Bringing Private Investment to the Assisted Living and Supported Living Sector
Frequently Asked Questions
Answers to questions on how do assisted living investments work and what are the risks
A series of questions that are commonly asked by investors, covering the following topics:
What is supported living?
Supported living services enable people with a range of needs to live happy and fulfilling lives, independently and safely in their local communities. When a person goes into supported living, they have their own home with their own tenancy agreement. At the time, they receive support and care which can range from a few hours a week to one-to-one care 24 hours a day. Many people with learning disabilities, severe autism and other needs, require some level of support, so that they can maximise their independence and live the life that they choose. A supported living service can help if someone who does not want to live in residential hospice care but would find it difficult to cope on their own at home. Supported living helps people to make choices about how they want to live and allows them to keep doing the things that are important to them.
What is the predicted state of the supported living accommodation industry for the foreseeable future?
A growing demand and shortage of property in the market will remain a fixture for the foreseeable future. The local authorities are bursting at the seams with vulnerable adults being housed in hospitals, hostels and hotels, which is costing the government an inordinate amount of money whilst simultaneously failing the vulnerable adults by providing them with inadequate care.
What is the expected occupancy in 2023/4?
Occupancy levels in this industry remain at 100%. At the time of writing there is a queue of over 600 vulnerable adults awaiting accommodation with Yale, the community benefit society responsible for housing these vulnerable adults.
Can the owner self-use their property or change the use from a supported living accommodation property?
No the tenancy agreement does not allow self-use. It is unlikely that an investor would want to self-use after the lease agreement expires and walk away from such a high income whilst living in a development filled with vulnerable adults, unless they themselves had become vulnerable. Professionally speaking that would be the only exception.
Who or what is the competition for this product?
Other providers of supported or assisted living accommodation. What is the role of Yale Housing Association? Yale is one of the UK's largest and most reputable housing associations. Yale Housing Association is a registered Community Benefit Society and is registered and monitored by the rules of the FCA. Their sole intention is to provide safe, accessible, quality accommodation and support services tailored to meet the individual needs and desires of each vulnerable person they house, enabling their patients to lead independent and fulfilling lives. They are the responsible tenant on the lease agreement.
Which party is responsible for the property insurance?
Yale Housing Association is responsible for insuring the property. 1 The information within this document is merely for educational and informational purposes. It is not intended as a substitute for professional advice. While the information has been verified to the best of our abilities, we cannot guarantee that there are no mistakes or errors.
Will this property have insurance in place to protect against unforeseen acts of God?
There is insurance in place by the developer and also the tenant in the form of a FRI lease (Fully Repaired and Insured lease). Flood damage for example is covered. The building structure is covered etc.
Who is responsible for managing the development communal areas?
Watsons Property Management Glendevon House, 4 Hawthorn Park, Leeds LS14 1PQ T: +44 (0)113 273 8788 W: watsonpm.co.uk
Can the property be sold anytime?
The property can be sold at any time after 36 months, which is when the buy-back agreement expires.
Why is there a buy-back option?
There is a potential opportunity for the developer to re-sell the development in an aggregation deal to an institutional investor such as Aviva or Canada Life. They typically purchase clip sizes of $20-50 million annually.
If the 3 years buyback provision is exercised by the developer, what is the appropriate amount of expense involved in such a transaction?
All legal charges etc. are paid for by the developer. There is no cost to the owner.
How will the buy-back option work?
The buy-back option is legislated in a separate contract to the contract of sale. It determines that , if within three years, the seller or a purchaser which the seller introduces, offers over 30% of the original purchase price, then all owners within the development would be contractually required to resell back to the developer. The profit above 30% is shared equally 50/50 between the owner and the developers side.
What is an aggregation?
This is the bringing together of several different blocks of property and aligning them in a larger deal, that are then sold in a group (usually to a pension fund) to benefit all owners.
Is there a recent example of an aggregation being effected?
The Vendor has completed a number of similar deals with Canada Life. A recent example was at a 3.25% capitalized yield. See the link below: www.canadalifeassetmanagement.co.uk/press-releases/canada-life-asset-management-announces financing-agreement-for-specialised-supported-living-portfolio/
What is yield and how does this affect the value?
The yield is a percentage and is calculated by dividing the annual rent payable by the purchase price. The yield in this example is 10.00%. For example, with a property purchased for £175,000, the annual rent is £17,500. If this supported living property is purchased by an institution in an aggregated deal at a yield of 3.25% then the value of the property would be uplifted to £538,461.538 (£17,500 divided by £538,461.538 = 3.25%). This would result in a value increase to £363,461.54 which would then be shared in the manner explained above. The 30% increase is paid direct to the buyer, then any overage is split 50/50 between the owner and developer. In this example the owner would receive the initial increase of 30% at £52,500 and then 50% of the remaining overage: £155,480.76. Thus, bringing the owners’ total profit to £207,980.77.
What happens if the buy-back option is not triggered within the three years?
The developer will do everything in its power to form an aggregation, as this is the most profitable outcome for all parties. However, if this does not occur, every unit will continue to receive its 10% net rental assurance for the term of the 25-year lease. Furthermore, if the buy-back clause is not triggered then the property will be available for resale, finance or transfer of ownership under whichever conditions the owner determines.
If the property is sold in the market instead of the buyback provision, is the new buyer required to sign another agreement with the housing association, or anyone else?
If the property is purchased with the accompanying agreements in place, it would be reassigned. upon sale with the balance of the existing lease continuing.
How does the 25-year management agreement affect the value of the property?
The 25-year management agreement means that the property can be commercially valued against the yield, as a result they are worth at least the value of the sale price. If equated, a recent valuation of a property in a similar deal shows units valued at a 7% yield, bringing the property bought for £175,000 to a sale price of £185,714.
Who is the freeholder of the property?
The freeholder of the building is the developer (TIR), who are currently and will continue to be responsible for maintaining the buildings externals, such as the roof.
Who is the head lease holder?
The head lease holder is the developer, The Investment Room and The Letting Room (TIRTLR Ltd)
Which company is providing the lease and the supportive living for tenants?
Yale Housing Association - a charitable not-for-profit Community Benefit Society company who provide safe supportive and sustainable housing to vulnerable adults. Their supported accommodation is for people who need care and supervision in order to manage their tenancies.
What is a Community Benefit Society?
Community Benefit Societies (CBS) conduct business for the benefit of their community. Profits are not distributed amongst members or external shareholders but returned to the community. It is registered with the Financial Conduct Authority (FCA) and owned by the members. It is established for the benefit of the community and not of its members. A CBS must be established with a social or environmental objective. In this case, supportive housing. Importantly, a Community Benefit Society must have an ‘asset lock’. This is a rule stating that if the society is dissolved, any residual assets or contractual obligations must be transferred to another charity with the same or similar charitable purposes.
Has there been any history of default, delinquency in rental payment in the past?
None.
What is a FRI Lease?
A full repairing insured lease (FRI Lease] is a lease in which the tenant takes on all of the costs for repairs and internal insurance for the property being leased from the landlord.
Does this mean that Yale will furnish the flat and refurbish it once the 25-year management agreement finishes?
Yes, a schedule of sale and in an inventory will both be registered upon sale. The property will be fully furnished by Yale to provide the necessary facilities for care. Then, after the 25-year management agreement expires, Yale are contractually required to return it to its original condition.
What are the main terms of the Lease?
It is a fully repairing lease (FRI) which rises in line with the Consumer Price Index (CPI) plus 1%, reviewed on an annual basis. If the CPI moves in a negative direction the rent will remain the same. This is known as ‘cap and collar’. There is a 5% ‘cap’. The vulnerable adult living in the property is protected, irrespective of a change of the tenant (Yale) or a change in government policy/government or a change of landlord.
What is the Consumer Price Index?
(CPI) A comprehensive measure used for the estimation of price changes in a basket of goods and services, representative of consumption expenditure in an economy, is called Consumer Price Index. It is commonly used to measure inflation.
Who pays the service charge?
The service charge of the building is paid in full by Yale.
FINANCIAL / RISK REVIEW
Please provide materials to show the Tenant has sufficient capital.
This information will be provided upon request, after signing an NDA.
Under which circumstance could the property be void of a tenant?
Whilst this has no effect on the assured income, of course tenants can change occasionally. It is widely acknowledged that this spectrum of vulnerable adults rarely relocate, hence the requirement for a long lease by the housing association.
Can the assured rent be reduced for any reason?
No, for all current Supported Living accommodation the long-term lease is CPI linked and reviewed annually. The ROI is floored at the original level and so it can never drop below the initial agreed amount.
What comfort do I have that my returns will be paid?
Rents are contractually paid automatically by the Department of Works and Pensions to Yale Housing Association who are charity registered as a Community Benefit Society (CBS) with the HMRC as well as being registered and monitored by the Financial Conduct Authority (FCA). A non-payment could result in Yale losing their status as a CBS.
What are the costs/outgoings of running a Supported Living apartment?
Costs include service charge, ground rent, insurance, maintenance. All such costs are contractually borne by the tenant in the lease agreement.
Will the investor be liable to pay any additional costs on an ongoing basis?
No. There are no additional costs to pay associated with the property from the Housing Association Operator. This is contractually written into the Management Agreement.
How are the supported living properties valued?
Supported living properties are typically valued based on a combination of factors, including location, size, condition and most importantly, the rental income potential. Valuations may also take into account the specific features and facilities that support the needs of individuals with disabilities or other support requirements. Additionally, market conditions and direct comparable property sales in the area can influence the valuation. It's best to consult with a qualified property appraiser or real estate professional who has experience with supported living properties to get an accurate valuation.
What are the contractual terms of the lease agreement that I should be aware of before I commit?
Rents are reviewed annually in line with the Consumer Price Index (CPI). The rent is paid monthly in arrears by Yale Housing Association. The Term is for 25-years. Can the property then be used for personal use at the end of the contractual agreement? The property is located within a purpose-built development, designed with vulnerable adults in mind. It is not available for personal use at any time. At the end of the 25-year lease, the investor will have the option to extend and renew the lease with the same provider for 10-25 years. It is in the best interest of all parties to renew the lease, in terms of the premium rent on offer as well as for the care provider. Should the owner qualify for care, it could be occupied for self-use.
How are the monthly rents calculated for supported living properties?
There is no set calculation. Supported living properties benefit from being government exempt rent agreements which are generally higher than that of standard tenancies. Rents and ongoing costs are determined by a Housing Officer and the care provider appointed by the local housing authority.
By how much do supported living properties increase in value over time?
Since Supported living property is classified as a quasi-residential property, the capitalisation (or income) approach is used to determine the value. Typically supported living properties will at least double in value every 10 years.
Are there any estimated valuations on the unit(s) from an independent source?
There are several companies that trade supported living accommodation and they would advise you of their professional opinion of the saleable value of the property.
Is there any protection for the investor if the housing association fails pay the 10% net return?
Yale is a not for profit Community Benefit Society (CBS) and they are registered with the Financial Conduct Authority (FCA). The FCA has a ruling relating to Consumer Duty in their legislative white paper ‘Payment Services Regulations 2017’, which sets higher and clearer standards of consumer protection across financial services and requires firms to put their customers’ needs first. It is further regulated by the Co-operative and Community Benefit Societies Act 2014. Any such misappropriation or misuse of funds would need to be notified to the FCA and the appropriate ruling would swiftly be actioned resulting in immediate compensation to the owner.
What is the investment risk?
If the client agrees to the purchase there is no risk to the owner as the income is ultimately guaranteed by law in the form of a tenancy agreement paid by the Department for Works and Pensions (DWP). The tenant is secured and is also protected from changes in government or legislation by law (Section 117). A possible risk to the property not being occupied might be due to a pandemic during which te existing tenant passed away during a government order to restrict people relocating. Other reasons may be related to terrorism, economic or acts of God, none of which is likely nor realistic given historical comparative evidence from market conditions and experience from the Covid-19 period across the UK, during which all rents for these types of dwellings were honoured.
What are the penalties if the developer cannot complete the property on time?
All properties are only marketed and sold once completed, furnished and with a signed tenancy in place.
What are the penalties if the housing association doesn’t pay the rent to me on time?
There are no contractual penalties for such a scenario. Rents are issued by the DWP to the Housing Association who in turn pay the landlord.
What happens if housing association goes bust or cannot pay my returns?
Importantly, a charitable Community Benefit Society must legally have an ‘Asset Lock’ clause in their contract with the Housing Authority. This is a rule stating that if the society is dissolved, any residual assets or contractual obligations must be transferred to another charity with the same or similar charitable purposes, and approved by HMRC and registered with the DWP. If for any reason the housing association goes bust a Protected Tenancy is in place. Experienced industry auditors are appointed to find a replacement housing association (called a Transfer of Stock). The tenant cannot be removed. Unless the housing association (carer) company is bought by another institution, it would be removed. The landlord is issued with a letter explaining the change, confirming lease and rents will all be honoured by the DWP and the lease is transferred to the new housing association.
CONSTRUCTION
Which construction company is the developer of the property?
The Investment Room is the developer.
In case the property experiences a structural deficiency or collapse, say due to a natural disaster, who is responsible for the loss? Insurance company, Yale Housing Association or the owner?
(An insurance policy by) Yale Housing Association would be responsible. A 10-year build warranty also exists on all new properties covering structural issues.
FINANCING
Is there a financing option available?
Financing is possible after the buy-back contract expires. If finance is required, consent to let to a supported living provider on a commercial lease is required from the lender.
What other funding options are available?
There are many specialist finance brokers who are able to help you access compliant alternative lending options.
LEGAL / SECURITY
What’s the address of the head office and business registration number of Yale Housing Association? 21 Hare Hill Road, Littleborough, England, OL15 9AD Business Registration No.: 09707430
Can we show complete transparency with the company ownership, subsidiaries etc.?
Yes, all information on the Yale Housing Association and subsidiary companies are accessible via a signed NDA after which access to the Data Room will be provided.
When will the buyer be required to sign the Management (rental guarantee contract) Agreement?
At the point where a sales and purchase agreement is signed. At the same time, the Management Agreement and Buy Back Agreement is signed as well.
Can the contract between Yale Housing Association and the local government housing authority be provided?
Yes. Our Due Diligence letter provided by our UK Solicitor states that an agreement exist and is in place. Your legal representative will confirm the same.
Where will the buyer’s funds be held before completing?
The reservation deposit is held by the seller’s agent until completion funds are received by your appointed legal representative.
Are there any restrictions or terms to resell?
There are restrictions on selling within the first 36 months. Thereafter, Yale Housing Association needs to be informed. This is performed by the seller’s legal representative.
Is a solicitor needed for the purchasing process?
Whilst it is not a legal requirement for cash purchasers, we advise you seek legal advice.
Are there any reference or credit checks available for the tenant?
Yes, in the form of a solicitor’s reference letter and 3-year audit accounts for Yale Housing Association and this information may be accessed after an NDA has been signed.
Regarding the property, is it a freehold or leasehold?
The properties are all leasehold. Usually, a 125-250 year lease is provided.
Can I terminate my rental contract with Yale Housing Association at any time?
No.
In the UK, do they sell these units as a real estate product or as a financial instrument?
The property is sold as specialist real estate in the UK.
Who is paying my returns? Which company receives the return and which company pays the returns to me?
A government body called The Department for Works and Pensions (DWP), which is a department of HMRC, is responsible for rental payments. It is paid to the owner via the Community Benefit Society (Yale Housing Association).
TAX
Is there VAT applied to my purchase?
There is no VAT applied to the purchase.
What are my Stamp Duty responsibilities as an (overseas) investor?
Stamp Duty Land Tax (SDLT) applies to all buyers, irrespective of location, and is payable upon completion. Overseas investors will pay 5%.
Who pays the property taxes?
The buyer will pay any income and CGT taxes due. There is no Council Tax payable.
Is there any withholding of the 10% net return from overseas investors?
Overseas investors should complete a non-resident landlord NRL1 form with HM Revenue & Customs, which will enable all returns to be paid in full. Without the NRL form, payments may be subject to a 20% withholding for tax purposes.
Is there any tax implication for overseas investors in terms of income and capital gain?
Generally speaking, investing in SL is no different from investing in any other property. Tax implications are personal on a case by case basis and depends on the purchaser's tax position. Please seek advice from a UK tax advisor for confirmation.
OWNERSHIP / STRUCTURE
What is the investor’s legal ownership status?
Investors are granted full ownership of the property in the form of a Title Deed issued by the HM Land Registry.
Can a supported living property be purchased by a UK limited company? Yes, many of our clients choose this option should it suit their portfolio requirements. We can assist with recommending a company to assist and guide you through the process of setting up a limited company. The process is efficient and can be completed within 3 working days.
What are the advantages of buying a supported living property by setting up a limited company?
Getting the ownership structure right could make a huge difference to the amount of tax you pay. Whilst it might not suit everyone, in the past 5 years the majority of investors will purchase through a limited company structure. The reasons are many, but mostly related to tax savings. If you’d like to seek advice from a reputable company with a sound knowledge of the supported living investment proposition, please ask.
Can a property of this type be purchased as part of a pension?
Yes, a SASS pension company structure can be used to fund the purchase of a supported living property.
Can a buyer purchase more than one property and is shared ownership an option?
Yes, our model allows buyers to purchase any number of properties. Shared ownership is allowed.
Can the property be passed to future generations?
Yes, supported living properties can be executed by a will, gifted or inherited.
Can an overseas investor purchase a supported living property?
Yes, many of our investors are from outside of the UK and are looking for a secure income-generating asset in the UK. Non-UK residents are required to complete a simple Non-Resident Landlord form (NRL1) to register their ownership and income with HMRC. Our after-sales team is on hand to assist with this process.
What are my exit options?
At any point after three years, owners may sell their property through a plethora of available channels. A strong secondary market for supported living accommodation exists in the UK and a large number of housing associations, charities and niche supported living (SL) resellers are actively pursuing SL accommodation.
PURCHASE PROCESS
Please provide a timetable (end-to-end process) from complete reservation forms to completion of the transaction.
The whole process should take no more than 28 days.
• Reservation form submitted and a reservation deposit is paid.
• Buyer prepares AML documents – one photo and one address proof.
• A Memorandum of Sale is sent to all parties involved and their legal representative.
• Contract documentation issued to buyer’s solicitor within 72 hours. • Buyer’s solicitor conducts AML check – will be done virtually through Thirdfort.
• Lawyer completes conveyance process of local searches etc.
• Contract pack and report issued to buyer with a report and request for source of funds.
• Buyer signs contract documents and sends funds.
• Exchange and completion can take place simultaneously.
• Hand over to Yale.
Returns are generated immediately and paid monthly in arrears on the first day of each calendar month..
What Sales Reservation forms and AML/KYC reviews are required?
A standard Reservation Form is required along with the usual supporting documentation. A copy of the buyer’s passport, proof of address and source of funds (for example, employment, savings).
Can an inspection be arranged before closing for the buyer?
Yes, this can be arranged upon request.