Unpacking Supported Living Accommodation in the UK:

Your Questions Answered

Ever considered investing in property that also gives back to the community? Supported living accommodation is gaining traction as a unique investment opportunity across the UK. But it's natural to have questions, especially when it comes to understanding the specifics. Let's dive into some of the most common queries we receive about these types of properties.

Is this social housing?

No, this is not social housing. This accommodation falls under the category of exempt accommodation or supported housing. It's specifically designed to provide homes for vulnerable adults who need a degree of care, support, or supervision to live independently.

What exactly is exempt accommodation?

Exempt accommodation refers to supported housing that is, as the name suggests, exempt from certain Housing Benefit provisions. It's defined as either a "resettlement place" or accommodation provided by a county council, housing association, registered charity, or voluntary organisation where that body (or someone acting on their behalf) provides the tenant with care, support, or supervision. This structure ensures that essential support services can be integrated with housing.

Who will my rental contract actually be with?

Your lease agreement will be directly with the housing association. They are the entity responsible for managing the tenancy and ensuring the property is used for its intended purpose.

When can I expect to receive my rental payments?

You'll receive your rental payments from the housing association on the 1st business day of each month, in arrears. This provides a consistent income stream for landlords.

What happens after the 25-year lease concludes?

At the end of the 25-year lease period, there are two potential outcomes. The lease could be renewed for another set period of time, offering continued income. Alternatively, if it's not renewed, the property will be returned to you in its original purchase condition, thanks to the fully repairing lease agreement.

Can I sell the property, and are there any restrictions?

Due to an option agreement, you are unable to sell the property within the first three years. However, after this three-year period, you are free to sell the property with no restrictions.

Why is there an option agreement in place?

The option agreement exists because there's a potential opportunity for the developer to re-sell the entire development in a larger aggregation deal to an institutional investor. These investors typically look to purchase substantial portfolios, often in the range of £20 to £50 million. This mechanism helps facilitate a potentially lucrative exit for the developer and a significant upside for you, the owner.

How does the option agreement actually work?

The option agreement is a separate, legally binding contract from your main sale agreement. It stipulates that if, within three years of your purchase, the seller or a purchaser they introduce offers more than 30% of the original purchase price, then all buyers would be contractually required to resell their property back to the developer.

How does the option agreement benefit me as the owner?

This is where the upside for you comes in! The option agreement can only be triggered if an offer exceeding 30% of the original sale price is made. The initial 30% of that uplift is entirely paid to you, the landlord, as profit. Any overage above this initial 30% is then split 50/50 between the developer and you, the owner. This structure is designed to align interests, as the developer aims to aggregate at around a 3.5% yield, meaning they're incentivized to achieve a high return for all parties.

What exactly is an aggregation?

An aggregation simply means bringing together several different blocks of property and aligning them into a larger deal. These properties are then sold as a group, which can benefit all individual owners involved through economies of scale and increased attractiveness to institutional investors.

What if the option agreement isn't triggered within three years?

The developer is highly motivated to form an aggregation, as it's the most profitable outcome for everyone. However, if the option agreement is not triggered within the three-year timeframe, every unit will continue to receive its NET Rental Assurance for the full 25-year lease. Furthermore, if the option agreement clause isn't triggered, the property will be available for resale, mortgage, or transfer of ownership under conditions determined by you as the landlord/client.

Do clients receive the title deed upon purchase?

Yes, absolutely! When you purchase the property, you will be granted the title deed, providing you with full legal ownership.

What is a rental assurance, and is the yield gross or NET?

A rental assurance is an agreement between the leaseholder and sub-leaseholder to pay a specified annual rent. In this case, our clients receive a fixed 'NET Rental Assurance'. This means the rent is paid in arrears, in full, at the start of each month directly to you by the housing association and is funded by the local council. The key here is that the yield is NET, with no additional costs for the landlord. This provides a predictable and hassle-free income.

Which company is providing this lease and the supportive living for tenants?

The housing association is a Community Benefit Society company. They are dedicated to providing safe, supportive, and sustainable housing to vulnerable adults. Their supported accommodation caters to individuals who need assistance and supervision to manage their tenancies effectively. They secure long-term leases with landlords, ensuring secure and stable homes for their customers while offering landlords peace of mind that their properties are in good hands.

What is a Community Benefit Society?

Community Benefit Societies are unique entities that conduct business for the benefit of their community. Unlike traditional companies, their profits are not distributed among members or external shareholders. Instead, all profits are reinvested back into the community. They are registered with the Financial Conduct Authority (FCA) and are owned by their members.

What is a Fully Repairing Lease (FRI Lease)?

A Fully Repairing Lease (FRI Lease) is a common type of commercial lease where the tenant (in this case, the housing association) takes on all costs for repairs and internal insurance for the leased property. This means you, as the landlord, are largely hands-off when it comes to maintenance and upkeep.

Does this mean the housing association will furnish the flat and refurbish it after the 25-year lease?

Yes, that's correct! A schedule of sale and an inventory will be registered upon sale. The flats will be fully furnished by the housing association to provide all necessary facilities for care. Then, once the 25-year lease concludes, the residential providers are contractually required to return the property to the condition they originally received it in, ensuring your asset is maintained.

What are the main terms of the lease?

It's a Fully Repairing Lease with a built-in rental increase mechanism. The rent rises annually in line with the Consumer Price Index (CPI), capped at a maximum of 5%. If CPI moves negatively, your rent remains unaffected – this is known as "Cap and Collar." In addition to the CPI increase, there will be an extra 1% increase on each rent review, regardless of CPI. This ensures investors benefit from a guaranteed minimum 1% annual increase in rental income.

What is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) is a comprehensive measure used to estimate price changes in a basket of goods and services that represent typical consumption expenditure in an economy. It's widely used as a key indicator to measure inflation, reflecting the cost of living.

Who is responsible for paying the Service Charge?

The service charge of the building is paid in full by the housing association. This further reduces your overheads as a landlord.

What is Assisted Living?

Supported/assisted living services empower individuals with diverse needs to live happy, fulfilling, independent, and safe lives within their local communities. When someone moves into supported living, they have their own home with their own tenancy agreement. Crucially, they also receive tailored support and care, which can range from a few hours a week to 24-hour, one-to-one assistance.

This type of living helps people with learning disabilities, autism, and other needs maximize their independence and make choices about how they want to live. It's an excellent alternative for those who don't want to live in residential care but would find it difficult to cope entirely on their own.

Why doesn't the housing association appear on the charity register?

While they hold charitable tax status, they do not appear on the charity register because they are a Charitable Community Benefit Society, not a non-for-profit charity. They make a profit, but this profit is reinvested back into their community, rather than being distributed to external shareholders. They are duly registered with the FCA and HMRC as having charitable tax status.

What if the housing association ceases to trade?

There is currently a significant shortage of suitable accommodation for supported living, and Local Authorities (LAs) have extensive waiting lists. In the unlikely event that the housing association ceases to trade, one of two scenarios is generally expected: either another company would purchase the residential provider and its agreements, or the Local Authority would provide finance to a new registered provider, who would then establish a new lease for the landlords. The long-term leases secured by the housing association provide inherent security for landlords, as their properties are vital to fulfilling a significant community need.

How do the payments work from a broader perspective?

The payment process involves a few key stages:

Stage 1: The housing association approaches the Local Authority (LA) with a "statement of purpose" to determine the demand for supported accommodation in that specific area. Once agreed, the LA conducts due diligence on the housing association. Upon completion, the LA accepts the housing association to operate under exempt rents in the area.

Stage 2: The housing association then submits rent calculations for each property for approval. Once approved, referrals are made by the LA and other stakeholders. The housing association conducts thorough assessments and background checks on potential tenants. Once a tenant is accepted and meets the criteria, a housing benefit claim is submitted to the LA and DWP. The payment, which goes directly to you, the landlord, via the housing association, typically goes live around 7 days from submission.

We hope this detailed breakdown clarifies many of your questions about investing in supported living accommodation in the UK. It's an investment that offers both financial returns and a profound social impact.

If you have any further questions or are interested in exploring assisted living investment opportunities in the UK, please don't hesitate to contact us!