This document attempts to address how in practice we would implement an affordable housing policy if we choose to do so.
The company – that is to say us together as a corporate entity – will buy the farm and resell the land to each of us; in reselling the land it can add a burden. But that would be a burden on the land, not on the dwellings, and I don't think that's what we want. We could probably sell the land with a condition of sale that any dwellings built on it would be subject to the burden, but I'm not certain exactly how we're do this – we need to check with a lawyer.
Rural housing burden
A particular form of burden that is available to us is the 'rural housing burden', established in section 43 of the Title Conditions (Scotland) Act 20031. To use this we'd have either to apply for the company to be registered as a 'rural housing body' or to work with an organisation already designated as a 'rural housing body'. It would be better if at all possible if we were registered.
The rural housing burden gives the 'rural housing body' – that is, the Standing Stone company – a right of pre-emption; which means, as I understand it, that the company has 42 days from the day you decide to sell to decide whether it will buy. Remember that the company is essentially just ourselves, taking decisions on a one member one vote basis; we could give the company in its constitution (memorandum and articles) a clause which says that a decision to buy a dwelling requires a general meeting, not just a decision by directors.
Under section 84 of the act, if the company does not decide to buy within 42 days, the 'rural housing burden' is automatically extinguished, and you can sell your dwelling on the open market.
I'm not clear from my reading of the act whether the company would have the right to pre-empt at a particular price (the 'just price' or 'affordable price' as discussed in my previous document); we might need an additional legal agreement to assert this – if that's what we want to do.
To what should the burden apply?
We've discussed in meetings the undesirability of people building a dwelling on a holding, then selling the dwelling and land separately, allowing someone to build a new dwelling on the remainder of the land, and so on, until we have a housing estate.
There are clearly two options:
- The burden could apply to the dwelling and curtilage only
- The burden could apply to the holding
But we need to be aware that people may want to sell parcels of land rather than their whole holding, and, within the context of company, we almost certainly want to allow that. If we don't apply the burden to the whole holding, we can't prevent people selling parcels of land to surrounding landowners, and we might want strongly not to allow that!
I'm not clear from the act whether a 'rural housing burden' can apply to a whole croft, or only to the dwelling; that's another thing we need to clarify.
Can we use other burdens?
The whole purpose of the 2003 act seems to be to limit the burdens that can be placed on housing. Very few are allowed. There is a form of burden called a 'community burden', but its purpose seems to be limited to the appointment of a managing agent, for example for a block of flats. A community burden does not appear to give the right to pre-empt a sale. So it seems to me that the rural housing burden is the only burden we can use.
Alternative price cap models
I can envisage four mechanisms for establishing a price at which the company can pre-empt a sale.
It does not seem to me that it makes sense to apply a cap to the price of the land part of the holding. All land is to some extent subject to speculative pricing, and in particular the price of agricultural land is artificially inflated by public subsidies to farming, but there's little we can do about that: land has a commercial value, and an incoming holder can in principal try to make a commercial return on it – if they choose. So it seems sensible simply for the company to have the land valued as commercial agricultural land, and then pay that amount for the land element of the holding.
The existing farmhouse
It isn't reasonable to apply any price cap formula with the possible exception the 'just price' to the existing farmhouse. Ruth and Gav will have to pay the open market rate for the house (unless we jointly decide to subsidise her, which is possible but hasn't been discussed); having paid the open marked rate, it isn't fair to expect her to resell at a capped rate.
If we were to bring Ruth and Gav into the capped rate scheme, we would have to lower the price they pay for the farmhouse to £105,000 – which means that the ten other holdings would each have to put £3,500 into subsidising Ruth and Gav. That isn't impossible and would make things feel fairer in the long run, since everyone would then be subject to the same cap – but it adds complexity and is yet another thing to discuss and get right, and we have limited time.
The remainder of this discussion applies to the dwelling part of the holding, for new build dwellings.
The first model would be that the seller seeks a buyer on the open market and agrees a price; the company then has the right to match that price. I can see no advantage to the company in this; it would effectively mean allowing the price to rip with the speculative rise in house prices generally, and the company would in effect only be able to purchase properties if it could attract wealthy new members. I don't believe this is what we want.
The affordable price model uses a function simply based on local average wages to establish the price of a dwelling, without taking into account the actual amount of effort that has gone into that dwelling, or how well designed, spacious or well built it is. Of course, the 'affordable price' would be literally a ceiling, but in practice I think it would be very hard for the company to offer less than the ceiling price to a member wishing to sell.
This means that a member who had worked very hard to create a really nice house would get exactly the same price as someone who had done the minimum to get past building warrant, which seems a little unfair; but it's worth bearing in mind that the 'affordable' price is still likely to be higher than the 'just' price, since we're none of us very rich and therefore the 'just' price is likely in almost all cases to end up below the affordable price.
As I outlined in my previous document, the 'just' price seeks to represent what has actually been invested – including sweat equity, investment of your own labour – with an adjustment for inflation, so you can always get out the inflation-adjusted amount you put in. This is my preferred model, because it seems to me fairer – but it has a number of problems, and, essentially, it's only fairer if we're all honest. If a person claims a lot more 'sweat equity' hours than he or she has actually put in, the 'just' price is inflated. Also, keeping an accounting of what has been truly been invested in bought materials is also an issue, and could be manipulated.
'Reasonable cost' price
The 'reasonable cost' price is the price I described in 'just price revisited' in my previous document. It uses a formula based on the floor area of the dwelling in square metres, multiplied by an arbitrary assumed cost per square metre for which a dwelling could be built. This means that if you use marble staircases and solid gold taps, the 'reasonable cost' price will be lower than the 'just' price, and you may not recover your costs.
But, provided we agree a reasonable assumed cost – £1,200 seems a commonly cited value – then the 'reasonable cost' price will for most of us be about the same as or higher than the 'just' price.
Note, of course, that to get the political support I believe we need in order to get planning permission, it will be greatly to our advantage to be able to talk about 'affordable price'. To do this, we could simply accept the 'affordable' price – which is likely to allow us all to make a significant profit. Or we could chose to use a hybrid scheme which said, for example, that the company will buy at either the 'affordable' price of the 'reasonable cost' price, whichever is the lower.
The 42 day rule
The 42 day rule is in the legislation and we can't vary it. Given that if the company fails to agree to buy within 42 days of being notified that the holding is for sale the burden ceases, we need to make an effort to ensure the company can buy – which means, we need to keep a register of people who are seriously interested in becoming members (and whom we would welcome as members).
What should never happen – and we should write a clause into the memorandum and articles to prevent this happening – is that the company buy someone's holding at the capped value and then sell it at the open market value. The company must resell for the amount for which it bought, with some allowance for fees. Obviously, in most cases it will probably be best for the company to allow the seller to sell to the new member directly, but at the price at which the company could pre-empt.