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This means rented housing where the rent is set at up to 80% of the market rent inclusive of service charges. Guidance is available on the Department for Communities and Local Government and the Homes and Communities Agency’s website. The Charity Commission has also provided guidance on what charitable housing associations need to consider when charging affordable rents.
This defines the CLT’s approach to allocating housing units to prospective residents. It will set out allocations criteria such as economic and local residency requirements as well as any Section 106 obligations with the local authority.
In general terms this means a provision within the CLT’s constitution to ensure that:
a. any trading profits or surplus are used solely for the benefit of its Objects;
b. its assets are retained by the entity and if sold/let/transferred then only in the prescribed circumstances allowed for;
c. and on dissolution its assets cannot be distributed to its members but must transfer to another asset locked entity (for example, to another charity).
The asset lock will require specific wording depending on which legal form you choose for your CLT.
Asset Lock for a Company Limited by Guarantee (CLG)
A non-charitable CLG can have an asset lock; however, the asset lock can be voted out by the members, and so it is not as strong as the asset lock in other legal forms. Where a local authority or other third party organisation acts as the Custodian of the CLG’s constitution, they act to protect the company Articles. Their role is to veto any changes to the Articles which affect the asset lock and, as such, the ability of the other members to change the asset lock is significantly weakened. This is set out in the sample Articles for a CLG in the CLT Legal Toolkit (see members area).
Asset Lock for Charities
Becoming a charity is an irreversible step. The Public Benefit Requirement and charity law on dispositions (ie sale, lease or transfer of assets) combined with the legal constitution of the charity (to name but some aspects of being a charity) effectively create a perpetual asset lock.
Asset Lock for Registered Providers
Grant-aided assets are restricted in their use and disposal by the terms of the Homes and Communities Agency’s funding and the Housing and Regeneration Act 2008. Since an entity can only cease to be a Registered Provider with the consent of the HCA, it is not usual to include the wording of the Statutory Asset Lock in any governing document.
Local authorities can transfer assets to community ownership in certain circumstances. More information on the restrictions and requirements, as well as advice on securing an asset transfer, can be found from Locality’s Asset Transfer Unit.
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This is the charity regulator in England and Wales. Most charities must register with the Commission and file their accounts and a financial summary with it. Some groups of charities aren’t required to do this – the main exceptions are for charities with incomes of less than £5,000 a year and Community Benefit Societies. The Commission’s website includes the charity register and copies of charities’ accounts and financial returns.
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Charitable Incorporated Organisation (CIO)
This is a relatively new legal structure that only charities can use. The main advantage is that (like charitable companies) they provide protection for trustees from personal liability for contracts but (unlike charitable companies) they only have to register with and send accounts to the Charity Commission. You can find out more about how they work from the Charity Commission’s website.
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Charitable Purposes (or aims)
The Charities Act 2006 describes 13 purposes which can be charitable if they are carried out for the public benefit. The ones that are most likely to be relevant to a charitable CLT are:
- the prevention or relief of poverty;
- the advancement of citizenship or community development;
- the relief of those in need by reason of youth, age, ill-health, disability, financial hardship or other disadvantage;
A CLT choosing to be a charity must undertake aims and activities that further one of these or the other purposes listed in the Act. See the CLT Legal Toolkit in the members area for sample objects.
Community Benefit Society (formerly known as an Industrial and Provident Society for the Benefit of the Community)
A Community Benefit Society is an organisation which conducts an industry, business or trade for the benefit of the community and which is registered under the Co-operative and Community Benefit Societies Act 2014. This can be charitable or non-charitable.
Asset Lock: A non-charitable Community Benefit Society that does not seek to become a Registered Provider can choose to adopt the Statutory Asset Lock. It is not a requirement of registration that the Rules contain this but it would be important for a CLT to adopt the Statutory Asset Lock to ensure that the assets of the CLT are protected for community benefit in perpetuity. The Statutory Asset Lock was introduced in response to concerns around the de-mutualisation of various Industrial and Provident Societies (building societies) in 2002/3. Once adopted within the Rules the Statutory Asset Lock cannot be removed. The FCA also has powers to make sanctions for improper use of the CLT’s assets.
Community Interest Company (CIC)
This is a limited liability company which is designed for Social Enterprises and which has the specific aim of providing benefit to a community. A CIC must use its income, assets and profits for the community it is formed to serve. A CIC can be a company limited by shares or by guarantee but must satisfy a community interest test. You should seek legal advice if you want to adopt the company limited by shares model because this could affect whether the statutory definition of a CLT is satisfied. The usual company model is the company limited by guarantee. See the CLT Legal Toolkit in the members area for a full definition.
Asset Lock for a CIC: The very essence of a CIC is its Asset Lock. A Company Limited by Guarantee can only take on the mantle of a CIC by incorporating the Asset Lock required by the CIC Regulator as a minimum, although a more stringent asset lock could be used instead.
Community Land Trust (CLT)
A CLT is a non-profit, community-based organisation run by volunteers that develops housing or other assets at permanently affordable levels for long-term community benefit.
It is one of the kinds of English Body that can register with the Homes and Communities Agency. The definition from section 79(2)-(5) of the Housing and Regeneration Act 2008 is "a body corporate that satisfies the following conditions:
- the body is established for the express purpose of furthering the social, economic and environmental interests of a local community by acquiring and managing land and other assets in order: - to provide a benefit to the local community, and
- to ensure that the assets are not sold or developed except in a manner which the trust's members think benefits the local community;
- the body is established under arrangements which are expressly designed to ensure that:
- any profits from its activities will be used to benefit the local community (otherwise than by being paid directly to members),
- individuals who live or work in the specified area have the opportunity to become members of the trust (whether or not others can also become members), and
- the members of the trust control it.
In these conditions, “local community” means the individuals who live or work, or want to live or work, in a specified area.
Whilst a Community Land Trust might be able to register with the HCA this will not guarantee that the Trust can be registered as a charity. To be a registered charity a Trust must have aims that are exclusively charitable which are carried out for the public benefit. Not all activities that benefit communities and the people who live and work there are exclusively charitable. There may be elements to these purposes that give private benefit to those in the community which may fail the charity registration test for public benefit.
Company Limited by Guarantee (CLG)
A CLG offers its members limited liability, as the outside world deals with the company as a separate entity and not the Company Members on an individual basis. Should the company fail, the governing documents state how much the members are personally liable for (usually a nominal £1). Directors also enjoy a level of protection from personal liability. A CLG can apply to become a registered charity with the Charity Commission.
This is a member of a Company Limited by Guarantee who has a specific obligation written into the governing document to protect the company Articles, for example by vetoing any changes to the asset lock. They may be the local authority or a third party organisation, such as a local church.
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Declaration of Trust
This is a formal legal agreement between a CLT and someone buying low cost housing from it. The declaration of trust sets out the respective shares in the land held by the CLT and the buyer. It is usually contained in a 125 year lease between the CLT and the buyer. In some ways it is similar to shared ownership.
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This is an expression used in the Housing and Regeneration Act 2008 setting out the legal entities that can register with the HCA as a Registered Provider in England (not Wales or Scotland).
Entrenched Voting Rights
These are used to protect the Articles of a Company Limited by Guarantee, by requiring a unanimous decision by members before any clause of the Articles can be changed.
Equity Loan / Mortgage
Some CLTs take equity loans, or mortgages, to finance their projects. In this method, the buyer acquires the property outright with a mortgage from a High Street lender for (example) 70% of open market value, the remaining 30% being held on a second equity mortgage by the CLT.
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Feasibility Study / Assessment
This is a piece of research which determines whether a scheme is (i) needed and desirable and (ii) possible to achieve. It is essential that a group considers from the outset how their plans will deliver their objectives, and whether their objectives meet local demand.
Fit and Proper Person Test
An exempt Charity (a charity that is exempt from registration with the Charity Commission, usually a community benefit society with charitable objects) must check that anyone controlling it is a ‘fit and proper person’. An individual is 'fit and proper' if they ensure that charity funds and tax reliefs are used only for charitable purposes. A declaration is signed to declare that the person:
- has not been disqualified from acting as a charity trustee;
- has not been convicted of an offence involving deception or dishonesty (or any such conviction is legally regarded as spent);
- has not been involved in tax fraud;
- is not an undischarged bankrupt;
- has not made compositions or arrangements with their creditors from which they have not been discharged;
- has not been removed from serving as a charity trustee, or been stopped from acting in a management position within a charity;
- has not been disqualified from serving as a Company Director; and
- will at all times seek to ensure the charity’s funds, and charity tax reliefs received by this organisation, are used only for charitable purposes.
More guidance can be found on HMRCs website.
Financial Conduct Authority
The current regulator/registration body for Community Benefit Societies (formerly known as Industrial and Provident Societies). At some point it is likely that the FCA will cease to be the Regulating Body but it is not yet known when this will happen or who will take over.
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This is a payment (usually annual) for leasehold property to the person who owns the freehold. A regular partnership model between a CLT and a Housing association would see a CLT buy the land, with the housing association developing the scheme on a long-term lease. A ground rent is paid to the CLT by the housing association as part of this lease.
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Homes and Communities Agency (HCA)
The HCA is the national housing and regeneration agency for England. It is the main provider of subsidy (capital grant funding) for affordable housing and now also regulates Registered Providers by setting standards for social housing provision. More information can be found at: www.homesandcommunities.co.uk
A non-profit making body formed to provide affordable housing. Housing associations are legally constituted and may be charitable trusts, community benefit societies or companies. They vary in size and ethos, and some are more willing and able to work in partnership with CLTs than others. All housing associations are tightly regulated by the Homes and Communities Agency.
This person facilitates developments of affordable housing, for example by conducting housing needs surveys and liaising between communities and housing associations. They are usually employed by local planning authorities or community councils.
Housing Needs Survey
This exercise is used by the CLT to assess the housing need in a particular area, including the extent and pattern of need. It should cover all types of tenure. Usually the local authority or local community council will undertake the housing needs survey for a community, but on some occasions communities commission housing needs surveys privately.
Housing Revenue Account (HRA)
This is the system of local authority housing finance. In April 2012 local authorities were given powers to manage the HRA themselves. This means that authorities that own housing stock will gain full control of their housing income and expenditure and be able to make their own decisions on how and in what way they invest in their own housing stock.
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Industrial and Provident Society
See Community Benefit Society.
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This is the legal right of a leaseholder to acquire the freehold of the land (for example, under the Leasehold Reform Act 1967). This applies where they own a share of the freehold, and allows them to acquire the full freehold at a fraction of its open market value. If this happens, the land ceases to be owned by the CLT, and can no longer be guaranteed as a permanently affordable asset. There are some exemptions from a tenant’s right to leasehold enfranchisement, including homes developed under the new Community Right to Build and those in protected areas (essentially settlements in the UK with a population below 3000).
Local Housing Allowance
This is the level at which Housing Benefit is payable for tenants of non-Registered Provider landlords. This value will need to be compared to the value of affordable rent (80% of the market rent) to consider affordability of a dwelling to a tenant.
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An organisation’s constitution defines its objectives, the powers of its directors and the structure of its membership. Depending on the legal structure used by a CLT, the constitution must take a certain form.
The registration process to become a Community Benefit Society will involve using the Model Rules of a sponsored body. The CLT Model Rules are available from the National CLT Network. Other Model Rules which may be suitable are available from Wessex Community Assets, Co-operatives UK, Somerset Co-operative Services and the Plunkett Foundation. There are model Articles for a CIC or CLG (charitable and non charitable) on this website. The Charity Commission has model Articles for a CLG and its CIO. The CIC Regulator has model Articles for CICs.
Mortgagee in Possession Clause
These are clauses that allow a (commercial or retail) lender who has repossessed the property to operate free of the restrictions which are placed upon individual properties. These restrictions would include affordability and allocations restrictions.
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Not for Profit
This means that an organisation’s primary purpose is the provision of specific services/activities to a defined community for the community’s benefit and not for the distribution of monetary profit to shareholders. It is therefore not a commercial trading entity. The organisation may make a surplus, but must use that surplus to further its objects.
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This is the expression used within all constitutions to set out the purposes/aims of the legal entity being created (incorporated). The Objects direct and guide the CLT’s activities and how its assets may be used to achieve those objects. The powers granted to the CLT need to be sufficient to enable the Objects to be pursued.
Where a CLT wants to become a charity, its Objects must:
- fall within at least one of the 13 purposes listed in Charities Act 2006; and
- be for the public benefit. This means (very broadly) that the Objects must have an identifiable benefit(s) and the benefit must be to the public or a section of the public rather than for private benefit.
Not all objects that aim to benefit individuals or communities are necessarily charitable – for example, an object which aims to “provide housing” won’t be charitable because this isn’t one of the purposes listed in the Charities Act 2006. But if providing housing is a means of achieving an object (for example, relieving or preventing poverty), this is more likely to be charitable. This is because preventing or relieving poverty is listed as a purpose in the Charities Act 2006 and providing housing can be a legitimate way of achieving this. Whether it is in fact charitable or not will depend on whether the aim is going to be for the public benefit. See the separate definition of charitable purposes.
Information on charitable purposes and public benefit can be found at www.charity-commission.gov.uk. Applying for charitable status should be considered carefully as it might not be appropriate and it is important to remember that becoming a charity is an irreversible step.
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Pre-emption Clause / Pre-emption Right
A CLT's right of prew-emption gives the CLT the right to buy back a home or nominate a new occupant where the home is repossessed by a mortgage lender or vacated by the current occupant. This should be included in a shared ownership lease or shared equity arrangement and in a Section 106 agreement.
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If your charity’s income is over £5000 and it undertakes exclusively charitable purposes for the public benefit you must apply to register your organisation with the Charity Commission. A charity can take the form of a number of legal structures. These include Unincorporated Associations, Trusts or a Company Limited by Guarantee (CLG). A CLG must register with and report to both the Charity Commission and Companies House. An unincorporated association is not a suitable legal form for a CLT.
After registering as a charity, there are a number of ongoing duties and responsibilities to the Commission that must be complied with. You will need to maintain your charity’s accounts and send the Annual Return it issues each year. Depending on the level of income you may also need to have the accounts audited or independently examined and to file a Trustees’ Annual Report. You also need to tell the Charity Commission when there are changes to the charity’s registered details (for example, if the contact address for the charity changes), inform it of any ‘serious incidents’ (such as fraud) and obtain its consent to sales or leases of land to people connected with the charity.
Once your charity is registered it may be eligible for some tax breaks - corporation tax (income tax for organisations), stamp duty land tax (buying land or property over a certain value), gift aid on donations and rates relief. As outlined above, registered Charities have an asset lock in perpetuity.
Registered Provider (RP)
This is a legal entity (ie English Body) registered with the Homes and Communities Agency to provide Social Housing in England. Essentially a housing association. Being a Registered Provider makes the legal entity eligible for HCA grant funding (note: eligibility does not guarantee availability of funding). A Registered Provider can be for profit or not for profit. A CLT cannot be a for-profit Registered Provider. If a CLT wishes to become the direct landlord of the HCA funded rent or shared ownership properties it must register as a Registered Provider by the time the housing is available for letting.
Resale Price Covenant
This is a method by which a buyer buys the property outright at a percentage of its open market value, but enters into a covenant (binding agreement) with the CLT not to sell the property except at the same percentage of market value.
Rural Exception Site
An exception site is one that would not usually secure planning permission for housing, for example agricultural land next to but not within a local settlement area. It is deemed suitable for a small scheme predominantly of affordable housing to meet identified local needs, secured ‘in perpetuity’ via a legal undertaking or planning condition, where permission would not normally be granted for general market housing.
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Section 106 Agreement
This is a type of planning obligation where planning approval is granted subject to a restriction e.g, concerning the allocations of the homes developed. They form a legally binding agreement between the local authority and CLT.
This is where individuals build their own homes. For a CLT this could mean a project where a group of people acquire plots or part built properties and pool skills to build or finish houses/dwellings so that they will each have a home suitable for their needs. Other professionals may need to be contracted in for certain aspects of the build, but by using this method the self-builders capture more of the final value of the property. This type of project may not be classed as a charitable activity and legal advice should be sought on the specific project being planned.
These are charges to tenants or low cost homeownership home owners by the CLT or housing association landlord for provision of services such as cleaning and communal lighting. This should be considered when defining an affordable rent or equity share for the properties.
Under this mechanism, an occupier buys a share in a property with the aid of a high street mortgage lender. The remaining equity share is owned by the seller (CLT or housing association partner), unlike a shared ownership mechanism, the occupier does not pay rent on the remaining equity share.
Under this mechanism, an occupier purchases a property at a proportion of its value and pays a rent to cover the share in the property retained by the CLT. The lessee would have the ability to acquire further shares at open market value ("Staircasing"). Instead of outright purchase, a lease of (usually) 125 years may be used.
These are businesses that trade in the market with a social rather than commercial purpose. Profitable trading will be for sustainability rather than wealth creation for individual members of the organisation. A social enterprise is not defined by its legal status but by:
- its nature;
- its social aims and outcomes;
- the basis on which its social mission is embedded in its structure and governance;
- the participation of its shareholder groups in its governance and activities; and the way it uses the profits generated by trading activities.
Typical legal structures are: Community Interest Companies and Community Benefit Societies.
This has a specific meaning and is provided by sections 69-72 of the Housing and Regeneration Act 2008: “social housing” means
- low cost rental accommodation (defined by section 69), and
- low cost home ownership accommodation (defined by section 70).
The definitions set out the type of housing that the HCA grant funding can legally help to provide. Note: Government policy is evolving and new concepts of Affordable Rent are set out in the Homes and Communities Agency’s National Affordable Housing Programme 2011-2015.
For the purposes of Model Rules for a CLT, the Sponsoring Body is the National CLT Network. Other sponsoring bodies are as listed on the FCA website.
Statutory Asset Lock
This is available as a matter of choice for a Community Benefit Society that is neither an exempt charity nor a Registered Provider. The Statutory Asset Lock wording is set out in the Community Benefit Societies (Restriction on Use of Assets) Regulations 2006. If the Statutory Asset Lock is selected, the precise wording contained in the sample Rules must be used. Once inserted into the Rules it cannot be taken out. The FCA has regulatory powers to enforce compliance with the Statutory Asset Lock.
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Tenant Services Authority (TSA)
The TSA has been abolished and its functions have been transferred to the HCA.
Using a “turnkey” arrangement, a CLT partners with a developer, who will hand it over in completely operational form to the CLT once it is complete. The CLT will need to do no more than “turn the key” to set the scheme in motion.
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This is a sub-regional support body that provides technical advice and support to a CLT.