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Second homes: Be aware of local restrictions

Our Head of Commercial Property, James Allen explores the subject of second homes – a hot topic that continues to raise debate, most recently in places such as Whitby and Brighton, where local residents and councils are looking to place restrictions on second home ownership in an attempt to bolster community presence and keep property affordable for local people. At present, some of these actions are not legally binding, but in the case of some former local authority properties there are restrictions that buyers should be aware of before purchasing.

With the twin issues of Brexit and Covid disrupting many people’s travel plans over the last couple of years and potentially moving forward, many of us have chosen to stay closer to home for our holiday breaks rather than buying a villa or flat in Spain.  Many people are looking instead to some of the most picturesque areas of the UK, including Devon and Cornwall, the Cotswolds and of course our very own Norfolk and Suffolk.

Section 157 – what does it mean?
You may be looking to buy property in one of these areas to either use as your own holiday home, or to rent this out to guests.  There is one issue that may not be especially well understood by law firms and estate agents who do not deal with these matters on a regular basis, and that is Section 157 under the Housing Act 1985, which can result in wasted time and effort in a transaction.  In brief, Section 157 restrictions apply to some of the old local authority housing stock that was sold off from the 1980s onwards.  Normally the focus is on any Right to Buy discount and whether this has to be repaid.  Nowadays the five-year period for doing so will have long elapsed in most cases.  Local authorities also have the ability to put Section 157 restrictions on those same properties.

This means that the property cannot be transferred to somebody who does not work or live locally.  This is designed to prevent someone with no connection to the area simply coming in and buying the housing, taking it out of the market for local buyers.  This is normally protected and noted on the Title to the property. However, it has been known to slip through registration and may only be discoverable from an examination of the original conveyance from the relevant local authority.  If you do not meet the criteria, there is no point in trying to continue with the transaction at that stage, as the permission from the local authority is required to be able to successfully register a purchase.  If you complete before obtaining this permission, it could cause issues for your conveyancer and your lender.

I have dealt with many cases involving North Norfolk District Council, which monitors properties in the Norfolk Broads.  You will be required to meet their legal costs for providing consent.  There is no hard and fast rule about who pays this, but it is something you should bear in mind for when you then come to sell, as you should normally look to pay the fees once rather than when buying and selling.  It is worth discussing with the agent and the seller at an early stage.

How do I meet residency criteria?
The local authority will normally ask for proof of residency or proof of work.  If you have evidence of continuous work within the county, either by way of a letter from your employer, pay slips or similar, that will normally be sufficient.  If you have lived at one or more addresses in the county over the previous three years, providing evidence of this will satisfy the residency criteria.  Only one of these needs to be fulfilled, but often there is no harm in providing evidence for both.

Because there is this restriction on who the property can be sold to, this may have the effect of reducing the value, as this does prevent a free sale to anyone who would want to buy it in the future.  If you are having a mortgage, you will also need to be careful in terms of advising your lender that the property has this restriction, as some lenders may not wish to go ahead on that basis.  This is why it is vital that you get legal advice at the earliest opportunity and have your conveyancer speak with your broker or lender at an early stage in the transaction to prevent you from accruing unnecessary costs.

Some frequently asked questions surrounding holiday and second homes.

  • So how do I check to see if the property I want to buy has a restriction?

Normally the estate agent should list this on the sales particulars, and agents who are local to the area should have a good working knowledge of which properties are likely to have the restriction – and of course in many cases the seller will provide this information. However, you can’t always guarantee that this will be the case.

  • Will the Land Registry hold this information?

Yes and no, unhelpfully. Yes, in the fact that the title should have a note restricting the ongoing sale in certain circumstances. However, from experience this does not always get included on the register and a review of the original Right to Buy conveyance will be required. If this is the case, then we can also ask the Land Registry to update the title.

  • Is the process to confirm the suitability of a new buyer time consuming or expensive?

If this issue is addressed early in the purchase process, the local authority should be able to confirm you are a suitable buyer once they have payment for their legal fees and proof of your residency or employment from the last three years.

  • Should I buy a property like this?

This would be something we can advise on if you instruct us to deal with the purchase. However, you may have difficulties obtaining a mortgage even if you meet the purchase criteria. You would also have a restricted pool of people to sell to in due course, which may mean you can’t sell the property as quickly as other similar properties. However, we would aim to ensure that you have enough information to make an informed decision and to be aware of the risks.

If you are interested in buying a property that you think may have a restriction, please contact our expert property teams for advice.  The Commercial Property team can support acquisitions where you are buying through a company, whereas our Residential Property team will help with purchases where you are buying in your own name. Please call us on 01603 620508 or email the teams directly – commercial or residential.

This article was produced on the 30th June 2022 by our Commercial Property team for information purposes only and should not be construed or relied upon as specific legal advice.