Local Authority Housing Fund – flexible funding, but prudence is required

Tonia Secker and Jessica Arczynski consider the opportunities and challenges for councils with the Local Authority Housing Fund.

The introduction of the Local Authority Housing Fund (LAHF) is welcome news for many English councils. The £500m capital grant fund is aimed not only at the provision of family accommodation to those arriving via the specified Ukrainian and Afghan resettlement and relocation schemes, but also at boosting the stock of social housing in the longer term.

Whilst the Prospectus promulgates flexibility and the associated MOU (to be entered into between DLUHC and councils) is expressed not to be legally binding, local government lawyers will nevertheless want to kick the LAHF's tyres.

Whether the council is going to engage in direct delivery or partner with a RP/local housing company partner (Partner) to deliver the homes, here are some points to consider:

What is the status of the MOU?

Whilst the MOU is expressed not to be legally binding, it imposes "best endeavours" delivery obligations on councils and refers to the steps DLUHC could take in the event of "underperformance" – all of which are likely to raise a lawyer's eyebrows. In the light of that, we suggest that it would be prudent to treat the MOU as if it were enforceable particularly when dealing with any flowdown of obligations to Partners. The section 151 officer is more likely to thank you for doing so than not.

Can you mix funds?

The LAHF's primary focus is on stock acquisition with an average grant rate plus top up sum supporting the costs of acquisition and improvement. The grant will not cover the whole cost and the expectation is that the balance will come from the council or Partner. In either case, the balancing payment cannot be drawn from Affordable Housing Programme (AHP) monies nor from Right to Buy receipts. 

Are you sure Affordable Rents can be validly charged?

The Prospectus suggests that councils can determine the rent levels and tenures of the grant funded homes. Councils and RPs are subject to the Rent Standard which limits the circumstances in which Affordable Rents can be charged. In this scenario, there is a requirement for an agreement between a council and the Secretary of State which permits the relevant accommodation to be let at an Affordable Rent. The MOU is silent on rents so it may be prudent to check with DLUHC to ensure that any inadvertent technical breach of the Rent Standard is avoided.

Can you deploy the money quickly enough?

LAHF is helpfully payable in advance and in two tranches, the second being released only once 60% of the first tranche has been spent. The Prospectus encourages councils to continue to incur expenditure "on account" of the second tranche, even if the 60% gateway has not been achieved. Whilst the documentation gives assurance that the second instalment will come through, councils will want to ensure that the acquisitions supported by the first tranche funds are straightforward in nature to maximise cashflow and minimise the risks of delay in receipt of the second tranche.

Do you understand the recycling requirements on subsequent disposals?

The Prospectus suggests that on a disposal of grant funded homes the "Recycled Capital Grant regulations" apply. This seems to allude to the separate recycling rules which apply to AHP grant rather than LAHF grant. Again, the MOU is silent so clarity on this from DLUHC would be helpful – particularly if a council is looking to flow down obligations to a Partner which would introduce additional complexity. 

Working with a partner - what do you need and what will they want?

If you are passing the grant to a Partner, they will want certainty that the funds are going to be available when they need them. They will be interested in the point at which the 60% gateway is hit and the second tranche released. If they are the council's sole delivery partner, then they are in control of that risk, but if they are one of many, they may be less confident about spending "on account" and unwilling to commit to hard delivery targets.

Another option may be for councils to acquire units with the grant and dispose of these to a subsidiary. The Prospectus contemplates the use of local housing companies but in doing so councils will also need to ensure that the relevant vires/statutory consent rules are followed and that there is an appropriate governance structure in place to support delivery.

The MOU majors on the provision of specified management information to DLUHC for spend and project evaluation purposes. There are also data sharing provisions that are expressly required by the MOU to be flowed down contractually to Partners and in the Council's wider delivery contracts. These are obligations which must be backed down to all Partners. That is simple in contractual terms, harder to achieve is securing DLUHC's ambition for the homes to be used as long-term affordable housing, particularly given the uncertainty around grant recycling on future disposals of LAHF funded homes.

What about SDLT?

The March Budget gave good news – RPs purchasing property with the benefit of LAHF will benefit from the SDLT public subsidy relief for transactions completing after 15 March 2023.

Good governance

DLUHC requires fraud risk assessments and appropriate due diligence to be carried out in respect of funded projects as well compliance with the procurement, subsidy and equalities regimes, all of which require section 151 officer monitoring. It may be prudent to create an auditable assessment, monitoring and decision-making framework to support councils' dispersal of LAHF grant.

The LAHF and its flexibility should be welcomed, but councils will need to gear up now to deliver on their obligations within the (tight) deadlines set by Government. An implementation infrastructure is key to ensure that you can hit the ground running and meet DLUHC's expectations.

Tonia Secker is Head of Affordable Housing and Jessica Arczynski is Senior Associate at Trowers & Hamlins.