When selling a Right to Buy property, you need to check if the cost floor is relevant. Do you know what the cost floor is?

The cost floor is the accumulative total spent for a property during the last ten financial years (from date the application to buy was received).

This spend includes:

• renovation costs (e.g. bathrooms, kitchens)
• improvements (e.g. cladding works)
• even the cost to build the property or acquire it from another owner

It should also be remembered when calculating the relevant cost floor figure that the property may not have been in your ownership for the full ten financial year period - as the owner, you may have to contact the previous owner to check if they have carried out any works to the property which would come under the cost floor remit (e.g. second stage transfer).

The relevant costs are split into separate categories as follows:-

• cost of acquiring the site where the house is located (if you bought and built the property)
• cost of building or acquiring the house
• cost of repairs, maintenance and improvements (ignoring the first £5,500)
• any related administration/professional costs incurred in relation to the above categories

The total outlays incurred in the above categories are added together (excluding the first £5,500 as stated in relation to repairs, maintenance and improvements). This total figure is the cost floor.

If the cost floor figure is higher than the market value of the property, you MUST sell the property at market value - irrespective of what discount your tenant is entitled to.

If the cost floor figure is lower than the market value, but higher than the discounted sale price (the market value less any discount to which your tenant is entitled), then you MUST sell the property at cost floor.

If the cost floor figure is lower than the discounted sale price, it is ignored and the sale MUST be at the discounted sale price.

If the cost floor figure is relevant to your sale, your offer to sell needs to show the:

• market value
• discount your tenant is entitled to
• discounted sale price
• the cost floor (with a relevant explanation)

We have a wealth of experience in right to buy transactions and for the social housing sector in Scotland. Contact us if you wish to discuss any aspect of a right to buy transaction.