CPO - a different Business Case scenario
My manager has asked me to research a novel way of using the Compulsory Purchase Order process to re-use neglected long-term empty homes. We are not sure if it is a workable scheme and there are risks involved, but I wonder if anyone else has looked into this before and either gone ahead with the scheme or discarded it?
The proposal is to CPO a property, then following the purchase, to use one of our partners to renovate the property. The council then may sell the property hopefully at a profit and the idea is to then plough all this money (less costs like legal charges, public inquiry etc) back into CPO'ing the next and subsequent empty properties. Personally I can see this is fraught with financial risks with the council standing either to make large losses (or gains). Another minus factor to this is that I am an empty homes officer and not a property developer, so have no experience of buying/repairing/selling property. I am well aware that during the current housing slump many builders and developers with long-experience of their trade have lost lots of money on buying, doing up and selling, so this whole thing makes me quite nervous.
Please let me know your comments. Thank you.
Lynne Campbell, Empty Homes Officer, South Lakeland District Council
Empty.Homes@southlakeland.gov.uk
- Forums
LA - Developers
Hi Lynne
What I would say is that a voluntary purchase will always be more cost effective than pursuing a CPO.
If you pursue a CPO, then the following costs will be incurred.
Most of the above are costs the LA cannot recover through the CPO process.
Therefore, before you make any profit you will have to cover the above.
If you can do a voluntary purchase you can avoid most of the costs other than the valuation, stamp duty and what you pay for the property.
You can always make a below market offer to the owner, if it is a voluntary purchase (Moral vs Business Sense).
We have previously bought properties from owners by obtaining an independent RICS valuation and offering 85% of what he/she suggests.
They know this from the start and we are upfront in giving them a copy of the RICS report .
They don't pay estate agents fees and have an immediate sale, which can be attractive to the owner in certain circumstances (not usually their main home/second proeprty).
We also offer them reduced auctioneer fees, if they want to sell it privately at auction.
It is my experience that LAs are not generally set up to be effective developers.
Primarily, due to the level of bureaucracy , the ability to make a timely decision, the risk adverse nature of LAs as well as too many fingers in the pie.
It can work well if the LA is willing to take risk and there are people who have experience and manage the risk appropriately.
Can be useful if you want to buy a property to provide training (College, Apprentices, Probation etc - cheap sweat labour - which can help the scheme stack up)
The only other factor is the timescale, what do you want to do with the property after you have bought it / renovated it.
If you want to sell and release the monies to move onto the next development, you have to be mindful of the current market conditions.
The property may not sell for a significant period of time (is that acceptable); can you rent it out in the short term with a view to selling in a few years?
If you rent it out do you create a secure tenancy and not an assured shorthold tenancy?
All I would say is ensure that you choose the right property where there is a profit to be made.
Remember the old adage, you don't make money when you sell the property, you make money when you buy the property (at the right price).
Regards
Andrew Lavender