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Section five: Owners wishing to increase their equity stake
5.1 In the majority of cases, an owner will have the option of increasing their equity stake after the initial purchase to 100 per cent. In certain circumstances however, such as in areas where there is a constrained supply of affordable housing and limited scope for this supply to be increased, the Scottish Ministers may be allowed to retain a 20 per cent equity stake in the property, known as a 'golden share'. The golden share will generally be used in areas where there are fewest opportunities for supply to be increased - in particular some rural areas.
5.2 The Scottish Government will agree any areas for operation of the golden share with each local authority. The retention of a golden share is secured through the Shared Equity Agreement as provided for in Annexe A.
5.3 An owner must wait a minimum period of two years after the initial purchase before they can increase their equity stake in a property to 80 per cent (or beyond and up to 100 per cent if there is no golden share). Any subsequent equity stake increase can only take place if there is no golden share and should be at least one year after the date of the initial increase. This must take the owner to 100 per cent. The table below illustrates how this could work in practice. It uses two examples: one where the Scottish Ministers retain a golden share; the other where there is no golden share.
| Example 1 The Scottish Ministers retain a 'golden share' | Example 2 The Scottish Ministers have no 'golden share' |
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Initial equity stake taken by an owner. | 65% | 65% |
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Permitted equity stake increase (to at least 80 per cent and allowable a minimum of two years after the initial purchase). | 80% | 85% |
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Final permitted equity stake increase (to 100 per cent and allowable a minimum of one year after the first equity stake increase). | Not applicable | 100% |
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5.4 An owner can increase their equity stake regardless of whether the open market value of their property has increased or decreased. The open market value of the property will be determined by the District Valuer or such other professionally qualified valuer as agreed between the Scottish Ministers and an owner. The valuation will reflect any improvements carried out to the property by an owner but will disregard matters such as lack of vacant possession, any breach of an owner's obligations, any security or other encumbrance, and any reduction in value caused by adaptations carried out to meet the needs of a disabled person.
5.5 The procedure to be followed when an owner wants to increase their equity stake can be summarised as follows:
- the owner must write to the registered social landlord advising that they wish to increase their equity stake to a certain level, thereby requiring the registered social landlord to instruct a valuation of the property;
- the registered social landlord must write to the owner with details of the valuation within seven days of receiving it;
- the owner will pay the registered social landlord for the cost of the valuation on demand;
- the owner has three months to increase their equity stake from the date they receive notification from the registered social landlord of the valuer's valuation;
- as soon as the equity stake increase takes place the existing legal documentation must be amended; and
- within one week of the equity stake increase having taken place, the registered social landlord must complete the form at Annexe G and send it to the grant provider. This allows the grant provider to raise a request for the receipt of sums obtained by the registered social landlord, as this receipt must be repaid to the Scottish Ministers in terms of the grant offer.
5.6 There will be no means testing of owners following the initial purchase. Registered social landlords must therefore recommend to owners that they take independent financial advice before increasing their stake in a property.
5.7 An owner will be responsible for meeting all costs (including those incurred by the registered social landlord) when increasing their equity stake.
5.8 Annexe H illustrates how a financial reconciliation would work when an owner increases their equity stake from an initial 60 per cent to 85 per cent and then from 85 per cent to 100 per cent. Although this example uses a property in a Type 1 project, the principles set out therein would apply equally to other types of project.
5.9 Receipts generated when owners increase their equity stake - or sell their property (see section 6) - will be recycled corporately into the Affordable Housing Investment Programme. Recovery of overpayment of grant calculated at HAG/ PC stage will be recycled locally.
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