Buying from a housing association: why consent matters

Many Scottish conveyancers will have been involved in property transactions involving a housing association, either buying from the association or selling land to it. In relation to the former – where the association is disposing of property – it is vital that the purchasing lawyer understands the legislation and regulatory provisions which form the backdrop to such a disposal, since the consequences of getting it wrong are penal. The Scottish Housing Regulator – the statutory body responsible for regulating housing associations – has recently published revised guidance on granting regulatory consent to property disposals by housing associations, so it is perhaps timely to review the arrangements which apply.

Housing associations are more properly referred to in Scotland as “registered social landlords” (RSLs). These are bodies which are registered in the Register of Social Landlords maintained by the Scottish Housing Regulator pursuant to s 20 of the Housing (Scotland) Act 2010.

When is a disposal permitted?

Section 107 of the 2010 Act gives a RSL the power to dispose of land or to grant security over any other asset, but only if (a) the Regulator consents to the disposal, or (b) no such consent is required because the disposal is covered by s 108 of the Act. Section 108 lists a number of exempt transactions, including ones which a RSL might typically undertake in the normal course of its business, such as the granting of individual tenancy agreements, occupancy agreements, sales under the statutory right to buy, and disposals made under a statutory direction by the Regulator, as well as other disposals “of such type and made in such manner as the Regulator may determine”.

“Disposals” are defined in s 165 of the 2010 Act as being, in relation to property, “any disposal of the property or any interest in it”, and in particular, includes sales or leases of property, the granting of security over property or “granting an option or otherwise entering into a contract for disposal”. The same section defines “asset” as including property, rights and interests, and “security” as meaning any security or charge including a floating charge. “Property” is not further defined, so has to be given its ordinary meaning. (This gives rise to an interesting question for banking lawyers: if an asset can include but is not limited to property, then presumably cash is an asset, which raises the prospect of regulatory consent being required for the purposes of granting a security over that cash – which would typically be done by way of charging a bank account in which the cash is deposited.)

In addition to the exempt disposals which are expressly listed in s 108, and for which no consent is required, the Regulator does periodically publish a “general consent” pursuant to s 107, which lists certain types of transactions and disposals which a RSL can undertake without requiring a more specific consent from the Regulator, as well as the administrative procedures to be gone through by the RSL and its governing body when deciding whether to make a disposal.

This regulatory guidance should be the first port of call for the RSL and its own advisers to check whether a planned disposal is exempt under s 108 or is covered by the general consent, or whether, alternatively, the RSL must make an application to the Regulator for specific consent. The guidance can be found on the Regulator’s website www.scottishhousingregulator.gov.uk, and is also a useful reference point for any solicitor acting for a purchaser. Broadly speaking, if the proposed disposal involves the sale of land or property with a value in excess of £120,000 (this being a cumulative threshold in the case of a series of connected disposals over any 12 month period), it is likely that the RSL will require specific regulatory consent. If the disposal involves the grant of a standard security to a funder, then unless the security is to be granted to a public sector grant funding body to secure funding for housing, a specific consent is almost invariably required. There are also various other situations where a specific consent will be required, and the guidance should be referred to for details.

Is a good faith purchaser protected?

Why is this of any great interest to a purchaser? Prior to the 2010 Act coming into force, it wasn’t. Under previous iterations of the legislative provisions around disposals by RSLs, where consent to a disposal was required but had not been obtained, that did not adversely affect the disposal. For example, in the Housing (Scotland) Act 2001, which was the immediate predecessor to the 2010 Act, s 66 of the 2001 Act provided that a disposal by a RSL which required regulatory consent was valid in favour of the acquirer, despite consent not having been given. The person dealing with the RSL, or any person claiming title through the RSL, need not be concerned to see or enquire whether any such consent had been given.

By contrast, s 111 of the 2010 Act provides that “a disposal of land by a RSL for which the Regulator’s consent is required is void if the Regulator does not consent to the disposal before it is made”. As can be readily seen, therefore, the consequence of requiring consent but not obtaining it is severe. A purchaser may have paid the purchase price, taken delivery of a disposition and registered the disposition. The Keeper may complete registration, but the purchaser’s registered title will still be legally null and void and open to challenge, thanks to s 111. It should also be noted that you cannot sort out the lack of consent retrospectively – the Regulator must consent to the disposal before it is made. And of course, under the Land Registration etc (Scotland) Act 2012, presumably the unwary purchasing solicitor runs the risk of breaching s 111 of that Act by not taking reasonable care to ensure that the Keeper does not inadvertently make the register inaccurate.

It also needs to be borne in mind that, under s 107, “disposal” includes granting an option “or otherwise entering into a contract for disposal”. Previously, under s 66 of the 2001 Act, “disposal” covered a sale, lease, security, charge or any other disposal. It said nothing about entering into a contract for a disposal. So, in terms of the 2010 Act, if consent is needed for a disposal, it must be obtained before missives are concluded, since missives for the sale/purchase of property will be characterised as the entering into a contract for the disposal of the property. Nor can you make your missives suspensively conditional on consent being obtained and exhibited prior to completion, since those conditional missives would still themselves be “a contract for disposal”.

Quite why it was felt necessary to depart from the previous consent arrangements, where consent to a disposal was an administrative requirement but was without prejudice to the validity of the legal transaction between the RSL and the acquirer, is unclear, other than the 2010 Act provisions being consistent with the Regulator tightening its grip on the organisations which it regulates. A halfway house might have been to make disposals without consent voidable at the instance of the Regulator, or at least to permit the Regulator to give retrospective consent.

It is probably fair to say that, outwith lawyers who deal with or act for RSLs on a regular basis, the issue of regulatory consent may not have been a particular focus or concern. Purchasers and their lawyers may have been forgiven for thinking that, when dealing with the RSL, things would probably be fine since, at the end of the day, the seller is a highly regulated entity of good standing, which does not operate on a purely commercial basis. Before the advent of the 2010 Act, that was probably right – even if consent was required but was not obtained, the purchaser need not worry unduly. Now, however, purchasers need to be aware of the threat to their title posed by the 2010 Act and to make sure that, at the appropriate stage in a transaction, appropriate checks are made and, if necessary, an express letter of consent from the Regulator is obtained.