Repayment of right to buy discounts

A tenant who completed a purchase under the right to buy before 18 January 2005 had to repay some or all of their discount if the property was sold within the first three years.

If the property was sold during the first year after the purchase, the whole of the discount had to be repaid; if it was sold in the second year, two-thirds of the discount had to be repaid; in the third year, one-third had to be repaid.

These rules also apply if the property was repossessed.

After three years, they could sell without repaying any discount.[1]

Tenants who completed a purchase under the right to buy on or after 18 January 2005 usually have to repay some or all of their discount if the property is sold within five years of purchase. In addition, the discount is calculated using the market value of the property at the time it is sold.

If the property is sold within the first year of the purchase, the whole of the discount usually has to be repaid; if it is sold in the second year, four-fifths of the discount should be repaid; in the third year, three-fifths; in the fourth year, two-fifths; and in the fifth year, one-fifth.

These rules also apply if the property is repossessed.

After five years, the occupier can sell without repaying any discount.[2]

The Your right to buy your home guide explains how the repayment amount is calculated.

The landlord has the discretion to decide that the discount does not need to be repaid at all, or that the amount to be repaid can be reduced.[3] This could happen, for example, where the tenant is suffering from genuine hardship.

The discount does not have to be repaid if the property is:[4]

• sold to a spouse, former spouse, civil partner, or former civil partner

• sold to a family member[5] who has been living with the owner for the previous 12 months

• disposed under a will or on intestacy

• disposed by court order in the course of domestic breakdown proceedings or on death[6]

• disposed to a public authority under compulsory purchase powers, whether or not the purchase was in fact compulsory or by agreement, and whether or not the purchase was for the benefit of the authority itself or on behalf of another body[7]

However, the new owners of the property may have to repay all or some of the discount if they sell the property within the original relevant period, and may have to offer a right of first refusal to the local authority.

If the tenant has made any improvements to the property, the cost of these should be deducted from the amount they have to repay.[8]

Tenants who purchase a property under the right to buy on or after 18 January 2005, and who sell the property within ten years of purchase, must first offer the property to the local authority or another social landlord in the area before putting the property on the open market.[9] This is known as the right of first refusal.

If the landlord agrees to buy the property, it should pay the full market value, which should be agreed between the parties. If a price cannot be agreed, the case will be referred to the local district valuer to decide.

If the landlord does not accept the tenant's offer within eight weeks, the tenant is then free to sell the property on the open market.

Local authorities can impose restrictions on future disposal of properties bought under the right to buy scheme, if they are situated in:[10]

• a national park

• a designated area of outstanding beauty

• a designated rural area

If a local authority has imposed such restrictions, such properties cannot be sold or let without the prior written consent of the authority.

However, the authority must grant consent if the disposal is made to someone who has lived or worked in the area for at least three years.

Local authorities in designated rural areas can also specify that property being sold within ten years of exercising the right to buy should first be offered to the local authority, which would pay the seller the open market value of the property

Finance companies may offer to purchase the property from a tenant who has exercised the right to buy, allowing the tenant to remain in the property, either paying rent to the finance company (usually a higher amount than the rent they were paying as a social tenant) or allowing the tenant to live rent-free provided the property is handed over to the company following the tenant's death. These schemes are known as deferred resale agreements, and may be offered to tenants who are in financial difficulties or as an attempt to avoid repayment of the discount.

Schemes enabling the tenant to live rent-free until their death are usually offered to older tenants in return for a lump sum or a monthly income.

If a home bought under the right to buy is sold under a deferred resale agreement within the discount repayment period, the relevant amount of the discount still has to be repaid.[11] The date that the resale agreement was entered into will be the date used to calculate how much discount should be repaid.

Tenants considering entering into a deferred resale agreement should seek specialist legal advice.