Legal structures for community-led housing by Laura Moss (Wrigleys Solicitors)
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Laura Moss (Wrigleys Solicitors) on Legal structures for Community-led housing. Part of a workshop on Organisational forms for Community-led Housing groups, organised by Brighton & Hove Community Land Trust on 12th June 2018. See the video here: https://bhclt.org.uk/organisational-forms-for-community-led-housing-groups/
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Legal structures for community-led housing by Laura Moss (Wrigleys Solicitors)
- 1. Legal structures for community-led housing 12 June 2018 Laura Moss Solicitor laura.moss@wrigleys.co.uk 0113 204 1145
- 2. What is community-led housing? • Cohousing • Community land trusts • Housing co-operatives • Collective self-build
- 4. PEOPLE • Who will benefit (who will live there)? – Members or the wider community? – Who has control? – What are your aims and priorities?
- 5. PEOPLE First big decision: • Resident owned? OR • Community owned?
- 6. POUNDS • Where is the funding coming from? – Grants – Community shares / bonds – Individuals (loans / cross subsidy) – Loans – ‘In kind’ support
- 7. PROPERTY • How should the property be owned? – Personal vs common ownership? – Legal structure to retain long-term interest? – Affordable housing?
- 8. Legal structures: options 1. Choose the basic structure - Company (limited by guarantee) - Community benefit society - Co-operative society 2. Choose optional ‘wrapper’ (if applicable) - Non-charitable asset lock - Charitable status - Community land trust 3. Customise your constitution
- 9. 1. Choose the basic structure • Company limited by guarantee – flexible and familiar – cannot raise equity • Community benefit society – community share/bond issues – community-owned • Co-operative society – community share/bond issues – resident-owned
- 10. 2. Choose optional ‘wrapper’ • Non-charitable asset lock • Charitable status • Community land trust
- 11. Non-charitable asset lock • Limit what you can do with your assets • May be required for grant funding • Community-owned structures only: – Community interest company – Community benefit society
- 12. Charitable status • Two tests – Have a charitable purpose; and – Exist for the public benefit. • Community-owned structures only: – Charitable company – Charitable community benefit society • Why would you?
- 13. CLT status • Furthering the social, economic and environmental interests of a local community • Membership open to local community • Controlled by its members • Non-profit distributing
- 14. 3. Customise your constitution • Stakeholder representation • Voting rights • Decision-making
- 15. Case study 1: Lancaster Cohousing
- 16. Case study 2: Otley CLT
- 17. Case study 3: LILAC
- 18. Top tips • Research existing models • Take advice (esp tax) • Think like a developer • Think creatively • Expectation management • Resilience • Network!
- 19. Questions? 12 June 2018 Laura Moss Solicitor laura.moss@wrigleys.co.uk 0113 204 1145
Editor's Notes
- Ask the group if they know what these are. Quick outline of what each means. Could be some overlap between these categories. BUT – categories aren’t important. Forget these for now. Starting point should be your own AIMS, NEEDS and PRIORITIES.
- Three questions to ask when setting up a group and choosing a legal structure: Who will benefit? Where is the funding coming from? How should the property be owned? People, pounds, property This is how we divide the team at Wrigleys – roughly speaking we can help you with: people (i.e. helping you form your group and set up a legal structure) finance (helping you with loan agreements, share issues etc) property (helping you acquire and develop a site, helping with individual occupation of the properties, whether that’s selling off units or granting leases) Ask people to make notes in response to these questions as we go through the next few slides. Want the session to be as useful and interactive as possible.
- QUESTION FOR AUDIENCE: Who wants to build, develop or buy homes which they will live in themselves? Who wants to build, develop or buy homes which others will live in (particularly those less well off, in need of affordable housing)? May be a bit of both. Who benefits: Will the members be limited to the people who will live in the property? Will it be open to others living and working in the area, or further afield? Who controls the organisation? Just residents? In which case is that one vote per person, or per household? Or can anyone join the organisation and have input into how it is run? How does voting work – do you want people to have an equal say over how the organisation is run, regardless of how much money they have put in – what is referred to as ‘one member, one vote’? Do external stakeholders want or need a say in the organisation e.g. local council, housing association or developer? How – built into legal structure or e.g. nomination rights to properties? What are your priorities? Intentional community with people who choose to live together and have responsibility for managing the space they live in? Benefit the wider area, economically, socially, environmentally or all three? It could be a bit of both – you might want to create a community, at the same time as improving the area.
- Resident owned – only members are those people who live there. What we call ‘closed membership’. Housing co-operatives, many cohousing groups. Community owned – CLTs. CLTs have to have an open membership under legal definition. What we call ‘open membership’.
- Funding: Grants – need an asset lock of some sort? This might mean you are a charity, or have some other limitation on what you can do with your assets, built into your legal structure. National CLT Network, Locality, Community Housing Fund. Finance from the wider community e.g. via community shares or bonds. Issuing shares or bonds to the public is a tightly regulated area but certain legal structures benefit from exemptions in the legislation. If you might raise finance this way, you need to make sure you have the right legal structure in place at the outset, to enable you to do it. Individuals – people might lend money to the organisation, or might help fund a development by buying into it using their own money from savings, or their existing property once that has been sold. You might cross-subsidise the cost of a development by selling some properties at market value. Loans – specialist lenders, local authorities, Homes England. Support in-kind can be crucial: land, professional advice (fees for architects, planners, lawyers, accountants, project managers) or other forms of support, such as the building materials used, technologies employed and so on (Lilac and Modcell).
- Ownership of property: Is it ‘vanilla’ / ‘personal’ property ownership whereby residents own the freehold or a long leasehold of their individual unit, which they can sell and recoup the value of the property when they move out? Do you want the legal structure to own the property, with individuals paying rent to live there? Conventionally this would mean those individuals don’t build up any capital in the property, and have no individual mortgage because the legal structure itself takes out the loan and grants the mortgage (although there are some options which would allow equity to be built up – Lilac). Will the legal structure retain an ownership stake in some / all properties, to ensure it has control over them in the long term – perhaps as a means of ensuring perpetual affordability (NB does your financial model take this into account)? Do you want to provide affordable housing, whether this is social or affordable rent or shared ownership? Perpetual affordability – by which we mean houses which stay affordable in the long term, not just for the first person who lives there but the second, third, fourth occupiers too. Legal issues – considerations such as the right to buy, enfranchisement and so on.
- Only once you have answers to these questions, should you consider what legal structure to be.
- Three basic options: Company Community benefit society Co-operative All three options have: separate legal identity (in law, seen as a separate person from its members); and limited liability for members / directors. When looking at your questions, key one here is resident vs community owned: Company could be either Community benefit society is community-owned Co-operative is resident-owned (in this context) Community benefit / co-operative societies: different regime from companies. Not governed by Companies Act / Companies House but by 2014 Act and FCA. Pay annual fee from £65 - £480. Can be more expensive to register than companies. Society is choice for many CLH groups because of ability to do a community share / bond issue. Benefit from exemptions to regulated activity and financial promotion prohibitions under the FSMA – raise finance from community by offering withdrawable shares without needing approved prospectus.
- Asset locks: limit what you can do with your assets; could be important for grant funding (e.g. National CLT Network requires one, as do many Councils for CLH money); companies / community benefit societies only; if a company, means becoming a community interest company, or CIC; unlikely to be used for resident-owned structures.
- CHARITABLE PURPOSE: Housing on its own is not a charitable purpose. Would need to relieve a charitable need e.g. poverty, old age, sickness. Needs careful analysis if you’re providing affordable housing. Look at local wages vs local housing costs and take into account the type (and cost) of housing you will be offering. PUBLIC BENEFIT: Resident-owned structures very unlikely to qualify – too much private benefit. Therefore need to be a community-owned structure: a CBS or company with open membership (NB only companies register with the Charity Commission). WHY? - Tax reliefs (SDLT, VAT, corporation tax) - But – extra regulation, limited in what you can do
- NB no national register of CLTs. Just have to meet statutory definition. Can choose to join National CLT Network to access their member benefits and resources. Popular option for those looking at delivering affordable housing or other projects with clear community benefit.
- Legal structure may affect extent to which you can customise your rules / articles. How will you make decisions? Consensus? Sociocracy? How should voting work – one member, one vote? Weighted voting? Are all members entitled to vote?
- Resident-owned community. Residents have long lease of their property, cohousing company retains ownership of common areas. CLG – simple and flexible. No optional wrapper required. Articles of association customised to give weighted voting rights – each household has certain number of votes which they can divide between the people who live there. Change over time as community beds in.
- BASIC STRUCTURE Community-owned structure. Wanted community engagement, want to do a community share/bond issue so decided to become a community benefit society. OPTIONAL WRAPPER Want to build affordable housing in Otley, but also want to live there in cohousing development. May also do other projects e.g. library of things, renewable energy. Chose not to adopt charitable status to ensure maximum flexibility – but do have non-charitable asset lock (not least because it was important to our funders, but also because we want to set something up for the benefit of the community in the long term and it ensures future members can’t just divide any assets up between them). Did choose to comply with CLT definition because it fits our aims and objectives. CUSTOMISED RULES Few amendments needed – other CLTs have Council representation on board. Did include flexibility to use variety of decision-making methods – exploring sociocracy at the moment.
- Resident-owned cohousing community. Co-operative society – wanted to be able to issue shares so a CLG wasn’t appropriate. Residents control who lives there – have some wider community engagement but primarily exists for the benefit of those who live there. Rules customised to make it a Mutual Home Ownership Society. Residents pay rent and in return they build up equity shares in the society. When they move out, they can cash the equity shares in. Rent paid is one third of income. No optional wrapper required but could have a CLT structure as part of it.
- Research existing models: if you can emulate an existing development, you won’t be re-inventing the wheel in terms of legal documentation which makes things cheaper. Would still advise against just copying existing documents – seen that cause problems further down the line – but using a model that you know works can reassure lenders and help keep legal costs down. Advice – lots of support available out there: community-led housing hubs (like Brighton and Hove CLT) national bodies like Locality or National CLT Network local authorities. Professional advice on tax is worth getting at an early stage – VAT, SDLT etc. Adopt the mindset of a developer – although don’t be alarmed – don’t need the values of a developer but do need to be commercially savvy to compete for land and obtain the best possible deal, and minimise legal/commercial risk. Help landowners think creatively so if they have available land ask if they will accept deferred payment to help your cash flow; so you hand over the money for the land purchase when you've sold your last home. Expectation management – need to be realistic – especially in terms of the TIME it takes and the COSTS. Resilience: be prepared to learn new skills, don't be put off there are inevitably lots of hurdles. Network: Try to find a CLH champion at your council. Talk to housing associations, developers etc. Visit other groups, attend events etc. - peer to peer learning and support is invaluable. We’re all learning together, in this sector.