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PART 2: THE MODERNISED RIGHT TO BUY

Introduction

6. Sections 61 to 84A of the Housing (Scotland) Act 1987 (as amended) and the associated secondary legislation sets out the terms and conditions associated with the RTB and the procedures which landlords and applicants should follow. This part of the guidance sets out the details of the RTB, placing the recent modifications within the context of the wider provisions. The following guidance aims to provide a general outline to the modernised RTB, paying particular attention to the changes introduced to the 1987 Act by the Housing (Scotland) Act 2001. The main changes introduced by the new Act are:

• sections 42, 43, 44, 45, 46 and 47 of the Housing (Scotland) Act 2001 amend section 61 and insert the new sections 61A to 61E into the Housing (Scotland) Act 1987. Taken as a whole, these provisions amend the qualifying conditions and the exemptions associated with the RTB and introduce various new limitations;
• section 48 inserts section 70A into the 1987 Act to allow the Scottish Ministers to authorise proposals to refuse to sell houses liable to demolition;
• section 49 amends various aspects of the entitlement to discount under section 62 of the 1987 Act;
• section 50 amends section 66 of the Housing (Scotland) Act 1988 to extend the powers of local authorities to offer financial assistance to tenants to buy other accommodation;
• section 51 repeals various provisions of the 1987 Act and schedule 10 also includes a number of further detailed amendments and repeals;
• section 52 of the Act places a new duty on the Scottish Ministers to prepare reports on the extent and effect of the RTB.

Who is potentially eligible for the Right to Buy?

7. Section 61 of the 1987 Act, as modified by the 2001 Act, specifies that to be eligible for the RTB, tenants must have a Scottish secure tenancy from one of the following landlords:

• a local authority (including joint boards or joint committees of two or more local authorities and the common good of a local authority or trust under the control of a local authority);
• an RSL;
• a water authority or sewerage authority.

The landlord must be the heritable proprietor of the house.

8. These provisions ensure that the RTB is linked to the Scottish secure tenancy and is, therefore, potentially available to RSL as well as local authority tenants, subject to the tenants having met the qualifying conditions and the various exemptions and limitations on the RTB as described below.

9. Savings provisions have been included in the Commencement, etc. order to ensure that tenants of the Scottish Homes residuary body, who previously had a RTB entitlement, will continue to have a RTB entitlement.

Joint purchasers

10. The RTB can be exercised by Scottish secure tenants if they so wish, together with one or more members of their family, provided that such members are at least 18 years of age and have occupied the dwelling as their only or principal home with the tenant for a continuous period of 6 months immediately prior to the application (section 61(6)(a) of the 1987 Act). The definition of a "family member" for this purpose is set out in section 83 of the 1987 Act and has been extended by the 2001 Act to include same sex couples (opposite sex cohabitees are included in the previous 1987 Act definition) and persons brought up or treated as if they were a child of the tenant.

11. Evidence that the 6 months residence qualification for family members has been satisfied should be obtained and a check should be made that their residence in the dwelling is not a breach of any obligation of the tenancy. Landlords have discretion to waive the residency conditions for family members as they think fit (section 61(6)(b) of the 1987 Act).

12. Where a joint tenancy exists, not all the tenants are obliged to exercise their RTB. In such circumstances the written agreement of any joint tenants not wishing to exercise the RTB will be required in the RTB application form at the time notice is served on the landlord. Additionally, the formal consent of their spouse will be required irrespective of whether he or she is a joint tenant (section 61(5) of the 1987 Act). Provision for such an agreement is necessary since the tenancy lapses when a sale is completed and those former tenants not buying will lose their status as Scottish secure tenants. If such persons intend to remain within the dwelling house, it is for to them to make appropriate arrangements with the purchaser. In circumstances where non-purchasers living at the property subsequently become homeless, they would be assessed on the same basis as other applicants for assistance under the homelessness provisions of the 1987 Act (as amended).

Qualifying conditions

13. Under the modernised RTB, tenants must have a 5-year continuous period of occupation of a house, or a succession of houses, with a relevant landlord before they can exercise the RTB. The list of relevant landlords in section 61(11) of the 1987 Act is extensive and includes time spent in tenancies where the tenant would not have had a RTB on that particular house. The list has not, however, been modified by the 2001 Act (except that RSLs have been added as a category of relevant landlords). Common relevant landlords include: tenancies of local authorities (both in Scotland and elsewhere in the UK); tenancies of RSLs and registered housing associations; tenancies of Scottish Homes, tenancies of property owned by Scottish Ministers and UK Government Ministers; and certain public bodies, for example, the Forestry Commission. In cases of doubt, landlords should check the legislation.

14. The modernised RTB now has an explicit requirement for "continuous occupation". However, the 2001 Act gives landlords the power to disregard an interruption in occupation, when calculating the qualifying period and discount, where they consider that the interruption resulted from circumstances outwith the control of the person in question. It is for landlords to use their discretion to decide how this is to be interpreted in particular cases, but possible examples where they may wish to disregard interruptions could include: the effect of fire, flood and the need to escape domestic abuse. This is not, however, intended to be a comprehensive list and cases should be considered on their merits.

15. The way in which occupation of a house is defined has not changed and is set out in section 61(10) of the 1987 Act. Occupation can include time spent:

• as a sole or joint tenant;
• if and when the house was occupied on a rent-free basis;
• as a spouse of the tenant or person occupying rent free;
• as a child (or spouse of the child) or member of the family of the tenant or person occupying rent free but only for any period where the child, spouse or other family member was aged 16 or over.

Again, the relevant definitions of "family member" and "spouse" are set out in section 83 of the 1987 Act as amended by section 108 of the 2001 Act (see paragraph 10 above). The term "rent free" is not defined in the 1987 Act, but the original intention was that this would apply to cases where the person concerned would be a tenant if it were not that the absence of rent precluded the existence of a tenancy. A definitive interpretation would, however, in the case of a dispute have to be made by the courts.

16. Those tenants who had a RTB entitlement under the pre-2001 Act provisions will continue to be able to exercise their RTB after 2 years occupation for as long as they remain in the same tenancy. This would include any relevant period of occupation in the same tenancy before the introduction of the Scottish secure tenancy. The precise details of all aspects of the "protection of rights" is set out in part 3, paragraphs 112 to 117 .

Exemptions from the Right to Buy

17. The 2001 Act made extensive changes to the types of housing which are exempt or subject to limitations from the RTB. Details of continuing, altered and new provisions are set out below. Further details on limitations are set out from paragraph 42.

Registered Social Landlords with charitable status

18. The 2001 Act amends the 1987 legislation to exempt all RSLs from the RTB providing they are recognised bodies (under section 1(7) (Scottish charities) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990) on the day the 2001 Act received Royal Assent (18 July 2001). A "recognised body" is one to which the Commissioners of Inland Revenue have given notice that it qualifies for tax relief on account of its charitable purposes. RSLs which obtain recognition under the 1990 Act after 18 July 2001, will not be exempt from the RTB. To qualify for the exemption, the body must also either have been a registered housing association at the time of Royal Assent or be included in an Order made by Scottish Ministers which allows it to be treated as if it were a registered housing association (see section 61(4)(e) of the 1987 Act, as amended, and section 57 of the 2001 Act).

19. The main effect of this change is to extend the exemption under the pre-2001 Act provisions to those RSLs which obtained charitable status after the previous cut off date of November 1985. There will be protection for tenants who, before the commencement of the Scottish secure tenancy provisions of the 2001 Act, had a RTB entitlement. Tenancies of RSLs which were not previously eligible for the RTB i.e. those with assured tenancies which do not have a preserved RTB and all new tenancies will be exempt from the RTB. This is described in more detail in part 3, paragraphs 118 to 122.

Group housing schemes for persons with special needs

20. The 2001 Act repeals two of the existing exemptions (sheltered housing schemes for the elderly and disabled under section 61(4)(a) of the 1987 Act and certain other types of housing for persons with particular needs under section 61(4)(f) of the 1987 Act). These are replaced with a more general exemption for group housing schemes for persons with special needs, inserted as 61(4)(ea) of the 1987 Act. To qualify for this exemption, any individual house must be part of a group of houses which have been designed for persons with special needs where either:

• the houses are provided with, or situated near, special facilities for use by their tenants; and/or
• the tenants of the houses are provided with housing support services, i.e. services which provide support, assistance, advice or counselling to an individual with particular needs which are necessary for them to live independently in their house (see section 91(8) of the 2001 Act for the full statutory definition of housing support services).

21. The practical effect of this is to exempt all group housing schemes for persons with particular needs including, but going beyond, the sheltered housing and other schemes that were exempt under the previous provisions. It is for landlords to decide whether any particular group housing scheme meets the criteria set out in statute and which are described above. The view of the Executive is that houses in group housing schemes do not necessarily need to be physically contiguous, providing the other tests are met and the houses in question would need to have facilities and services which go beyond the inclusion of a simple call system to qualify for the exemption. In the event of a dispute, however, this would be a matter for the courts to decide.

Individual houses provided for persons of pensionable age

22. Although strictly speaking a "limitation" rather than an "exemption", the 1987 Act included a power for Ministers to refuse to sell certain specific individual houses which had been designed or adapted for use by persons of pensionable age (section 69). These provisions allow the landlord to request authorisation from Ministers to refuse an application to buy. Such an application for authorisation to refuse the RTB must be accompanied by supporting documentation. This should include a copy of the plan of the house, including a plan of any relevant adaptations, together with other evidence that the house was designed or adapted for a person of pensionable age. In considering individual applications the Scottish Executive looks, in particular, at the extent of the special facilities provided and where these make the house "substantially different" from mainstream houses (see Scottish Office Environment Department Circular Number 12/1992). The 2001 Act modifies the position slightly by removing the previous limitation to houses first let on a secure tenancy before 1 January 1990. In future, it will be possible for landlords to seek the Scottish Ministers' approval to refuse an application, irrespective of when the house was first let or the type of tenancy used at this time.

Fully Mutual Co-operative Housing Associations

23. The 2001 Act inserts a new provision into the 1987 Act (section 61(4)(ca)) which specifically exempts tenancies of RSLs which are fully mutual co-operative housing associations from the RTB. This is, in effect, a continuation of the status quo, but the exemption is required as a result of bringing fully mutual housing co-operatives within the scope of the Scottish secure tenancy.

Exemptions for Registered Housing Associations not in receipt of grant aid

24. The 2001 Act repeals section 61(4)(b) of the 1987 Act which exempted houses owned by registered housing associations built without grant aid given under specified legislation. This ensures that houses acquired by RSLs following a stock transfer continue to be potentially eligible for the RTB following the repeal of the preserved RTB ( see paragraph 104 below ).

Exemptions for Registered Social Landlords letting less than 100 houses

25. This exemption (section 61(4)(c) of the 1987 Act) for RSLs which have let (or had available for letting) less than 100 dwellings, continues to apply.

The selling price

26. The price to be paid by the purchaser(s) is the market valuation of the property less any discount for which they are eligible, subject to any "cost floor" restrictions set out in an order under section 62(6A) of the 1987 Act. The last order is included in Scottish Office Development Department circular number 8/1999.

The market valuation

27. When an application to buy is received, the landlord must establish the market value of the property. Section 62 of the 1987 Act specifies the method by which the market value is to be determined as either by:

a. a qualified valuer, nominated by the landlord and acceptable to the purchaser; or
b. the district valuer.

28. No account is to be taken of any element in the market value reflecting an increase in value as a result of works by the tenant, the cost of which could qualify for reimbursement. Such works could be any alteration, improvement or enlargement, addition of new fixtures or fittings or erection of a garage, shed or any other structure, which has not been provided by the landlord and has received its consent.

29. The market value is calculated as if the house was available for sale on the open market with vacant possession at the date of service of the application to buy (section 62(2) of the 1987 Act).

Calculation of discount

30. The modernised RTB brought in by the 2001 Act, results in significant changes in the way in which the discount is calculated. There is no distinction in the discount between houses and flats and there is a minimum discount of 20% following the 5-year qualifying period, which increases by 1% for every year of occupation of a relevant house to a maximum of 35% of the market value or £15,000 (whichever is the lower). Consequently, unless the discount reaches the cap of £15,000 first, the maximum discount will be reached after 20 years occupation of a relevant house(s).

31. As with the pre-2001 Act provisions, tenants can count occupation of houses owned by a wide range of landlords. The way in which occupation is defined for the purpose of calculating the discount and the list of relevant landlords is identical to the way in which occupation is defined for the purposes of calculating the qualifying period (see paragraphs 13 to 15 above). But as pointed out in paragraph 14, only periods of continuous occupation under tenancies with different landlords should be counted in the discount calculation. This is, however, subject to the landlord's discretion to disregard interruptions resulting from circumstances outwith the control of the person in question.

32. Section 62 of the 1987 Act requires a deduction to be made from the discount equal to any previous discount (or the aggregate of previous discounts) on any previous purchase minus any discount recovered by the landlord if, for example, the house was re-sold within a 3 year period (see paragraphs 36 to 41 below).

• In calculating any previous discount to be deducted, account should be taken of discount received by the tenant putting forward the application, his or her spouse (if they are living together at the date the application is made), a deceased spouse (if living with the tenant at the time of death) and any joint tenant who is a joint purchaser of the house. The 2001 Act amendment to the definition of a spouse in section 83 of the 1987 Act will also extend this term to include cohabitees and same sex couples.
• Where two or more tenants have previously purchased a property receiving discount and either party purchases a subsequent property through the RTB, then the landlord should make the deduction on the assumption that the previous discount had been received in equal proportions. For example, if £10,000 discount has been given to 2 tenants jointly and one re-applies to purchase a subsequent property, then the landlord should only take £5,000 into account in calculating the reduction in the discount.

33. Tenants who had a RTB entitlement before the introduction of the Scottish secure tenancy will continue to have their discounts calculated in line with the pre-2001 Act provisions for as long as they remain in their current tenancies. Tenants of houses (as opposed to flats) will, therefore, be eligible for a discount of 32% of the market value of the house after 2 years' tenancy, increased by 1% per annum to a maximum of 60% after 30 years' tenancy. For tenants living in flats (including four in a block, tenement and multi-storey flats) the discount starts at 44% of the market value of the house after 2 years' tenancy, increasing by 2% per annum to a maximum of 70% after 15 years' tenancy. The details of how this protection will apply are described in part 3, paragraphs 112 to 117 .

34. The 2001 Act also amends the power of Scottish Ministers (section 62(5) of the 1987 Act) to vary the discount regime (including changes to the minimum and maximum percentage discounts, the annual percentage increase and the cap) by order and to establish different discount regimes in different parts of the country. Landlords and tenants will be given early warning of any plans to make further changes of this nature.

The "cost floor" rules

35. Where the house was acquired or built recently or where the landlord has incurred substantial expenditure on improvement and repairs on a property which is subject to a RTB application, the "cost floor" rules may apply. The house must have been acquired or built, or the works must have been carried out within a specified period in the preceding 10 years and, if this is the case, the selling price must not be less than the eligible costs. Eligible costs include: the construction, erection or acquisition of the house or the site of the house; works following acquisition required to put the property into good repair; other works to the house and any attributable administrative costs. Also, cumulative repair or maintenance costs for the relevant period over a threshold of £5,500 count towards the cost floor. However, a total eligible expenditure of less than £5,000 is ignored. To be included in the specified period, the cost must have been incurred from the start of the financial year which was current 10 years before the date at which the application to buy was served. Where the cost floor exceeds the market value of the dwelling, the selling price will be the market value and there shall be no discount entitlement. For details of the cost floor rules and worked examples, see Scottish Office Development Department Circular 8/1999. In addition, a further order on the cost floor will be submitted in 2002. This will propose the relatively minor changes of ensuring that all landlords can count the same relevant costs and that the secondary legislation is updated in line with the new act.

Recovery of discount

36. Where a discount is to be given on the purchase price, the formal offer to sell will normally be conditional upon the purchaser granting a standard security in favour of the landlord, obliging the purchaser to meet repayment or proportional repayment of the discount amount in the event of a resale taking place within 3 years from the date of service of a notice of acceptance (of the offer to sell) by the purchaser.

37. Repayment of discount (often known as the "clawback") is calculated proportionately, starting from the date on which the offer of sale is accepted (received by the landlord). Section 72 of the 1987 Act specifies the proportion of discount recoverable and the circumstances in which this provision will/will not apply.

If the property is sold within the 1st year: 100% of discount must be repaid.
If the property is sold within the 2nd year: 66% of discount must be repaid.
If the property is sold within the 3rd year: 33% of discount must be repaid.

38. In calculating the relevant period, the date of service by the tenant of a notice accepting the offer to sell is the date from which the recovery period is determined. It should be noted that this date may precede the date of settlement by several months.

39. As an example: a landlord serves formal offer to sell on tenant in October 2000. Tenant accepts offer by serving formal notice on 1 December 2000. Settlement date agreed 1 February 2001. For discount recovery purposes, the relevant period would be 1 December 2000 - 30 November 2003.

40. The standard security for the recovery of discount will rank by statute after any standard security granted for a loan for the purchase of the house or for the improvement of the house. If the landlord consents, the discount standard security will also rank after a security granted over the house for any other loan (section 72 of the 1987 Act).

41. Sections 72 and 73 of the 1987 Act specify certain circumstances in which the discount would not be recoverable. These are:

(i) where there is a disposal of part of the house by one of the parties to the original sale to one of the other parties (e.g. a joint purchaser disposes of their interest to another joint purchaser); or

(ii) where there is a disposal of part of the house and the seller continues to occupy the remainder of the property as their only or principal home; or

(iii) where the disposal is made by the executor of the deceased owner acting in that capacity (i.e. the property is being sold as part of the winding-up of the estate); or

(iv) the disposal is the result of a compulsory purchase order; or

(v) the disposal is for no consideration to a member of the owner's family who has lived with him or her for the previous 12 months.

Limitations on the Right to Buy

42. In addition to the exemptions described in paragraphs 17 to 25 above, the 2001 Act provides for a number of additional specific limitations on the RTB. In summary, these are:

• a limitation on the RTB from RSLs (sometimes known as the "10 year exemption");
• a limitation on the RTB in designated pressured areas;
• a limitation on the RTB for tenants with arrears of rent or council tax;
• a limitation on the RTB for tenants subject to recovery of possession proceedings on "conduct" grounds.

Details of these provisions are set out below.

Registered Social Landlords - 10-year exemption

43. Section 44 of the 2001 Act inserts a new section 61A into the 1987 Act which has the effect of delaying the extension of the RTB to certain tenants of RSLs for a period of up to 10 years from the date when the new Scottish secure tenancy and RTB provisions are introduced. This delay was introduced to ensure that RSLs have sufficient time to adjust to the new arrangements. During this 10 year period, tenants affected by this exemption will be able to count time in this tenancy towards the qualifying period and discount entitlement, but they will not be able to exercise their RTB so long as they remain tenants of the houses in question.

44. The 10-year exemption applies to all houses let by RSLs with the following exceptions:

• tenancies of houses acquired, for example, by a stock transfer or through purchase from a developer, by the RSL after the date of the introduction of the Scottish secure tenancy;
• tenancies of houses built by RSLs after the introduction of the Scottish secure tenancy, except for those cases where the offer of grant (by either Scottish Homes, Scottish Ministers or local authorities) was made before the introduction of the Scottish secure tenancy (these houses would, in any event, be subject to the cost floor rules - see above, paragraph 35);
• tenancies of RSLs which already enjoyed a RTB entitlement and which will be protected by the Introduction of the Scottish Secure Tenancy Order when the Act is commenced.

45. RSLs can, however, elect to set aside this limitation to the RTB if they so wish. Any such decision would, of course, need to be made in accordance with the rules and procedures for the RSL in question and the 2001 Act also requires:

• the RSL to notify the Scottish Executive of its decision indicating the date from which the exemption will end (notifications should be sent to the Head of Housing Management Branch, Scottish Executive Development Department, Area 1G, Victoria Quay, Edinburgh EH6 6QQ);
• the RSL to inform the affected tenants and those lenders with an interest in the houses to which the decision relates.

46. RSLs will want to give careful consideration to the implications of "opting in" before making a decision and, in particular, the likely financial implications. This is particularly important since the Act is clear that any such decision is irrevocable. In most cases, they should aim to consult the regulatory section within Communities Scotland as well as seeking the views of tenants and lenders in advance of a decision being made.

47. The 2001 Act also allows for RSLs to apply to the Scottish Ministers for the suspension of the RTB to be extended for a further period of up to 10 years. The Act does not place a limit on the number of exemption periods that may be sought. Before submitting an application the landlord must consult with those lenders with an interest in the affected properties.

48. In considering applications for extensions, Scottish Ministers will be particularly interested in evidence of continuing problems of financial viability. The expectation is that RSLs will use the period of the initial 10-year exemption to assess the implications of the extension of the RTB for their organisation and plan accordingly. The Scottish Executive will need to be persuaded, therefore, that there are circumstances which justify an extension and it will want detailed information on the anticipated problems and the steps that have been considered and implemented or rejected. Before coming to a decision, the Scottish Executive will also ask Communities Scotland to undertake a detailed appraisal of the likely financial impact of the introduction of the RTB for tenants of the houses in question. Further guidance on this may be issued in due course.

Pressured areas

49. The 2001 Act inserts new sections into the 1987 Act (sections 61B and 61C) which allow the Scottish Ministers to designate any part of a local authority's area as a "pressured area" following a proposal submitted by the local authority itself. (It is important to note that these new powers provide for designation of all houses in the specified area and cannot be used to designate houses of a particular size or type unless the area entirely consists of houses with these characteristics.) The broad effect of designation is to suspend the RTB for certain tenants living in the area for a period of up to 5 years.

50. The policy objective behind these provisions is to establish a mechanism for safeguarding the continued availability of social rented housing where the RTB could otherwise lead to serious shortages.

The criteria for designation

51. The 2001 Act sets out two specific criteria which must be met before the Scottish Ministers can designate an area:

• the need for social rented housing (i.e. houses provided by the local authority or RSLs) in the area in question is, or is likely to be, substantially in excess of the social rented housing; and
• this situation is likely to be exacerbated by tenants in the area exercising their RTB.

52. The shortfall referred to in the first of the two criteria may be a current shortfall or one that is expected to arise in the future.

53. It is necessary for both criteria to be met. The Scottish Ministers only have authority under the Act to designate areas where they are satisfied that these criteria apply.

The effect of the designation

54. The effect of the designation is to suspend the RTB for the following tenants living in the area:

• those who have taken out a new tenancy in the area on or after the introduction of the Scottish secure tenancy;
• those with tenancies created before the introduction of the Scottish secure tenancy who did not previously have a RTB entitlement - these will be principally tenants of RSLs with assured tenancies (except for those with a preserved RTB). Please note that a person has a RTB entitlement in this context even if he or she has not yet fulfilled the occupancy requirement in section 61(2)(c) of the 1987 Act;
• all those who have succeeded, following the introduction of the Scottish secure tenancy, to tenancies initially created beforehand irrespective of the terms on which they would be able to exercise their RTB entitlement in the absence of the pressured area designation.

55. Tenants in tenancies created before the introduction of the Scottish secure tenancy and which were converted to Scottish secure tenancies will, therefore, not be affected by the suspension providing:

• before the introduction of the Scottish secure tenancy they had a RTB entitlement (whether or not this is with their current landlord), as a result of having a secure tenancy or an assured tenancy with a preserved RTB;
• they have not succeeded to their tenancy after the introduction of the Scottish secure tenancy.

56. Tenants who have taken out a new tenancy in the area (and will, therefore, be covered by the designation) will include those who occupy their house as a result of a transfer from another house owned by the landlord or as a result of an exchange with a tenant occupying a house owned by another landlord, providing this transfer or exchange has taken place after the introduction of the Scottish secure tenancy.

57. The suspension will be for a period of 5 years or less. Although 5 years is the maximum period allowed for each designation, it is open to local authorities to propose a further designation.

58. The suspension has no effect on applications to purchase under the RTB which have been served prior to the designation of the area as a pressured area, even if this application is still being processed by the landlord.

Selection of areas and consultation

59. Under the provisions of the 2001 Act, it is for local authorities to make proposals for the designation of pressured areas but they may wish to discuss any proposals informally with the Scottish Executive before they are submitted. In drawing up proposals, the Scottish Executive will expect local authorities to take account of their local housing strategies or, if these have not yet been finalised, any preliminary work that has been undertaken. Although the process of approving proposals for the designation of pressured areas is separate and distinct from the submission of local housing strategies to the Scottish Ministers, under section 89 of the 2001 Act, the Scottish Executive will expect such proposals to be consistent with the local housing strategy or the draft housing strategy, if it has not yet been finalised. It would be for the local authority to decide whether to also include detailed supporting evidence in its local housing strategy or simply identify in the strategy relevant areas for designation, the rationale for this designation and how it would be implemented.

60. The 2001 Act allows local authorities to propose the designation of any part of its area providing the specified criteria are met. Although the precise boundaries must be a matter for local determination, the Scottish Executive view is that the aim should be to identify recognised localities or neighbourhoods. In rural areas, these may well be recognised settlements; in urban areas they might be identifiable estates or neighbourhoods (which may be conterminous with letting areas). In most circumstances, relevant areas are likely to be a contiguous group of houses, but this is not a statutory requirement and there may well be cases where an alternative approach is appropriate.

61. There is a statutory duty on local authorities, before submitting proposals in respect of specific areas, to consult:

• every RSL with houses in the proposed area;
• bodies representing the interests of tenants or other residents living in the area;
• any other persons as they think fit.

62. As a matter of good practice, the Scottish Executive will expect local authorities to undertake wide-ranging consultations locally before finalising proposals for pressured areas. These discussions should be about the need for a designation as well as amendments relating to the details of the boundaries and timing. Local authorities will need to bear in mind that RSLs, in particular, may wish to suggest the designation of a particular area. They may also wish to consult local property professionals such as estate agents, solicitors property centres etc., with an expert knowledge of the local housing market.

63. As well as consulting groups of tenants and residents, local authorities should also ensure that all individual tenants affected are informed of the proposal and its likely effect on them and given an opportunity to offer and seek further information.

Submission of proposals to the Scottish Executive

64. Local authorities who wish to put forward proposals for the designation of pressured areas should submit the following information to the Scottish Executive:

• a paper map showing the boundaries of the proposed area (or digitalised map of same) and a full listing of the Census Output Areas ( see http://www.statistics.gov.uk/geography/census-geog.asp#oa ) for more information on Census Output Areas.and Unit Postcodes included in the area. The map should be in sufficient detail to be able to clearly identify those houses which will fall within the designated area;
• a statement of the number, type and size of local authority and RSL houses within the proposed designated area and an estimate of the initial number of tenants whose RTB will be suspended as a result of the designation;
• the period (not exceeding 5 years) proposed for the designation;
• information of the consultation undertaken identifying the organisations and persons consulted together with a summary of their responses;
• sufficient information to allow the Scottish Ministers to satisfy themselves that the statutory criteria for designation are met.

65. It will be for local authorities to decide what information should be submitted to demonstrate that the statutory criteria are met. The Scottish Executive will expect the information submitted in support of the designation to address both of the statutory criteria set out in paragraph 51, but the precise nature of the information required is likely to vary according to the size and nature of the proposed pressured area. It is anticipated that local authorities will want to draw on the assessment and analysis of housing needs which underpins their local housing strategies where these are available and current.

66. In very broad terms, the Scottish Executive will look for information along the following lines:

Evidence of a substantial shortfall in social rented accommodation in relation to need

• the number of social rented houses expected to become available for let to households not currently in the social rented sector in the area through relets and new building over the period of the proposed designation, together with any evidence of land values having an adverse effect on the ability to build;
• an estimate of the need for social rented housing from households not currently housed in the sector over the period proposed for the suspension;
• where possible, it may also be helpful to examine evidence of pressure in the private sector, arising from the demand by households for the available private housing stock or a reduction in the supply of private sector housing - relevant evidence might be above average increases in house prices in the area in question.

Evidence on the impact of the RTB on the shortfall of social rented housing in relation to need

• an estimate of the annual average number of RTB sales and, where possible, an estimate of the percentage of the total social rented sector in the area (including those that are exempt from the RTB) that have been sold since 1980;
• an assessment of whether the current annual average sales is likely to change over the period of the designation with the reasons for this assessment;
• evidence on the impact or likely impact of RTB sales and, in particular, whether re-sales have led, or are likely to lead to a shortage of housing for households in housing need.

The Scottish Executive has commissioned research from Heriot-Watt University on ways of assessing the impact of the RTB on affordable housing supply at the local level. The report from this research includes a section setting out suggestions for local authorities on the steps that might be followed in putting forward a submission for pressured area status. A copy of this section of the report is attached as Annex B to the Guidance. Local authorities are not required to follow these suggestions, but they provide a possible framework.

67. Two copies of the relevant information as set out in paragraph 64 above should be submitted to:

Head of Housing Management Branch
Scottish Executive Development Department
Area 1G
Victoria Quay
Edinburgh EH6 6QQ.

Action by the Scottish Executive following receipt of proposals for designation of pressured areas

68. Following receipt of proposals for a designation, the Scottish Executive will check to ensure sufficient and appropriate information has been submitted and providing this is the case, Communities Scotland will carry out an assessment of the proposals. Communities Scotland will look, in particular, at the way in which the proposals link in to the local housing strategy and the way the strategy seeks to address the demand issue over time. It may be necessary to have discussions with the local authority to clarify certain aspects of the proposals.

69. In the light of this assessment, which will be made available to the local authority, the Scottish Ministers will decide whether or not to make the designation (in line with the proposals or according to different terms). If they decide to designate they will write to the local authority formally designating the area under section 61B of the 1987 Act. (Ministers have the power under these provisions to make the designation in terms of the proposal or in such terms as they see fit.) The designation letter will:

• confirm the boundaries of the pressured area;
• specify the date on which the designation takes place;
• specify the period for which it has affect.

70. If the Scottish Ministers decide not to approve the proposals, the Scottish Executive will write to the local authority explaining the reasons for this decision. The 2001 Act does not provide for any statutory right of appeal either to Scottish Ministers or some other body, but it is always open to local authorities to make representations to Ministers if they so wish.

71. The Scottish Executive will aim to process and come to a decision on applications within a period of two to three months from the initial receipt of finalised proposals by local authorities.

Action by local authorities following designation

72. Once an area has been designated, the local authority should take any further steps necessary to publicise the decision and its effect (section 61B(6) of the 1987 Act). There is a statutory duty on landlords (both local authorities and RSLs) under section 23(5) of the 2001 Act to notify the tenants directly affected that the designation has been made and the effects of the designation on their RTB. They may also wish to notify those bodies who were consulted before the proposals were submitted.

73. Once the designation has been made, both local authorities and RSLs as landlords are placed under a statutory duty by section 23(4) of the 2001 Act to notify prospective tenants of houses in the area of the designation and its implications.

74. If the local authority wishes to amend or revoke the designation during the specified period, it should write to the Scottish Executive with the details of the proposed amendment or revocation and the reasons for proposing this.

75. Scottish Ministers will consider these proposals and decide if the designation should be amended or revoked in line with the local authority's proposals. If necessary, they will issue a revised designation for the remaining period of the designation or written confirmation that the designation is to be revoked from a specified date. Local authorities will need to ensure that tenants and other interested parties are fully informed.

76. It is also open to local authorities to propose a further designation for up to a maximum of 5 years for all or part of the area that was originally designated. The local authority should undertake consultation before making such proposals and submit information as at paragraph 64 above (the procedure for a further designation is the same as for an initial designation).

Arrears of rent and council tax

77. The 2001 Act inserts a new provision into the 1987 Act (section 61D) entitling landlords to refuse and return a RTB application when certain charges are in arrears and requiring RSL tenants to produce a certificate from the local authority demonstrating that they have no council tax or water or sewerage arrears. This new provision should in no way affect the procedures some landlords already use to ensure the clearance of any outstanding arrears as a reasonable condition of sale.

78. Where the landlord is the local authority and their records show arrears of rent or other tenancy related charges (linked either to the current tenancy or any other tenancy) or council tax or water and sewerage charges in relation to the house or any other houses in that specific local government area, it can serve a refusal notice (under section 68 of the 1987 Act). (This power is not, however, available in connection with any outstanding community charge arrears.) It can repeat this process until such time as it is confident that no such arrears remain. Alternatively, the local authority may disregard any such arrears when an application is received, if it so wishes.

79. Where the landlord is a RSL, it may also refuse an application to purchase if its records show that any rent or tenancy related charges are in arrears. For council tax or water and sewerage charges, if the tenant does not provide a certificate (see following paragraph) demonstrating that there are no arrears or any certificate does indicate such arrears, then the RSL should normally serve a notice of refusal on the tenant. If there are arrears shown, then the landlord should seek the views of the local authority on the way forward. A decision to allow the sale to go ahead where there are such arrears should only be made where the authority is content. If the tenant provides a certificate without arrears, then the sale should proceed.

80. The 2001 Act places a clear duty on local authorities to provide free of charge, on request, a certificate to tenants of RSLs who wish to exercise the RTB giving confirmation that there are no arrears of council tax or water and sewerage charges outstanding or details of any arrears. The certificate can be in the form of a letter signed by an appropriate official containing the necessary details. When the local authority receives such a request from an RSL tenant, they must issue a certificate - free of charge - within 21 days. From the date of the certificate, the tenant then has one month to submit it, together with their RTB application (APP1) form. If the certificate is dated more than one month before the date upon which it is submitted to the RSL, then the RSL should deem it to have expired and request that a more recent certificate be obtained.

81. Under the new provisions in the 2001 Act, landlords can only refuse to sell on the grounds of relevant outstanding arrears at the time of application and not if arrears arise subsequent to this. However, this should not affect other arrears procedures landlords may have in place. (See paragraph 77 above.)

82. As arrears information will come from the tenants themselves or from the landlord's own records, we do not foresee any conflict with the Data Protection Act. (However, local authorities and RSLs may need to revise their current DPA licences as a result of the new information they have to handle in connection with the RTB provisions in the 2001 Act.)

Tenants subject to recovery of possession on conduct grounds

83. Any applications to purchase a house through RTB after proceedings for recovery of possession on any of the "conduct grounds" (as set out in paragraphs 1 to 7 of schedule 2 of the 2001 Act) have been raised, should be rejected and a notice of refusal issued. Where the application is refused, the tenant will need to re-apply if the recovery of possession proceedings are subsequently abandoned or rejected by the court and, in these circumstances, the tenant should be advised accordingly. According to the 2001 Act, proceedings for the recovery of possession are determined when either:

• the relevant notice has been withdrawn by the landlord or expired in line with section 14(5) of the 2001 Act; or
• the court has made a decision on the landlord's request and any appeals have been considered and dealt with.

84. If repossession proceedings are abandoned and the tenant re-applies at a future date, the relevant period when proceedings are ongoing will continue to count towards eligibility and discount.

85. If the RTB application is received before the recovery of possession action has been commenced, then it should continue to be progressed in the normal way, unless there are other grounds for refusal, for example if the tenant has outstanding rent arrears.

Houses liable to demolition

86. A provision in the 2001 Act inserting a new section 70A into the 1987 Act, allows for landlords to seek the approval of the Scottish Ministers to refuse a RTB application on the grounds that the property is earmarked for demolition. The section sets out the procedures to be followed and the considerations which Ministers should take into account in assessing applications from landlords. It also provides a power for the Scottish Ministers to specify by order what information should be supplied by landlords in support of the application.

87. When an application to purchase (APP1 form) is received from an otherwise eligible tenant for a property already earmarked for demolition, the landlord will have one month from receipt of the application to request authority to refuse from the Scottish Ministers. The landlord must have made a clear decision to demolish the house in question, which has been recorded according to its rules and procedures.

88. As specified in the order, landlords must submit the following information in support of an application to refuse:

• details of the house itself, including its address, its type (detached, semi-detached, terraced, walk up flats, multi-storey flat, four-in-a-block and other), size (in terms of number of apartments), its estimated market value and whether or not the house would be affected by the cost floor rules;
• details of the applicant's length of residence and estimated discount eligibility;
• details of the landlord's demolition proposals including:
  • a copy of the relevant minute or resolution recording the decision to demolish;
  • an explanation of reasons for the demolition proposal and why it is considered necessary to refuse the applicant;
  • information on the demolition timetable as it will affect the RTB applicant and any factors which may lead to delay or abandonment of the proposal;
  • details of any consultation which took place with the tenant prior to the decision being taken.

The application should be sent to the Head of Housing Management Branch, Scottish Executive Development Department, Area 1G, Victoria Quay, Edinburgh EH6 6QQ. There may be a need for follow up discussions or contact to clarify particular points.

89. The Scottish Ministers will make their decision in the light of all the circumstances of the case, but they are required by the 2001 Act to: pay particular attention to the period that is expected to elapse before the demolition takes effect; the extent to which the tenant has been consulted about the demolition proposal; the implications for his or her RTB entitlement. Each case will be considered on its merits, but as a general rule the Scottish Ministers would expect relatively small demolition proposals to be implemented in 2 years and larger proposals affecting 100 houses or more to be implemented within 5 years.

90. A decision on the application for refusal will then be taken by the Scottish Ministers as soon as is practicable after receipt of all the relevant information. The Scottish Ministers will aim to make a decision within 28 working days of receipt, providing the necessary information is supplied.

91. Where the application to refuse is successful, the landlord should inform the tenant as soon as possible. The 2001 Act requires that, at the very latest, the decision must be conveyed to the tenant within one month of the date when the proposed refusal was agreed by the Scottish Ministers. If the application to refuse is unsuccessful, the landlord should provide the tenant with an offer to sell within one month of the Scottish Minister's decision to refuse or, if later, within the 2 month period indicated in section 63(2) of the 1987 Act following the service of the initial application.

92. Once a final decision is taken on the basis of the information provided, there is no right to appeal by either the landlord or the tenant. However, the tenant would be free to submit further applications if there is a material change of circumstances, for example, significant delay in, or the abandonment of, the original demolition proposal.

Assistance to tenants to obtain other accommodation (Cash Incentive Schemes)

93. Under section 66 of the Housing (Scotland) Act 1988 a local authority, with the approval of the Scottish Ministers, may operate a scheme to offer grants to tenants who are eligible under the terms of the authority's scheme to assist them to purchase a house in the private sector. These are often known as "cash incentive schemes". The main aim of such schemes under the legislation, as originally introduced, was to help alleviate the problems of homelessness by releasing accommodation which can then be made available for letting to people in housing need.

94. Section 50 of the Housing (Scotland) Act 2001 amends section 66 of the Housing (Scotland) Act 1988 in two respects:

• to allow local authorities to provide grants to RSL tenants in their area (linked to the more strategic role councils will be taking in the future);
• to provide explicit powers for local authorities to establish a cash incentive scheme for a designated pressured area ( see paragraphs 49-76 above ).

Section 50 of the 2001 Act also extends the scope of cash incentive schemes so that assistance can be given not only towards buying an existing house but also towards the cost of buying land and building a house on that land.

95. These new provisions are intended to give local authorities the necessary powers to establish a cash incentive option, if they so wish, as a means of helping to tackle the shortfall of social rented housing in pressured areas. Once a scheme is agreed for any specific pressured area, the local authority will be able to offer a cash incentive to any local authority or RSL tenant in the area and it is not intended that the availability of cash incentives should be restricted to tenants excluded from the RTB. This guidance is concerned exclusively with the use of cash incentive schemes in pressured areas and reference should be made to SDD Circulars 31/1988 and 19/1989 for more general guidance on cash incentive schemes.

96. Before submitting a scheme, local authorities should consult with RSLs operating in the area and other relevant local bodies. The decision to opt for a cash incentive scheme should be taken after carefully considering, through the process of preparing a local housing strategy, various possible ways of tackling housing pressure in the designated area and their relative cost-effectiveness.

97. Sub-section 5A of section 66 of the 1988 Act (as inserted by the 2001 Act) allows the Scottish Ministers to issue guidance on the form and content of cash incentive schemes which would be taken into account in considering whether to approve any such scheme. The Scottish Executive does not wish to be too prescriptive on the precise nature of cash incentive schemes drawn up for pressured areas (or elsewhere), but it would recommend that careful consideration be given to the following points:

• setting a flat rate payment (on grounds of simplicity) for each applicant; (the Tenants Incentive Scheme previously administered by Scottish Homes provided for a payment of £10,000 for each successful applicant and local authorities may want to consider a figure of the same order of magnitude unless there are good reasons locally for opting for a more or less generous payment);
• establishing a test of resources to ensure that assistance does not go to tenants who can afford to buy without help and, equally, that the applicant has the resources to cope with owner-occupation after purchase;
• setting a maximum limit on the price of the house that might be purchased (or the value of the house and land if the self-build option is chosen) to avoid assistance being given for the purchase of relatively expensive houses.

98. When the authority wishes to make a scheme in a pressured area it should submit a draft scheme document and supporting statement to the Scottish Ministers for approval. Local authorities should include the following information in their documentation seeking approval to operate a scheme:

• the date of commencement and duration of the scheme (this should preferably tie into the designation of the area), total expenditure proposed and maximum number of tenants expected to be assisted;
• the amount to be offered to individual applicants and rules for determining eligibility;
• any proposed limits on type of property which would be eligible, for example, a proposed price limit;
• whether it is intended to make grants for extension or adaptation of existing accommodation or for land acquisition and new building;
• confirmation that the scheme will be available to both local authority and RSL tenants in the area;
• arrangements for publicising the scheme and proposals for monitoring the operation of the scheme.

99. An application should be accompanied by a supporting statement of how the scheme fits within the local housing strategy and how the vacancies released will help the authority meet housing need. The statement will need to consider the extent to which needs could be met in other ways, and indicate what effect the scheme might have on local house prices.

100. The funding of cash incentive schemes in pressured areas will be resourced in different ways according to whether or not the local authority has responsibility for development funding in its area. If it has been allocated a strategic "budget" from resources previously controlled by Communities Scotland, then the funding should be found from this budget. If Communities Scotland is responsible for development funding in its area, then the local authority should make a bid for resources for a cash incentive scheme as part of its normal discussions with the agency about future expenditure priorities.

Sales procedure and conditions of sale

101. The procedure in relation to RTB sales can be found in sections 63 to 68 of the 1987 Act. The only changes made to these provisions are those which are consequential on other changes, for example, the requirement on local authorities to provide certificates to tenants of RSLs who wish to apply to buy stating whether they have paid council tax or water and sewerage charges ( see paragraphs 77 to 82 above ) and the abolition of the fixed price option. Annex A gives an outline of the 1987 Act provisions on sale procedures and conditions.

Repeals

Lender of last resort

102. Section 216 of the 1987 Act made provision for local authorities (and certain other landlords) receiving an application to buy to act, in effect, as the lender of last resort in cases where the tenant has been unable to acquire a building society loan. Under this section, the local authority could only refuse a loan application "on the ground that information contained in the loan application is incorrect in a material respect". The 2001 Act ends the obligation placed on landlords to offer such loans and it also repeals the fixed price option in section 67 of the 1987 Act which was linked to the use of this power. However, local authorities will still have the discretion under their general power to provide house loans (section 214 of the 1987 Act), to provide loans for RTB purchasers, if they so wish. Any loans applied for or agreed by 29 September 2002 should be progressed and existing loans will, of course, continue until the loan is discharged.

Rent to loan scheme

103. The various elements of this scheme, as set out in section 62A and 73A to 73D of the 1987 Act are also repealed and the scheme will end when the relevant provisions of the 2001 Act are commenced. However, this will not affect persons already buying through this mechanism and applications received before the commencement of the repeal should be considered in the normal way.

Preserved right to buy

104. Paragraph 13(17) of Schedule 10 of the 2001 Act repeals section 81A of the 1987 Act, which provides that the RTB should continue to apply where a former secure tenant lost his secure tenancy as a result of a transfer of the ownership of the house to a "private sector landlord". This was necessary because a move to an assured tenancy linked to a stock transfer would have, otherwise, removed the tenant's RTB. With the introduction of Scottish secure tenancy there will be no need for tenants to change their tenancies as a result of a stock transfer. As all Scottish secure tenants have an entitlement to a RTB (subject to the various exceptions and limitations set out in the 1987 Act, as amended by the 2001 Act), a transfer of houses from one social landlord to another will not in itself change that entitlement. Part 3 gives more detailed guidance on the circumstances in which tenants subject to stock transfers will continue to be able to exercise the RTB on pre-2001 Act terms and conditions and the implications for tenants whose houses are acquired by RSLs who have an exemption from the RTB on account of their charitable status.

Provision of information

105. Paragraph 13(14) of Schedule 10 of the 2001 Act repeals sections 75A and 76 of the 1987 Act, which set out the information landlords were required to provide to secure tenants. In particular, landlords were required to provide information about the RTB annually. Instead, section 23 of the 2001 Act requires landlords to inform tenants of their rights and obligations under RTB when their new Scottish secure tenancy is being created and when any subsequent changes are made. Landlords are also required to provide SST tenants with details of their RTB on request. (More detailed information on this is given in the linked guidance on the Scottish secure tenancy.) A revised version of the Scottish Executive booklet "Your right to buy your home" includes information on how the RTB will apply following implementation of the Housing (Scotland) Act 2001. Landlords may wish to use this booklet to inform new tenants of the RTB and to help with any subsequent requests.

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