As landlord, what should I be looking for in an SSH lease?

In specialised supported housing (SSH) developments, it’s the lease that gives the completed asset a value premium to the underlying freehold property. It’s generally what makes the SSH asset class attractive to funders who require long term stable income – such as pension funds, or family offices seeking to balance the maturity of their invested assets.

As landlord, you should typically be looking for a 20 year lease with a strong and reliable tenant. The tenant will be a Registered Provider (RP), a council body, or a charitable organisation. Due diligence on the tenant beforehand will help to assess the strength of their covenant. The covenant strength is generally seen as strong, due to the fact that rents are backed by Housing Benefit Teams who are themselves funded by the UK Govt Department of Work and Pensions.

RP leases have shifted to 10+10 year leases, instead of a straight 20 year lease. These offer the landlord the right to extend by 10 years to a 20 year term.

The lease should be a Full Repairing and Insuring (FRI) lease, so the responsibility for managing the property is passed on to the tenant as far as possible. Typically, you (as landlord) will take out insurance that protects your interests, and you should be able to cross-charge this to the tenant as a lease cost.

Most SSH leases have an annual review based on CPI% (Consumer Price Index). These tend to be capped and collared annually at around 0-4%, although there is generally room to negotiate these upwards in periods of expected higher interest rates.

Your RP tenant takes on responsibility to make lease payments on the whole building for the entirety of the term. But they will aim to ‘back to back’  potential void periods in individual units. They will do this through separate (but related) legal agreements with the selected support provider (via a Support SLA) or the council (through a Nominations and Void Agreement).

Whilst the commercial terms that exist across all of these legal agreement are well understood, it is essential to have agreed Heads of Terms that reflect the relationship rights and obligations in as much detail as possible.