builders

3.14 Documentation in connection with sales of the new build property under the shared equity arrangement are set out in Annex A. Although the established view is that the Consumer Code ("Code") for Home Builders ( www.consumercodeforhomebuilders.com) does not apply to a sale of this nature, Scottish Ministers take the view that Local Authorities and Registered Social Landlords should abide by the spirit of and principles underpinning the Code and that it is reflected in the sale offer.

3.15 Local Authorities and Registered Social Landlords should discuss the terms of the Code with their solicitors and adapt it to the development as appropriate. Without prejudice to that, Local Authorities and Registered Social Landlords and their solicitors should note the following:

• If there is a reservation fee payable in advance of formal offer there should be a written Reservation Agreement in terms of and subject to Condition 2 (Information - pre-contract) of the Code.
• If there is either no reservation fee or the reservation fee is only payable after conclusion of missives it has been decided that a Reservation Agreement will not be required. Local Authorities and Registered Social Landlords should, however, set out clear details of the estimated cost and nature of any management services the Home Buyer must pay for. The offer accordingly requires the solicitor acting for the Home Buyer to confirm as part of his acceptance that this has been done.
• A similar issue arises with the terms of the home warranty where the Home Buyer's solicitor again agrees on their behalf that the terms of cover have been explained to them.
• The covering letter sent to the Home Buyer's solicitor along with the offer should draw these matters to their attention.
• Local Authorities and Registered Social Landlords should as a matter of course provide bespoke advice in relation to health and safety precautions and information on:
  • Layout appearance and plot position of the home;
  • List of home contents;
  • The standards to which the home is being built;
  • Contact person or personnel.

3.16 As provided in section 1.28 above, local authorities and registered social landlords must ensure that a letter in terms of the template set out in Annexe K is issued to all prospective purchasers who have been assessed as eligible for shared equity support, before the local authority or registered social landlord instructs its solicitors to issue to the purchaser's solicitors a formal legal offer for the sale of the property - this is required so that the explanation of the key terms of the equity loan is given at the "pre-contract" stage.

3.17 Once the sale is effected the Local Authorities and Registered Social Landlords must be aware that they require to provide:

• An appropriate after sales service all in accordance with the published ASSEP Procedures;
• Advice on health and safety precautions when living in a development where building work takes place;
• An appropriate system and procedures for receiving, handling and resolving buyers service calls and complaints as well as advice on dispute resolution; and
• Explanation of the arrangements to complete any work outstanding at hand over

all in accordance with the Code together with any other matters which may be required in order to comply with the spirit of and principles underpinning the Code.

In providing an after-sales service, Local Authorities and Registered Social Landlords should recognise that the contractual arrangements relating to the design and construction of the houses are between the Local Authority or Registered Social Landlord and the building contractor/developer and design team, and that individual Home Buyers have no direct contractual recourse against those third parties in the event of snaggings or defects arising in their home. That is one reason why the provision of an appropriate third party warranty is a mandatory grant requirement as set out in section 3.2 above, but in keeping with the spirit of the Code Local Authorities and Registered Social Landlords should also have procedures in place to assist Home Buyers in bringing relevant matters to the attention of the builder/developer during the applicable defects period and in ensuring that such matters are appropriately addressed. It will not generally be sufficient for the Local Authority or Registered Social Landlord to simply refer the Home Buyer to the terms of their third party warranty cover.

Local Authorities and Registered Social Landlords should also ensure that, in their contracts with the builder/developer, appropriate provisions are included so that the Local Authority or Registered Social Landlord can enforce any after-sales arrangements against the builder/developer if required. For example, when negotiating its contract with the builder/developer, Local Authorities and Registered Social Landlords should seek to harmonise the duration of the contractual defects liability period with the duration of the period in the Code for reporting defects (two years), and may wish to consider whether to insert specific defects/snagging reporting arrangements, which permit Home Buyers to report concerns directly to the builder/developer, and which require the builder/developer to remedy such matters within agreed timescales. Where required and practicable Local Authorities and Registered Social Landlords should be prepared to enforce the terms of the building contract against the builder/developer for the benefit of affected Home Buyers, and should have regard to any outstanding complaints made by Home Buyers before releasing any contract retention upon the expiry of the defects liability period in the building contract.