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CLT Revenue Viability

As well as working out how you are going to finance the capital development, you will need a budget showing how the CLT will run when your scheme is complete.

As well as the cost of managing the asset, account must be taken of the cost of managing the organization itself. The main costs are likely to be third party liability insurance; accounting if this cannot be done by volunteers or board members; annual returns; an audit if the organization is big enough; travel; training; and general costs such as telephone, postage and stationery.

The income to meet these costs must also come from rent or other income sources on top of the housing management cost discussed under management and maintenance. Two other possible sources of income that may need to be considered in addition are:

  •  a rent charge applied to all homes including any sold freehold of around £150-£250pa, broadly the same as a ground rent;
  •  a rent on the unsold element of any part-equity homes. Charging a rent as well as selling a share related to income complicates the affordability calculation and means the multiple of income for an affordable mortgage needs to fall to around 3x. However it may be essential if all the homes are part equity as the CLT must have some income. Provided the rent is 0.5%-1% of the unsold equity it should not unbalance the scheme and is more affordable than the 2-3% changed on conventional shared ownership.

The CLT should also aim to start out with a reserve provided as part of the scheme cost. If a contingency of 1.5% is set aside and in addition 1.5% is charged for the CLT’s development administration, any unspent elements of both can become the CLT’s reserve as it begins management to deal with any cash flow shortfalls. A small income can also be generated from interest.

A budget on these lines will be needed as part of the Business Plan to funders. It should be reviewed again before construction starts as there is an overlap between capital and revenue assumptions (the relative costs of maintaining different materials and the consequences of only being able to sell equity at 3x income because of the need for a rental component for example).