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Brighton & Hove CLT

BHCLT Share Offer

£250 minimum

Risk factors

All investment and commercial activities carry risk, and investors should consider whether BHCLT shares are a suitable investment for them in light of their own personal circumstances.

You should remember that your investment is primarily for the purpose of supporting the society rather than making an investment return. As a Society, the maximum return offered to investors will always be limited.

This offer is not covered by the Financial Services Compensation Scheme.

General investment risks

It is important that you understand the following general points about holding community shares in BHCLT:

  • As a Registered Society under the Co-operatives and Community Benefit Societies Act 2014, BHCLT is registered with, but not authorised or regulated by, the Financial Conduct Authority. Any money you pay for shares is not safeguarded by any depositor protection or dispute resolution scheme. In particular, you have no right of complaint to the Financial Ombudsman Service, nor any access or entitlement to the Financial Services Compensation Scheme.
  • An investment in community shares is an at-risk investment in a trading business, not a loan or a deposit, and rates of return are not guaranteed. This investment should be considered as a medium to long term investment with a primarily social objective. Your shares may not be readily convertible to cash should you need to withdraw them.
  • As a member and shareholder of BHCLT you could, if the business is unable to meet its debts or other liabilities, lose some or all of your investment held in shares. However, your liability is limited to the amount that you have paid for your shares. Whilst it is the Society’s intention to pay interest on shares at the rate advertised in this offer, community shares do not enjoy any capital growth.

Dependency on Community Housing Fund

Dependency on capital grant funding via the Community Housing Fund to make affordable community-led housing schemes viable

BHCLT's financial model is based on a range of community-led housing projects that are all in different stages of development. Of the three projects included in their financial plan, two will rely on capital grant funding as well as pre-development funding and the current Community Housing Fund grant system is changing and uncertain. In addition, the pre-development grant funding secured for their largest project has extremely tight deadlines for funds to be committed (March 2020), given that funding was only approved in December 2019.

Mitigating actions:

  • BHCLT are in close contact with Homes England to ensure they conform to the funding scheme conditions and constraints.
  • BHCLT are joining with other community-led housing groups around the country, through the National Community Land Trust Network and Community led Homes, to lobby for the funding to be extended beyond 2020.
  • BHCLT are becoming a registered provider of social housing, in order to be able to access other capital grants.
  • BHCLT are exploring other mixed-tenure models, that would reduce the reliance on capital grant funding.

Interests rates rise

The majority of funds for projects come through securing mortgages from long-term lenders, which are at variable rates. If interest rates rise on these mortgages BHCLT may be unable to sustain the increased costs.

Mitigating actions:

  • When BHCLT financially appraise schemes, they stress test for rises in interest rates over time, so there is capacity within the models and cashflow to accommodate this.
  • There are ring-fenced reserves from both BHCLT and SEASALT to assist with dealing with this eventuality should it arise.
  • BHCLT models are based around rents set at or lower than the Local Housing Allowance. This is because BHCLT think these are more genuinely affordable than the government categorised ‘Affordable Rents’ which are set at 80% of market value. This gives BHCLT some flexibility, if absolutely necessary, to increase lease rentals to cover higher interest charges. They could also raise additional share capital at a more modest rate.

Repayment of investors not achievable

BHCLT may be unable to pay back investors as promised if:

  • Interest rates rise on other loans to BHCLT meaning the income from the projects don’t fully meet the costs;
  • There are unexpected structural costs in properties or land development process;
  • BHCLT draws down the investment raised, but fails to manage the money effectively;
  • The project fails and a mortgage company has first charge on the property or land, so investors come second in the pay back hierarchy;
  • A big investor asks for their money back early.

Mitigating actions:

  • In each of their project plans, BHCLT have allowed for contingency and stress-tested their assumptions, using a variety of different measures. They have been prudent in relation to their project planning, based on historical experience of community-led housing development both in the city and across the UK.
  • BHCLT have well-established financial procedures in place to manage their money. All large expenditures are signed off by two directors, who are subject to financial checks on joining the board. Accounts are presented and scrutinised at monthly board meetings. BHCLT will establish and maintain separate bank accounts and systems for buying and managing land and property.
  • BHCLT will need to secure mortgages and these will take first charge. The property market is such in Brighton that if they must sell assets, they believe they will be able to pay back all investors. BHCLT's balance sheet becomes positive very quickly after buying and leasing land and properties.
  • BHCLT have set maximum withdrawal rates at an amount they think they can guarantee. BHCLT will consider other requests within specific cash flow contexts but will not guarantee it.

Groups default on lease payments

This could be caused by BHCLT leasing land or property to a group (SEASALT  in the first instance), who mismanage themselves and are unable to pay back the lease payments, which means they cannot make mortgage payments or repay interest to investors.

Mitigating actions:

  • BHCLT work very closely with the groups who will be living in the homes they are developing. These groups are involved in viability and feasibility modelling, so that all costs are transparent, and it is clear how the projects have to cover their costs.
  • BHCLT give training to groups in understanding the financial viability of community-led housing schemes and have regular meetings to ensure that they are on schedule to have their group ready to rent and all their systems and processes in place, including rent arrears policies etc.
  • BHCLT have allowances for voids and unexpected costs within each project budget.
  • BHCLT use an experienced commercial property solicitor who works with them to ensure they follow best practice and can secure the property if needed.
  • Ultimately, BHCLT is the owner of the property or the land and has the option to sell in the event of the project failing. In a market like Brighton & Hove there is little risk of prices falling.

Lack of land supply

Lack of land options for Community-led housing projects.

There is high demand amongst community-led housing groups for new/self-build, which enables affordability compared with buying existing properties. There are very few commercially available sites to buy and these often get snatched up by large private developers. To date BHCLT have been dependent on Brighton & Hove City Council for sites and BHCC has many competing demands on the developable land it owns (including their own New Homes for Neighbourhoods Programme).

Mitigating actions:

  • BHCLT's long-term aim of the community share offer is to be in a position to try and secure private land that becomes available for housing development.
  • BHCLT are continuing to work with BHCC on land that can be made available for community-led housing, through regular meetings and lobbying local councillors.
  • BHCLT are innovating in the way that they seek planning permission on properties to ensure that larger properties in the city can be bought under conditions that protect affordability and community ownership in perpetuity.

Organisational capacity

BHCLT as an organisation may not be able to keep pace with the demands of all the work it needs to do to be expanding at its current rate.

Mitigating actions:

  • The Board has 5 current members all of whom commit regular amounts of time to the range of work that needs to keep the organisation functioning as well as delivering projects. There is a recruitment drive underway to bring in more Board members and a strong induction process is in place.
  • BHCLT have secured community-led housing Hub funding until 2021, which provides a foundation of experienced contractors working for BHCLT to progress Community-led housing projects in the city, supporting the groups to be strong and ready. They have systems in place where projects successful in achieving grant funding to progress their schemes contribute back into BHCLT so they are sustainable beyond grant end. As BHCLT increase their number of projects, additional funding is generated through the lease to increase staff capacity necessary to manage the projects.
  • BHCLT has a good track record of volunteer engagement and this is expanding all the time.

Impact of Coronavirus

Due to COVID-19, the universities move their teaching online and students a) don’t return to Brighton or b) the rental market in the city falls so there are many other affordable properties on offer.

Mitigation actions:

  • SEASALT have a core membership who want to move into the property and have already started a drive for new members. Although statistics show that less people are taking up university places, many people who are currently students consider Brighton their home and still want to live here, even with lectures online. The co-op offers advantages beyond the rents, so BHCLT are still confident of finding people who want to live there. They have a weekly meeting with SEASALT and this is a recurring item on the agenda.
  • BHCLT have projected zero rental income for the first three months of the project, both to ensure that there is time to complete the necessary renovation works, but also in case there are any issues with recruitment. They see this as a worst case scenario.

BHCLT raise money for this project but are not successful in raising additional funding for future projects. Plans for scaling-up therefore do not come to fruition and they are only the landlord of a property for SEASALT

 Mitigation actions:

  • Although it is the vision of BHCLT to develop more projects across the city, and they see this share offer as an initial step to achieving this, were they only to achieve this project, it would not undermine the value of the investment for the investor.
Applied for to date, of
£260,000 target
Please read the offer document in full before applying

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