The New Model for Shared Ownership Lease
The Shared Ownership route to home ownership has been an available option to eligible purchasers since the 1980's. As with most schemes the provisions have changed over time and this article helps to highlight the changes.
Shared Ownership is a form of affordable home ownership. Typically the purchaser takes out a mortgage on a share of a property and pays rent to a Landlord on the remaining share.
Leases are typically granted by a Housing Association or Registered Provider who are administered by Homes England; a Government department which means that their Leases needs to be granted in accordance with the Homes England Model Form of Shared Ownership Lease provided in the Capital Funding Guide.
In late 2020 the Government decided to change some of the fundamental Model Form Shared Ownership Lease Clauses and also incorporated principal changes which affect new shared ownership homes. The new model lease is compulsory for homes delivered through the 2021-2026 Homes England funding programme.
Suffice to say, if a development was funded under the 2016-2021 funding and your property completes after 1 April 2021 then it is not a given that your Lease will be granted on the new Homes England Model Form of Shared Ownership Lease as the funding for the site was not delivered via the 2021-2026 Homes England funding programme. In most of these cases the Housing Association will grant a Lease under the previous Homes England Model Form of Shared Ownership Lease.
What are changes to the Model Shared Ownership Lease?
According to the Capital Funding Guide the Fundamental Clauses of the Homes England Model Form of Shared Ownership Lease are compulsory in all Shared Ownership Leases as they help to align the provisions of the Lease with the requirements of the UK Finance Handbook (The UK Finance Handbook is a set of instructions provided by the mortgage lenders to conveyancers when acting in the purchase of a property with mortgage finance)
The fundamental clauses cover:-
- Alienation and Pre- emption
- Mortgagee Protection
- Rent Review
In addition to changes to the Fundamental Clauses the 2021 model has also brought about some new principal changes.
The main changes you need to be aware of are detailed below:-
Under the old Model Lease a purchaser would need to buy a minimum share of 25%. This has now been reduced to 10% making the route to home ownership more affordable.
Alienation and Pre-emption
Under the previous Model Lease if the home owner wanted to sell their shared ownership home they would be required to offer the home back to the Housing Association who would have 8 weeks to nominate a purchaser. This has now been reduced to 4 weeks.
Leases prior to the new 2021 Model Lease specifically state that underletting is not permitted before final staircasing i.e. 100% ownership however, the new model Lease states it may now be possible with prior consent from the Housing Association. The provisions of the new Model Lease specifically states that consent to underlet can be reasonably withheld by the Landlord if the underletting does not comply with guidance issued by Homes England or the Grant Funding conditions; this is still placing a small barrier to underletting but there is at lease now a possibility in certain circumstances.
Staircasing is the process to enable you to acquire further shares in the Property at a later date. For example, if you wish to purchase another 10% share then under the previous Model Lease you will have to pay the housing association 10% of the market value of the property at the time of completing the staircasing. As a result of buying further shares, the annual specified rent payable would then be reduced accordingly to reflect the fact that you own a larger share.
Until the new Model Lease you could only staircase in multiples of 10%, the new model now allows for tranches of 5% with the intention to make staircasing more affordable.
In addition, the new Model Lease has introduced an addition to general rights to staircase known as the Annual 1% Staircasing.
It important to understand that the 1% option is not available throughout entire term of the Lease. It is available for the '1% equity period' which is defined as 15 years from the later of:-
1. The date of the Lease
2. The date on which the lease is assigned to a new leaseholder
Unlike the general staircasing principal, the Landlord will not rely on a market value valuation of the property to calculate the amount owed for the 1% share. Instead, the calculation is based on House Price Index (HPI).
The new Model Lease provides that the Landlord is required to issue a statement annually to the home owner specifying the price payable for the 1% share. There is no obligation on the home owner to purchase the additional shares if they do not want to.
It is also important to point out that the Capital Funding Guide does now allow the Landlord to pass on any of their administration costs to the home owner. The home owner will however still be liable for their own solicitor's costs should they wish to purchase further shares.
A new minimum Lease term has been introduced. The Model Lease will now need to be granted for a period of at least 990 Years.
External and Structural Repairs
During the first 10 years of the term known as the 'Initial Repair Period', the Landlord will now be required to take responsibility for external and structural repairs. The new Model Lease goes further to provided that these repairs will be at no cost to the home owners.
The definition of “External and Structural Repairs” excludes some works so the Landlord will still be able to levy charges via the service charges for certain items.
General Repairs and Maintenance
These still remain the responsibility of the home owner however, the new Model Lease allows for the home owner to request an allowance of a maximum of £500 per year from the Landlord during the Initial Repair Period for certain repairs and maintenance.
Where the home owner does not claim the maximum £500 in one year, the balance (up to a maximum of an additional £500) will be rolled over to the following year.
The Home owner will not be able to claim the allowance for repairs and maintenance that are as a result of the home owner breaching the terms of the lease. For that reason there is specific wording in the lease to identify what qualifies as a genuine repair.
NEED ADVICE IN RELATION TO A SHARED OWNERSHIP PURCHASE?
Chattertons Solicitors have recently appointed an experienced Licensed Conveyancer, Kayleigh Wright. Kayleigh specialises in residential conveyancing with a focus on acquisition of new build plots and shared ownership properties.
With over 15 years' experience in residential conveyancing, Kayleigh has joined Chattertons to further enhance the residential conveyancing department and plans to expand the firms offering by developing a department dedicated to new build plot purchases including affordable home ownership schemes. As a Licensed Conveyancer based at our Horncastle office, she will be available to provide a spectrum of residential conveyancing services with a specialism in new build and affordable housing schemes.
Prior to joining Chattertons, Kayleigh lead a team dealing with referrals from national building developers and registered providers.