THE GOVERNMENT will rely on the legal principles underpinning the social and affordable housing scheme to shield the National Asset Management Agency (Nama) against court challenge from developers.

Ministers accept that the “bad bank” faces a threat of legal action on the grounds that its procedures will intervene in property rights enshrined in the Constitution, but they believe precedents set by the affordable housing scheme will help “bullet-proof” Nama against any challenge.

The Cabinet has already signed off on the heads of the Nama Bill, but the full legislation is not yet complete. However, the Government hopes to sign off on the full package of measures at its final meeting before the summer break at the end of this month.

Crucial in the legal advice to Cabinet is a Supreme Court ruling in 2000 which upheld the constitutional validity of a legal requirement on builders to set aside up to 20 per cent of new developments for social affordable housing.

The ruling was made after President Mary McAleese referred the legislation in question – Part V of the 1999 Planning and Development Bill – to the court.

Well-placed sources said the legislation governing Nama’s establishment was being framed with that ruling in mind.

The legislation was also likely to call on the principles governing compulsory purchase orders, they added.

In particular, the sources said the threat of legal action against Nama may be reduced by ensuring that the procedures under which it will take control of property assets are seen to be “fair and proportionate” and “clearly in the public interest”.

“The Government is concentrating on trying to make sure that the legislation is as tight and robust as can be . . . Part V of the Planning and Development [Act] established very clearly that you can interfere with property rights,” the sources said.

The court in its ruling found that the measures setting up the social and affordable housing scheme were “rationally connected to an objective of sufficient importance to warrant interference with a constitutionally protected right and, given the serious social problems which they are designed to meet, they undoubtedly relate to concerns which, in a free and democratic society, should be regarded as pressing and substantial”.

The court was also satisfied that the scheme impaired those property rights “as little as possible and their effects on those rights are proportionate to the objectives sought to be attained”.

Still undecided as preparations advance for Nama is the mechanism under which the organisation will apportion value to the assets it acquires from banks and building societies.

Sources said the mechanism being developed was unlikely to apply a single rate of discount from the value at which the assets were originally acquired by participating institutions. Instead, a single mechanism would be deployed to carry out a valuation exercise on each asset with respect to the level of indebtedness, zoning, project risk, the realistic prospects of an investment return and other factors.

According to sources, this mechanism will have to be approved by the European Commission.