There is a form of leasehold property referred to as a shared ownership lease where the leaseholder can purchase a share of a property (house or flat) and pay rent on that part of the property retained by the landlord. The leaseholder will have a right to purchase additional shares in the property until they own 100% of the equity. At this point the property is no longer a shared ownership property.
Most shared ownership leasehold properties are granted by the housing associations as part of their home ownership programme. Such leases are almost always in a format approved by the Homes and Communities Agency (HCA, formerly the Housing Corporation). The intention is to provide a first step into home ownership for those who are currently renting and cannot afford to purchase a home at the full market value. The purchaser will generally be either an existing housing association tenant, on a housing or local authority housing list, or a key public sector worker. Until recently only housing associations granted shared ownership leases and local authorities granted a form of shared ownership lease referred to as a rent to mortgage property. Private developers are also now able to grant shared ownership leases. Private developers are also selling what they refer to as shared equity leases. These are more like the key worker home buy schemes administered by the HCA, which is actually a form of second mortgage secured against the property where no repayments are made until the property is sold.
Differences between a shared ownership lease and an ordinary long residential lease are:
- A shared ownership lease is not regarded as a long residential lease for the purposes of exercising a statutory collective right to purchase the freehold of a building containing flats (see Section 7(1) (d) Leasehold Reform Housing and Urban Development Act 1993).
- A shared ownership lease is not regarded as a long residential lease for the purposes of exercising a statutory collective right to manage a building containing flats (see Section 76(2) (e) Commonhold and Leasehold Reform Act 2002).
- A shared ownership lease of a house does not qualify for the right to purchase the freehold under the provisions of the Leasehold Reform Act 1967 if there is a provision in the lease for the freehold to be transferred on the purchase by the leaseholder of the remaining share in the property (referred to as the final staircasing). Other exemptions apply if the leasehold house was provided for the elderly or within a designated area referred to as a protected area (see Schedule 4A Leasehold Reform Act 1967).
- As rent is paid on that part of the equity not owned by the leaseholder, a landlord can take action to repossess the property for rent arrears in the county court in the same way that a landlord of an assured shorthold tenancy can under the provisions of the Housing Act 1988. If the property is repossessed in these circumstances no compensation is payable to the leaseholder to take into account the balance, between the leaseholder’s debt and the market value of the leaseholder’s share in the property.
Staircasing
You may buy any size of share as long as the final outright purchase of your home is completed in four or less stages.
HCA may need written notification that you wish to buy further shares and want a valuation of your property carried out. We will liaise with HCA to arrange for an independent valuation of your home by a RICS (Royal Institute of Chartered Surveyors) qualified valuer as soon as possible. Alternatively, you can also instruct your own (RICS). This will be used to set the value of any extra share you wish to purchase. You will have to pay for this valuation.
The valuation will work out the current market value of your home but will disregard any major improvements and alterations you have carried out. You may need to provide evidence that permission has been granted for these works.
Only once the HCA have received full payment of the valuation fee then they will be in a position to send you the valuation report in writing. You will then have a period of three months to purchase any extra share on the property.
Stamp duty may be payable on the remaining shares depending on whether you paid duty in full when you purchased your initial share.
Where you are purchasing further shares but are not purchasing 100% of the shares in your property, this is referred to as ‘intermediate staircasing’.
Final staircasing
When you purchase all of the remaining shares in your property, obtaining 100% ownership, this is referred to as ‘final staircasing’. If you live in a house or bungalow you will be able to apply for the freehold. You would then cease to own the lease and would own the freehold upon completion. We will be able to give you details regarding this.
Selling your Shared Ownership home
You can sell your share of your home by selling the lease that you own. To do this you must contact the HCA in the first instance. The HCA will then have six to eight weeks to nominate a prospective purchaser under the terms of your lease. The price your share will be sold for will be determined by an independent valuation by a RICS qualified valuer. You will be liable to pay for this valuation. If HCA are not able to find someone to buy your home; by mutual agreement you are then free to sell your home on the open market through an estate agent, using the council or HCA’s valuation. If you are selling your shared ownership home the valuation will include all alterations or improvements that you have carried out. If HCA are successful in nominating a purchaser for you, you will need to pay a ‘sale fee’ on completion. This is subject to VAT. If HCA do not nominate a purchaser you will be liable to pay an admin fee for any enquiries.
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