Build to rent: affordable provision and the covenant period
Build to rent affordable homes stay with the operator, so the obligation has to work for fifteen years. Here is what the covenant, the discount and the clawback need to say.
Build to rent affordable housing is normally delivered as discounted market rent, managed by the same operator as the market homes, and held under a covenant that keeps the whole block in single ownership for a defined period. That is the structural difference from a conventional scheme, where affordable units are transferred to a registered provider and leave the developer's control at practical completion.
Everything difficult about drafting a build to rent agreement follows from that one point. The units do not go anywhere, so the obligation has to keep working for fifteen years or more.
What distinguishes build to rent in policy terms
National guidance treats build to rent as purpose-built housing for market rent, typically held in single ownership and single management, with longer tenancies available and on-site management. The definitions matter, because a scheme that does not meet them is simply a block of flats being let, and it attracts conventional affordable housing policy.
The features authorities look for are consistent. Self-contained homes let separately, unified ownership of the whole block or phase, professional management on site or nearby, tenancies of three years available to those who want them with break clauses in the tenant's favour, and no upfront letting fees.
In London, the London Plan sets out criteria for build to rent schemes including a minimum scheme size, a covenant period and clawback where the covenant is broken. Check the current policy wording rather than working from an older summary, because the detail has been refined since the plan was adopted.
Discounted market rent as the affordable product
The affordable product in a build to rent scheme is usually a rent set at a discount to the market rent for an equivalent unit in the same building, rather than a separate tenure managed by a housing association.
Three drafting points follow.
The discount has to be defined against something measurable. A percentage of the market rent achieved in the same scheme is common, sometimes with a cap by reference to local household incomes or to a published affordability measure. Whichever is used, the agreement needs a method for evidencing the market rent, because the operator sets both figures.
Review needs a mechanism. Rents move annually, so the agreement should say how and when the discounted rent is recalculated, what evidence the operator provides, and to whom.
Eligibility and allocation need addressing. Some authorities want nomination rights or an income cap, others accept marketing on an open basis with the discount as the only control. That is a policy question locally, and it should be settled before the heads of terms are drafted rather than after.
Set the offer out clearly in the Affordable Housing Statement, including the discount, the review method and the eligibility position.
Covenant periods and unified ownership
The covenant is what makes the model work for the authority. Without it, a developer could take the benefit of build to rent policy at the point of permission and sell the flats individually two years later.
A period of at least fifteen years is common, running from first occupation or practical completion. Within that period the agreement restricts disposal of individual units, requires the block to remain in single ownership and management, and requires the affordable units to continue at the discounted rent.
The exceptions need naming. A sale of the whole block to another institutional owner should be permitted, subject to the buyer entering a deed of adherence. Security arrangements with a funder should be permitted. Long leases to a management entity within the same group should be permitted.
Beyond the covenant period, most agreements allow the scheme to be broken up, at which point the affordable obligation either ends or converts. Say which. An agreement silent on what happens in year sixteen will be argued about in year fourteen.
Clawback where the covenant is broken
Clawback is the enforcement mechanism. If units are sold off or the discounted rents stop within the covenant period, a payment falls due, calculated to represent the value of the affordable provision that was not delivered.
| Drafting point | What to settle |
|---|---|
| Trigger | Which disposals or breaches trigger payment, and which are carved out |
| Calculation | The formula, the valuation date and who values |
| Time apportionment | Whether the payment reduces as the covenant period runs down |
| Cap | A maximum, usually referable to the policy-compliant alternative |
| Security | A restriction on the title, and whether a guarantee is required |
| Release | How compliance is certified so a later sale can proceed |
Time apportionment is the point most worth arguing. A breach in year two is not the same as a breach in year fourteen, and a straight-line reduction over the covenant period is a reasonable position for both sides.
Management standards and tenancy length
Authorities increasingly write management commitments into the agreement rather than leaving them to policy. Expect to see obligations covering the availability of longer tenancies, the absence of letting fees, a published complaints route, on-site or nearby management presence, and sometimes a commitment to a recognised management code.
Keep these proportionate and capable of being monitored. An obligation nobody can measure is an obligation that will be ignored, and an authority that discovers this later becomes difficult on the next application.
Where the scheme is marketed as offering longer tenancies, the obligation should say the tenancy is available on request rather than that every tenant must take one.
Viability arguments specific to the model
Build to rent appraisals do not work like sales appraisals, and an authority that assesses one as though it did will reach the wrong answer.
The value of a build to rent scheme is the capitalised net operating income, so the appraisal turns on gross to net ratios, operating costs, letting voids, management costs and the yield applied. Sales values and sales periods barely feature. National guidance recognises that build to rent should be assessed using an approach appropriate to the model.
Two consequences follow for negotiation. Operating cost assumptions carry as much weight as build costs, and small movements in the yield produce large movements in value, so the yield evidence has to be properly sourced rather than asserted.
Where the affordable offer is below the policy position, present the reasoning in a Viability Assessment prepared to the recognised methodology, and expect the authority to appoint its own reviewer.
Drafting the obligation
Agree the structure before the solicitors start. One page covering the covenant period, the discount definition, the review method, the clawback formula, the carve-outs from disposal and the release mechanism will save weeks.
Then check that the obligation and the application documents describe the same scheme. Inconsistency between the affordable statement, the viability appraisal and the draft agreement is the most common cause of delay at the completion stage, and it is entirely avoidable. Running the whole supporting evidence base through a single consistency check before submission takes an afternoon.
This is general guidance, not legal advice. Build to rent policy and covenant requirements vary by authority, so check the position with your local planning authority or a qualified professional before relying on it.
PlanScope provides AI-assisted draft reports for planning applications. Reports should be reviewed before submission. We do not guarantee planning approval.
Frequently asked questions
What counts as build to rent?
Purpose-built housing for market rent, typically held in single ownership and single management, with longer tenancies available and professional on-site management. Authorities look for self-contained homes let separately, unified ownership of the block or phase, three-year tenancies available with tenant break clauses, and no upfront letting fees. A scheme missing those features attracts conventional affordable policy.
What is discounted market rent?
It is the affordable product used in build to rent schemes, set at a discount to the market rent for an equivalent unit in the same building and managed by the same operator rather than transferred to a registered provider. The agreement needs to define the discount against something measurable and set out how the rent is reviewed and evidenced.
How long is the covenant period?
At least fifteen years is common, running from practical completion or first occupation. During that period the agreement restricts disposal of individual units, keeps the block in single ownership and management, and holds the affordable units at the discounted rent. The agreement should also state what happens to the affordable obligation once the period ends.
What triggers clawback?
Selling units off, or ceasing the discounted rents, within the covenant period. The payment represents the value of affordable provision that was not delivered. Carve out sales of the whole block to another institutional owner subject to a deed of adherence, funder security, and intra-group leases, and argue for the payment to reduce as the period runs down.
Why is build to rent viability assessed differently?
Value comes from capitalised net operating income rather than sales receipts, so the appraisal turns on gross to net ratios, operating costs, voids, management costs and the yield applied. National guidance recognises that an approach appropriate to the model should be used. Operating assumptions and yield evidence therefore matter as much as build costs.
Sources and further reading
This article is general guidance about the planning system in England and, where stated, the rest of the UK. It is not legal or professional advice. Check your local planning authority’s validation requirements and take professional advice for your specific site.