Shared Ownership and section 166 Commonhold and Leasehold Reform Act 2002

Shared ownership is in the spotlight again following the recent judgment in the County Court case of Sovereign Network Homes v Ms Vanessa East which was heard in the Central London County Court in May 2024. 

The case (which was an appeal from a County Court decision) raises the issue of whether a landlord under a shared ownership lease is required to serve notice under section 166 of the Commonhold and Leasehold Reform Act 2002 ("s166 CLRA 2002") before rent which is contractually due from shared owners who have not staircased up to 100% can lawfully be recovered. 

It is important to note that this issue is yet to be determined as the matter has been remitted to the County Court judge for determination. However, if this interpretation is found to be correct, it will be of potentially significant impact to landlords of shared ownership properties and their approach to the recovery of arrears of rent from shared owners. 

The Case

In April 2022, Sovereign Network Homes ("SNH") obtained an outright possession order against one of their shared owners, Ms East. The possession order was obtained pursuant to Ground 8 of Schedule 2 Housing Act 1988 on the basis of unpaid rent arrears. Due to an error with the address on the Court file, Ms East asserted that she was only made aware of the possession order in February 2023 when she received a notice of eviction. An application to stay the eviction and set aside of the possession order was subsequently made by Ms East. At first instance, the presiding Deputy District Judge discharged the warrant of possession meaning the eviction did not go ahead. SNH appealed that decision and it was during the course of those appeal proceedings that this issue was raised. 

As part of the appeal proceedings, Ms East advanced an argument that, as she held a ‘long lease’ within the meaning of section 76 Commonhold and Leasehold Reform Act 2002 ("s76 CLRA 2002"), a prescribed notice under s166 CLRA 2002 should have been served on her in relation to rent which SNH asserted was lawfully due. She therefore argued that, because no such notice had been served, the rent which the landlord maintained was in arrears was not yet due meaning the possession order should be set aside. 

Judgment

HHJ Bloom re-visited the recent authority of Avon Ground Rents Limited v Canary Gateway (Block A) RTM Company Ltd) (2023) EWCA Civ 616 which was a case which considered whether shared owners are entitled to apply for the statutory right to manage their block. In that case, the Court of Appeal concluded that a shared ownership lease where the tenant has not staircased to 100% interest but which was granted for a term more than 21 years is a long lease for the purpose of s76 CLRA 2002 meaning shared owners are entitled to apply for the right to manage. 

Section 166 CLRA 2002 requires a prescribed notice to be served on a leaseholder of a ‘long lease’ as defined in s76 CLRA 2002 before ground rent payable under the lease is due. The decision in Canary Gateway therefore raises the interesting question as to whether a s166 CLRA 2002 notice must first be served in relation to shared ownership leases before rent becomes lawfully due on the basis that they now seem to be considered ‘long leases’ under the 2002 Act. HHJ Bloom was persuaded that this was a novel and important point of law and that this, together with other relevant factors, meant that that the possession should be set aside and the matter remitted to the County Court for trial so this point could be properly considered.

Commentary

As set out above, it is important to recognise that this is still an issue that needs to be determined by the Court but, given its wide-ranging implications for shared owners and their landlords, it will no doubt be closely monitored going forward. 

It should be noted that the Renters (Reform) Bill seemingly contained a neat solution to the issue of the status of shared ownership leases. However, due to the fact that this Bill did not survive the dissolution of Parliament, it appears that it is the Courts who will be required to provide answers to the on-going complexities that Shared Ownership continues to raise, at least for the time being.