FAQ

What’s to stop members selling their houses?

All homes will be owned by the Housing Co-operative, rather than individual tenants, so they cannot be sold on. Our fully-mutual, par value corporate structure means that the Co-op is governed collectively by its tenants, who have equal, non-withdrawable membership shares of just £1. Assets cannot be divided among individual shareholders and there will be no equity loss as tenants move in or out. Surpluses can only be used to improve and develop the Co-operative, not to enrich us.

Does it matter that you will have created a lot of equity in the project that you can’t take with you?

This housing model allows us the flexibility to end our tenancy if we choose to, but also offers the security we need to settle-in long-term. There is an incentive for us to stay long term to take advantage of low rents (thereby enabling us to save money for other purposes) and collective control over the development. Our tenancy agreements contain a succession clause that guarantees our dependants are entitled to the tenancy should they wish to inherit it from us.

Won’t there be an incentive to change your Co-op into a regular business and divide assets between you?

Unlike a Limited Liability Company, there are legal constraints on what can happen to our collective assets in the event of unincorporation. The Model Rules on which we operate and are registered with the Financial Conduct Authority do not allow de-mutualisation and stipulate a maximum share entitlement of £1, voluntarily ‘locking’ the Co-op’s assets away from the reach of individual members.

When does the money actually change hands? Do we have to wait until you have pledges up to or in excess of your target? What happens if you don’t reach that target?

No money will change hands until the ‘issue closing date’, unless there is an agreement by both parties. This is the date that our loan agreement will come into effect. If we don’t raise the amount needed by then, we may consider extending the issue closing date.

If loanstock were our sole source of funding for phase 1 of the project (land purchase, pre-development), we would need to raise at least £160,000. If we raise the remaining £90,000, this will give us a head-start on phase 2 funding by allowing us to make a deposit on a self-build mortgage. We have two mortgages under serious consideration: one from Triodos Bank (with whom we already have a business account), who offer a retroactive discount on interest rates when their self-build mortgages are used to build certified Passive houses; and another from the Ecological Building Society.

We ask that any money offered to us before the issue closing date be on terms that allow for a repayment ‘grace period’ in line with this date (e.g., that a loan offered two months in advance have at least a two month grace period specified in its loan agreement documents). It will make our accounting unnecessarily complex if we keep track of a different anniversary date for each loan (for the purposes of calculating interest obligations and repayment schedules).

How much money are the members of the co-operative putting into this themselves?

Members are also pledging a significant amount of loanstock. Investors will not become governing shareholders according to their proportion of loanstock; tenants continue to be equal shareholders in the Co-op, regardless of how much money they have raised. Members who give loanstock will contract and be repaid in the same way as other investors.

Are any members of the co-op being paid for the work they do toward the project?

No. Current members are sufficiently incentivised by the nature of the project.

Will the loan be secured against the land (as it would be for a mortgage) or is the loanstock completely at risk should the project fail for some reason?

Our self-build mortgage provider will likely stipulate that the land stand as security for its loan. Loanstock is partially secured against the value of any assets owned by the Co-op remaining after the bank has been repaid.

Will loanstock be repaid only after the houses are occupied and rent is being paid? What happens if investors want to get their money out before that? How will you repay investors who lend money for 3 or 5 years if the build is not complete then?

Investors wishing to withdraw their money before the date set out in the loan agreement can certainly ask us if this is acceptable, and we have a policy of allowing early repayment wherever our finances will allow it. We will limit the value of short-term loans we accept to ensure that we have a two-year ‘grace period’ in the case that limited rents have been collected before repayments are due.

The financial projections document relies on some assumptions that warrant your attention. First, it assumes that our rents, which correspond to the affordable rent levels set by South Gloucestershire council, will remain at the same level in perpetuity. Now, we may find that it is preferable to increase rent within affordable levels in order to pay off our loans or mortgage sooner, or to finance another project. More likely, we will find that we can reduce rents below these levels when our loans and mortgage have been repaid and our costs significantly reduce. Second, while we have assigned a 10% void and additional contingency funds, we have not yet added the routine maintenance schedule costs for Passivhaus dwellings or made estimates for extraordinary maintenance. We are seeking expert advice on whether we can budget for this more effectively. Third, we have overstated the cost of design and legal fees. This is because the budget was most recently used to apply for pre-development grant funding (i.e., for these budget items), so our estimate is based on the outlier scenario in which we require funding for conveyance, pre-planning and planning at three different building sites--this is very unlikely. We will be hiring firms on advice from an in-house architect and an in-house structural engineer, so design and planning costs are unlikely to grow to the projected size. Fourth, we have made projections about loanstock repayment without being certain that we will agree to such terms with our investors. Perhaps everyone will try to loan us money over 20 years, rather than spread over 5, 10 and 15 years, or on 0% interest terms. We will need to change our projections in line with the terms we actually contract on.

Tortoiseshell Housing Cooperative

A community-led housing project in Bristol

FAQ

What’s to stop members selling their houses?

Does it matter that you will have created a lot of equity in the project that you can’t take with you?

Won’t there be an incentive to change your Co-op into a regular business and divide assets between you?

When does the money actually change hands? Do we have to wait until you have pledges up to or in excess of your target? What happens if you don’t reach that target?

How much money are the members of the co-operative putting into this themselves?

Are any members of the co-op being paid for the work they do toward the project?

Will the loan be secured against the land (as it would be for a mortgage) or is the loanstock completely at risk should the project fail for some reason?

Will loanstock be repaid only after the houses are occupied and rent is being paid? What happens if investors want to get their money out before that? How will you repay investors who lend money for 3 or 5 years if the build is not complete then?

Further Reading

FAQ

What’s to stop members selling their houses?

Does it matter that you will have created a lot of equity in the project that you can’t take with you?

Won’t there be an incentive to change your Co-op into a regular business and divide assets between you?

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When does the money actually change hands? Do we have to wait until you have pledges up to or in excess of your target? What happens if you don’t reach that target?

How much money are the members of the co-operative putting into this themselves?

Are any members of the co-op being paid for the work they do toward the project?

Will the loan be secured against the land (as it would be for a mortgage) or is the loanstock completely at risk should the project fail for some reason?

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Will loanstock be repaid only after the houses are occupied and rent is being paid? What happens if investors want to get their money out before that? How will you repay investors who lend money for 3 or 5 years if the build is not complete then?

Further Reading