The benefit of using Community Interest Companies
In our very first edition of Under One Roof we touched upon three key ways to plan for great communities - and the use of a Community Interest Company was one.
This video, by Chris Gray at Optimised Environments, highlights the importance of masterplanning and at the outset of a development thinking about management of open space. Now that local authorities are less likely to adopt open space developers need to consider other options. Purchasers have a vested interest in their community and it therefore makes sense to, over time, hand over control of the open space within a development to the community itself.
Community Interest Companies (‘CIC’) are a special type of limited company which exist to benefit the community rather than private shareholders. A CIC requires a ‘community interest statement’ explaining how the business plans to benefit the community and an ‘asset lock’, which is a legal promise stating the company’s assets will only be used for its social objectives.
Prior to a development commencing developers can set up a CIC which at the outset they control. As the development progresses title to completed open space areas within the development is conveyed to the CIC who take responsibility for the decision making of the management and maintenance of such open space.
Residents within a development have the opportunity to become members of the CIC when they purchase a plot and over time the responsibility for management of the open space, which is often key for a community, will fall wholly to the residents.
This is an ideal solution as it offers flexibility for developers as follows:
- ownership of common areas can be transferred in phases as and when the developers are ready to do so;
- the developer as a founding member of the CIC can have a preferred position giving them the power to select a ‘Trigger Event’ such as completion of a certain number of units. Until the occurrence of a Trigger Event the developer can appoint and remove directors of the CIC and have loaded voting;
- the CIC can set out ‘Reserved Matters’ - these would be issues which might devalue the overall development, and the developer can provide that even after the Trigger Event occurring their consent is required in relation to any decisions affecting such Reserved Matters; and
- upon completion of the development it gives the developer a complete exit as all the open space would be conveyed to the CIC and the developer can resign as members of the CIC and leave the community to run it.
Not only does the use of CICs give the developer flexibility it also gives the community an ability to take responsibility for their space, which in today’s market is becoming an even greater need.
While the use of the statutory Development Management Scheme has become prevalent and has similarities, the use of a CIC may be advantageous as it offers greater flexibility and control and could potentially be an effective marketing tool when promoting the development of a new community.
There are some interesting pending developments with the latest Heat Networks (Scotland) Bill, which if enacted is likely to lead to the increased use of district heating arrangements within new developments.
Having a CIC available to operate these arrangements is likely to become a useful benefit. Never has the phrase power to the people been more apt…
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7th September 2020
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