As many readers will be aware, we have been lobbying for a number of years, alongside the Longhurst Housing Group and the National Housing Federation, for the repeal of the section 133 restrictions in titles of LSVT properties to create what will almost be a “level playing field” between traditional and LSVT Registered Providers in terms of their stock values.
The reason for this is quite straight forward. When housing stock was transferred from a local authority a restriction (a S133 Restriction) was registered at the Land Registry on the title in the following form:
“RESTRICTION: No disposition by the proprietor of the registered estate or in exercise of the power of sale or leasing in any registered charge (except an exempt disposal as defined by section 81(8) of the Housing Act 1988) is to be registered without the consent of the Secretary of State to that disposition under the provisions of section 133 of that Act”
For funding purposes, valuers value RP’s stock using the RICS “Red Book” either on the basis of Existing Use Value (EUV) or the higher Market Value Subject to Tenancy valuation (MV-STT), both being percentages of the open market value of the housing stock. Valuers take the view that a S133 Restriction on the title will limit the use of the stock to “affordable housing” so the only possible valuation that can be applied is the lower EUV. This has had significant impact on the value LSVT Registered Providers can borrow using its security. If Section 133 was repealed LSVT stock could be valued at the higher MV-STT valuation.
The Housing & Planning Act 2016 has provisions for the repeal of the consent regime for the disposal of stock owned by Registered Providers including the S133 Restriction and also the S172 restrictions which opens the door to the higher valuations. The provisions are due to be implemented on 6 April 2017.
Funders and valuers are taking a cautious approach on the impact of the Section 133 Restriction repeal. The funding agreements of the LSVT Registered Providers need to allow for a MV-STT valuation and there is likely to be a caution in uplifting valuations to the higher value of MV-STT where there are large estates of stock concentrated in one area – we could be looking at a new category of valuation between EUV and MV-STT in these circumstances. However, there is no doubt that this repeal will have a significant and welcome benefit in valuation terms. It is likely that a test case on its impact will be undertaken later this year.