Tenant purchase scheme

Dublin City Council plans to offer some of its tenants the opportunity to buy out their homes. As many as 10,000 tenants could be able to buy their homes at substantial discounts to the market values.

Previous schemes offered discounts based on the tenant’s incomes and the number of years they had held these tenancies. The current scheme will be based solely on income and in some cases could be as high as 60% discount. A number of properties will however be excluded from this scheme, notably 1 bedroom homes and 3 or 4 bedroom homes occupied by a single person.

Tenant purchase schemes have been operated by some of the Local Authorities for more than 70 years and were formally introduced on a national basis in the early 1970’s. The last scheme finished in 2012. It is proposed that there will be a clawback of some of the discount if the house is sold on within a set number of years or before the loan is paid off, generally 20 years.

Dublin City Council owns about 25,000 houses and flats but only houses will be included in this purchase scheme. Also, tenants in arrears with their rent or who have not paid their water charges will be excluded from the scheme. Tenants who are unable to borrow elsewhere or raise the purchase price from their own resources will be able to apply for local authority loans. It is believed that almost half of existing local authority loans are currently in arrears.


Notes and FAQ

Terms of new tenant purchase scheme for existing local authority houses

  1. Summary The new tenant purchase scheme will come into operation on 1 January 2016 and, from that date, local authority tenants will be able to apply to purchase their homes under the scheme. The new scheme involves a discount for the tenant purchaser (40%, 50% or 60% off the purchase price) linked to his or her income and that of his or her spouse, etc., and a discount-related incremental purchase charge on the property that reduces to nil over a period of years, unless the tenant purchaser resells the house or fails to comply with conditions of the sale during that period. Where the tenant purchaser resells the property before the end of the charged period, he or she must pay back to the housing authority a portion of any profits arising from the sale, thereby generating funds for the local authority to invest in new social housing or the refurbishment of existing housing.
  2. Who is eligible to purchase? A house may be sold only to its tenant (including joint tenants); The tenant (or one of the joint tenants) must be in receipt of social housing support for a minimum of at least a year in order to apply to purchase; The tenant must have minimum reckonable income of at least €15,000 per annum; A tenant is not entitled to purchase under the new scheme if he or she— previously purchased a dwelling under a tenant purchase scheme, has significant rent arrears and is not complying with arrangements agreed with the council to pay off those arrears, has failed to pay all outstanding water charges due and owing to Irish Water; or has or is engaged in anti-social behaviour (this prohibition also applies to household members).
  3. What houses may be sold under the scheme? All local authority houses may be sold to tenants, other than the following classes of houses: Affordable housing; New houses designated for sale under the 2010 incremental purchase scheme; Houses designed for occupation by elderly persons; Houses provided for persons with disabilities making the transition from congregated settings to community-based living under the National Deinstitutionalisation Programme, Group traveller housing, Part V dwellings provided in private estates, Caravans, mobile homes, etc., Houses that a housing authority decides not to sell for reasons of proper management of its stock of housing accommodation or on account of their structural condition; and Houses that an authority decides not to sell for the time being on account of proposals the council has to carry out remedial works in the estate concerned or to regenerate the area in which the house is located. Local authority apartments and other dwellings (including maisonettes) that require regular upkeep and management of common areas, etc., in conjunction with other dwellings or properties are excluded from sale under the scheme
  4. How is reckonable tenant income calculated? Housing authorities will include the reckonable income of all joint tenants and any tenant’s spouse, civil partner or cohabitant who is resident in the house when calculating reckonable tenant income for the purposes of the scheme; Reckonable income will be calculated as gross income, i.e. before deduction of income tax, Universal Social Charge, pension contributions, pension-related reductions and PRSI, etc.; Social welfare payments (including pensions) by the Department of Social Protection may be included in reckonable income where they constitute a secondary source of income, i.e. a social welfare payment to a tenant in receipt of income from employment is reckonable income, as is a social welfare payment to the spouse, civil partner or cohabitant of a tenant in employment; Certain types of payments will be disregarded for the purposes of calculating reckonable income, including Child Benefit, Carer’s Allowance and Benefit and Family Income Supplement.
  5. How is the purchase price of the house determined? The purchase price of a house is the value of the house for the purposes of calculating the applicable discount and will be calculated as the greater of— (a) the market value of the house (which reflects its prevailing state of repair and condition), or (b) half the estimated cost to the council of providing a replacement house to modern standards in its housing stock to accommodate a household in the same class as that for which the house was designed. Replacement cost will only come into play where, due to localised factors, the market value of a house is very low. The purchase price is calculated in the first instance by the housing authority. If the tenant purchaser disagrees with the council’s purchase price, he or she may pay for a suitably qualified professional (e.g. an estate agent in the case of market value) who is acceptable to the council to make a determination of the purchase price, with is binding on both parties.
  6. How is the tenant purchase discount calculated? The discount given to a tenant purchaser depends on reckonable tenant income, as follows: A discount of 60% off the purchase price applies where reckonable tenant income is in the range €15,000 to €20,000; A discount of 50% off the purchase price applies where reckonable tenant income is in the range €20,001 to €29,999; A discount of 40% off the purchase price applies where reckonable income is equal to or greater than €30,000.
  7. What conditions are attached to the sale of the house? On receipt of the discounted purchase price from the tenant, the council will transfer ownership the house to the tenant by means of a transfer order that expressly excludes any warranty as to the state of repair or habitability of the house. The transfer of ownership is subject to the terms of the housing authority’s incremental purchase charge and the following conditions: The house must be occupied as the normal place of residence of the purchaser or a household member, unless the council gives its prior written consent, The house or any part of it must not be sold, assigned, let or sublet without the council’s prior written consent, The purchaser must not cause any nuisance or engage in anti-social behaviour or allow any person residing in the house to do so; The purchaser must keep the house and all parts of it in good order, repair and condition, The purchaser must insure the house against loss or damage.
  8. How does the tenant pay for the house? The tenant is not required to pay a deposit to the housing authority as part of the tenant purchase process; The tenant may pay the discounted purchase price to the council by one, or a combination, of the following: His or her own resources of those of his or her spouse, civil partner or cohabitant, which may include funds provided by family members, etc., A local authority house purchase loan, if approved under the authority’s credit policy. The examination of a loan application will involve a separate assessment of tenant income by the housing authority; The possibility of private financial institutions providing loan finance to tenant purchasers under the new scheme is currently being examined.
  9. What is an incremental purchase charge? On sale of a house under the scheme, the council will place an incremental purchase charge on the house equivalent to the discount granted to the tenant off the purchase price. Thus, if the council gives a 50% discount to the purchaser, the incremental purchase charge will be 50% of the value of the house; The period for which the charge applies to the house (i.e. the charged period) depends on the level of the charge: If the charge is 60% of the value of the house, the charged period is 30 years, If the charge is 50% of the value of the house, the charged period is 25 years, If the charge is 40% of the value of the house, the charged period is 20 years; The incremental purchase charge will wither away to nothing over the charged period in annual incremental releases of 2% of the value of the house, provided the purchaser complies with the terms and conditions of the transfer order. The incremental releases for the first 5 years of occupancy will not be applied until that period has expired; If a housing authority suspends an incremental release during the charged period for failure to comply with a sale condition, the tenant purchaser must, within 2 month of expiry of the charged period, pay to the council the amount of the outstanding incremental purchase charge, based on the current market valuation of the house; The purchaser may pay one or more than one incremental release (other than a suspended release) or the entire outstanding charge on the house to the housing authority at any stage after the fifth anniversary of the vesting date, based on the current market valuation of the house. Where part only of the outstanding charged share is paid to the housing authority, the charged period will be reduced by the number of years equating to the number of incremental releases represented by the payment; Examples are attached of how the incremental purchase charge will operate.
  10. What happens if a tenant purchaser resells the house during the charged period? The council will have first refusal on buying back a tenant purchased houses resold during the charging period, in which case the resale price is the current market value of the house less the value of the outstanding charge on the property; If the tenant purchaser resells the house in the market within 5 years of purchase, he or she must pay the current value of the total charge back to the council. If he or she sells the house later in the charged period, he or she must pay to the council the current value of the outstanding charge. The charge only applies where the tenant purchaser makes a profit on resale of the house (net or selling expenses) and the amount of the outstanding charge payable by the tenant purchaser will be reduced to avoid, as far as possible, him or her incurring a net loss on the resale; A housing authority may refuse to consent to resale of a tenant purchased house in the market during the charged period where— The proposed sale price is less than the market value, The new purchaser is or was engaged in anti-social behaviour or the sale is not in the interest of good estate management, or The sale would leave the vendor or a household member without adequate housing.
  11. Do excluding orders in respect of anti-social behaviour apply to tenant purchased houses? A tenant purchaser may apply to the District Court for an order excluding a person engaged in anti-social behaviour from the house concerned (except where the person is less than 18 years old) for a period of up to 3 years or from entering a specified area or estate and prohibiting that person from doing specified things; A housing authority may also apply for an excluding order in respect of a tenant purchased house against a person, other than the tenant purchaser, engaged in anti-social behaviour, where the authority believes that an excluding order should be sought for estate management reasons but that the tenant purchaser, whether due to intimidation or for any other reason, does not intend to apply for such an order; The excluding order procedure ceases to apply to a tenant purchased house on expiry of the charged period.

Examples of operation of incremental purchase charge

Example 1: Tenant purchases house and retains it for charged period Purchase price at date of sale: €200,000 Incremental purchase discount: 50% [based on tenant income] Purchase money paid: €100,000 Incremental purchase charge on house: 50% of value of house Charged period 25 years [based on IP discount] Incremental purchase charge is reduced by 2% of house value each year, with the charge reduced to zero after 25 years.

Example 2: Tenant purchased house is sold in the market after 10 years Tenant purchase of house Purchase price: €200,000 Incremental purchase discount: 50% [based on tenant income] Purchase money paid: €100,000 Incremental purchase charge on house: 50% of value of house Charged period 25 years [based on IP discount] Resale of house in the market Market value of house on resale: €150,000 Outstanding incremental purchase charge (30%) [50% – (10 x 2%)] Formula payment due to HA to clear IP charge: -€45,000 [€150,000 x 30%] Less selling costs (estate agent and solicitor): -€10,000 Net proceeds from resale: €95,000 [< original purchase money, so IP charge reduced to break even] Actual payment to HA to clear IP charge: €40,000 [Reduced IP payment to avoid loss on resale of house]

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