The lease only applies to shared ownership homes provided in England but outside of London, and we await an update from the Greater London Authority for their guidance on the shared ownership model. There is much to consider with the key changes being covered below.
Staircasing in 1% increments
Leaseholders now have the ability to acquire additional 1% shares in their home each year for the first 15 years they own the home. The 1% is based on the original full market value adjusted in line with the House Price Index (HPI) but either party can instruct a RICS surveyor to carry out a valuation at their own cost if they are not satisfied with the HPI valuation. Leaseholders will not be able to rollover the 1% as it is limited to 1% each year, and the landlord is not able to charge an administration fee if staircasing via this route.
In addition, leaseholders can now staircase in increments of 5% as opposed to a minimum 10% share under the previous model lease, but as under the old lease the leaseholder will be charged for a RICS valuation and the landlord may charge an administration fee on top of this.
10 year repair free period
During the first 10 years from the date of the lease (or if sooner up until the leaseholder owns 100% of the home) the landlord will be responsible for repairs to the external fabric of the building and structural repairs to walls, floors, ceilings and stairs inside the home. Any expenditure relating to these repairs during this period will not be passed on to leaseholders and no sinking fund contributions will be used for the cost of these repairs.
Leaseholders are still responsible for general repairs, but during the 10 year repair free period they may apply to the landlord for a contribution towards certain repairs and maintenance. The contribution from the landlord is £500 per year and any unused allowance can be rolled over, up to a maximum of £500.
When a leaseholder decides to sell their home the landlord now has four weeks (compared to eight weeks in the previous lease) in which to nominate a new purchaser or take a surrender of the lease, after receiving notice from the leaseholder that they wish to sell.
Lease term and minimum stake
The term of the lease must be a minimum of 990 years and the Capital Funding Guide makes it clear there is no exception to this policy, so thought will need to be given to any ongoing purchase contracts that don’t meet this obligation. In addition, leaseholders can now acquire an initial stake of just 10%.
Security for lenders
It is now a fundamental clause that lenders are given notice prior to the landlord exercising any forfeiture proceedings giving the lender the opportunity to remedy a breach or resolve the issue. This clause was in the previous version of the lease, but consent from Homes England will now be required if landlords wish to vary it.
Key information documents
It is now a condition of grant funding that a key information document pack is given by the landlord with the memorandum of sale. Landlords should obtain confirmation from the purchaser’s solicitor that the purchaser has received the documents, placing the onus on the landlord to ensure prospective buyers understand the terms of the lease. This is a change from the previous model where key information was included within the lease.
Right to shared ownership
The right to shared ownership has now been introduced for homes funded through the Affordable Homes Programme 2021-2026. The scheme will offer social tenants living in rented homes (provided certain criteria are met) the opportunity to purchase the rented home on a shared ownership lease.
The lease and guidance is on the whole as expected, with a few additional talking points which we have noted above. We have also raised some potentially serious issues with the drafting of the model lease with Homes England and have sought permission for amendments to one of the fundamental clauses to make the model lease work thereby protecting our clients’ interests. We are in direct discussions with Homes England about these points and will discuss this further in due course, but you can be assured that Birketts are ahead of the pack when it comes to putting our clients first.
We will be hosting a masterclass to discuss the lease in more detail on the 30 June, and if you would like to attend please contact a member of the Birketts’ Social Housing Team.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at June 2021.