The agreement will now enable more housing association tenants to purchase their home at a significant discount of up to £103,900 in London and £77,900 across the rest of the country.
The Charities Bill, which the initiative sits under, has been pushed back and forth through the House of Lords and Commons in recent weeks, with a majority voting for an amendment to the plans in July.
Housing associations looked set to agree to a government deal proposed by communities secretary Greg Clark last month, where social housing providers would have discretion not to sell certain properties in limited circumstances.
The new deal will see the government compensate housing associations for the discount offered to Right to Buy applicants, with housing associations using the sales proceeds to enable reinvestment in new homes.
While housing associations will be able to exercise discretion in exceptional circumstances, they will be required to offer tenants the opportunity to use their discount to purchase an alternative home from either their own or another association’s stock.
Prime Minister David Cameron said the agreement would mean the first eligible tenants could start to buy their homes from next year.
“Some people said this would be impossible and that housing associations would never stand for it. Today we have secured a deal with housing associations to give their tenants the Right to Buy their home.”
National Housing Federation chief executive David Orr added: “This is a great offer for housing association tenants. It is also a great offer for the country, as our proposal means homes sold will be replaced, delivering an overall increase in housing supply.
“This is an ambitious sector that last year built more than one in three of the country’s homes, matching each pound of taxpayers’ money with £6 of its own. We will build more.”