Ask the expert - Shared Ownership

This article is part of our Housing Management & Property Litigation Brief: Issue 31.

What is Shared Ownership?

It is a form of home ownership where a purchaser who cannot afford to buy 100% premium of a lease purchases a percentage of the premium, typically 25% or 50%, and they then ‘own’ that share. The landlord retains the remaining share and leaseholder pays rent to the landlord for the same and then also pays a service charge as with other leaseholders. Shared Owners then have the ability to ‘staircase’ up by purchasing small additional percentages until they reach 100% and owns full leasehold interest.

There is a little over 200,000 Shared Ownership households in the UK and it is increasing year on year.

Why is Shared Ownership so topical at the moment?

Shared Ownership is a hot topic at the moment following the Levelling Up, Communities and Local Government Select Committee earlier this year setting up an inquiry to consider the challenges associated with shared home ownership schemes.

The inquiry was to consider the barriers to achieving full home ownership and whether Shared Ownership is genuinely an affordable route to owning a home as well as the challenges around reselling, affordability issues such as service charges and maintenance responsibilities, and questions around mortgage availability and the limited range of providers.

Whilst the consultation period for the call for evidence has now closed, the findings are certainly eagerly awaited!

What is the current position with taking enforcement action against Shared Owners, for example for arrears?

Following the decision in the case of Richardson v Midland Heart [2008] L&TR 31, it was decided that until the shared owner acquired 100% of the leasehold interest, they were in fact an assured tenant for term of the lease.

Accordingly, where, for example, a shared owner fell into arrears, the landlord could serve a Notice of Seeking Possession under s.8 of the Housing Act 1988 and pursue possession on the grounds set out in Schedule 2 Housing Act 1988. In the case of Ground 8 of Schedule 2 of the Housing Act 1988, the court must order possession, with the court having very little scope to do otherwise.

Does the Renters (Reform) Bill 2023 affect Shared Ownership and if so, what impact will it have?

Yes, it does. The Bill sets out that tenancies with a fixed term of more than 7 years - which would therefore include Shared Ownership leases - can no longer be assured tenancies. Therefore, landlords of shared owners will be unable to utilise the provisions within Schedule 2 Housing Act 1988 in seeking possession under the mandatory and discretionary grounds. Instead, landlords will need to deal with any breach of the Shared Ownership lease as they would do with their outright leaseholders.

However, in cases where possession proceedings have been commenced against a shared owner, but not concluded, the Shared Ownership lease will remain an assured tenancy. Further in cases where a valid Notice of Seeking Possession has been served and the 12-month time limit relating to such a notice under s.8(3)(c) of Housing Act 1988 has not expired, the Shared Ownership lease will also remain to be treated as an assured tenancy. As such there will be some situations where landlords will still be able to rely on the grounds within Schedule 2 Housing Act 1988 in circumstances prior to section coming into force.

Therefore, landlords will need to change their policies and procedures relating to the process for the enforcement of the terms of Shared Ownership leases and in particular, arrears recovery. Upon the Bill coming into force, we are likely to see more claims relating to debt recovery and forfeiture and landlords will need to be aware of the rules relating to these are understood and followed. Landlords will need to be particularly aware of waiving the right to forfeit if the landlord is intent on obtaining possession.

Have there been any interesting cases recently relating to Shared Ownership?

The case of Avon Ground Rents Ltd v Canary Gateway (Block A) RTM Company Ltd [2023] EWCA Civ 616 was particularly advantageous for shared owners as the Court of Appeal confirmed that a Shared Ownership lease granted for more than 21 years is a ‘long lease’ for the purposes of the right to manage legislation, irrespective of the size of the tenant’s share in the property. As such, the case determined that the shared owners have acquired the right to manage their block directly.

Given Shared Ownership leaseholders pay full service charges and have a vested interest in how their block is run, this is a positive outcome for the product.

This case, the Renters (Reform) Bill and the Government Call for Evidence are all signs that the direction of travel is that Shared Owners are to be treated on par with full long leaseholders which will only increase the demand for the product.

What has happened with the Rent Reform that has been introduced for Shared Ownership?

In somewhat of a surprise, the DLUHC announced reforms on 12 October 2023 to Shared Ownership rent increases which come into play with immediate effect.

The key reforms are as follows:

1. Annual rent increases to be capped at CPI + 1%
2. RPs will have discretion to increase rent by less than CPI + 1%
3. The floor for rent increases will be reduced to 0% and the latest amendments to the model Shared Ownership lease allows for reductions in rent

The reforms are now in play and will apply to new Shared Ownership homes that have funding on an indicative basis, or part of a scheme included in new bids to the Continuous Market Engagement element of the Affordable Homes Programme (AHP). It is important to note that there is an exemption for new homes that are already contracted to be delivered pursuant to the AHP.

Click here to read issue 31 of our Housing Management & Property Litigation Brief.