Shared Ownership Reversionary Interest Portfolio Transactions – Tips to Make for Smoother Deals

Overview

If more investment into the affordable housing sector is needed and for-profit registered providers (FPRPs) and investors are the ones willing to invest, then shared ownership reversionary interest portfolio transactions (SORIs) are going to continue to be big business during the rest of 2023 and 2024. Here are our top tips for managing a successful SORI transaction:

1. Preparation is key – build in plenty of time for preparing for such a transaction

New build (less than 10 years old) – think about warranties and construction information required, as building safety issues are taking longer to address now and standards and requirements of differing counterparties vary, plus we are in a fluctuating regime.

• Plans of part – part estates, part buildings – you need time to prepare these properly.
• Any management information that is needed by an investor may be more detailed than an RP has readily available. How is the shared ownership stock managed? Get all your information together early.
• S106 reviews – check for any local authority consents that may be needed. This may be because the S106 explicitly requires consent or just because the definition of the RP/RSL/approved RP/affordable housing provider may not have envisaged a FPRP eventually owning the stock and therefore need approval for them to fall under the defined term. They may also need comfort and explanation about whom the investor is and what they intend to do with the properties.
• Maximise the value of your stock by ensuring that you complete a property health check of the portfolio well in advance of the disposal.

2. Relationships

• Is this a one-off transaction, or will there be further phases or a pipeline of sales between the parties? If there is a longer-term plan, then consider a strategic arrangement between the parties to govern deals going forward.
• There may be benefits in partnering with the investor or at least working together in a clear way regarding finding opportunities, development of new homes and management services. It’s important to have good, clear documents in place and detailed, clear heads of terms.

3. Get your structuring right at the outset

• What is being sold? Whole block or pepper-potted units in the block?
• Block within an estate – think about common areas and items such as central heating pumps, bin stores, stairwells, garages and parking spaces.
• Part of a block – mixed tenure may need an intermediate lease inserting between RP and investor above the shared owner. This needs to be one on a unit-by-unit basis because of stair casing – this is time-consuming.
• RP leasehold property may need to be assigned, and this may either not be allowed by the lease or need consent of the landlord.
• Most large portfolios consist of a bit of everything!

4. Think about the management arrangements post completion

• Price, term, what are the main KPIs and services to be provided, and who is responsible for costs?
• Landlord and Tenant Act 1985 – requirement to consult residents in certain circumstances (residents in occupation and variable service charge seeking to recoup the costs of management from the residents) on change of a manager.
• Employees.

5. It’s a team effort!

• Everyone is involved from the initial gathering of the data on the portfolio, to the development team, to treasury and finance, to HR to management and service charge teams. You will need buy-in, so share your plans, explain what you are trying to achieve and keep people focused and engaged with the project.
• Shared ownership reversionary interest portfolio transactions (SORIs) will remain robust in affordable housing through 2023-2024, fuelled by for-profit RP and investor interest. Effective SORI transactions require meticulous preparation and thorough planning is crucial, necessitating comprehensive data for investors. S106 reviews are pivotal for local authority consents, and alignment with evolving terms and pre-emptive property health checks will enhance a portfolio’s value pre-disposal. Strong relationships, upfront structuring, post-completion management planning, and collaborative teamwork will significantly impact a SORIs success.