The revised scheme followed the government’s spring 2021 announcement of the 2021-2026 Affordable Homes Programme (AHP) and plans for 180,000 new houses.
The 2021 Shared Model Lease
Note that there is a transition period during which both shared ownership models are available – essentially, the new model lease applies to newbuild shared ownership homes delivered through the AHP.
First, some helpful practical points. Practitioners will welcome the expanded particulars and the definitions at the start of the new model lease – making it clearer and more user friendly. It’s also important to note that the 2016-2021 model leases have also been updated (on 21 September 2021) so practitioners must ensure they have the latest version.
Key points to note:
The changes are not retrospective – The new model is required for shared ownership homes delivered through the 2021-2016 grant funded AHP and those delivered through section 106 schemes where planning permission was determined on or after 28 December 2021.
Minimum stake reduced – Under the new model lease, buyers need only buy 10% of the full market value of the property. The earlier model lease required buyers to buy at least 25%.
Potentially higher rents – Conversely, buyers who purchase a low share will pay a higher amount in rent reflecting the large proportion still owned by the landlord/housing provider. For this reason, the government is encouraging buyers to buy as much as they can afford under the new scheme.
Greater flexibility in staircasing – The new scheme has been amended to reduce the minimum initial percentage share to 10% (down from 25%), as well as gradual staircasing in 1% increments. This means shared owners can purchase more shares in smaller instalments than the 10% under the previous model – up to 100% property ownership (subject to any restrictions under the specific lease).
However, there’s an important caveat: the 1% staircase is only available for during the so-called '1% equity period', which is 15 years from the date of the lease or the date of lease assignment (whichever is the later).
Lengthening of lease term – The length of the new model lease is 990 years – substantially lower than the 125-year lease term under the earlier model. This could well make shared ownership leases under previous models less attractive to future buyers and lenders.
New period for repairing obligations - Shared owners under the new model lease will have the benefit of a new 10-year repair warranty under which the landlords/housing associations are required to pay for essential repairs, up to an annual limit of £500 (any unused element can be carried over to the next year). Beyond that, the shared owner must pay the remainder. Under the earlier model lease, it was the shared owner’s responsibility to foot the entire bill.
Essential repairs includes structural repairs internally and externally to walls, floors, stairs and ceilings. Normal general maintenance, redecoration and renewal works are therefore excluded and the repair cost covered by the shared owner under the service charge. Also note that the repairing obligation does not include those covered by building warranty or other guarantee – in these cases, the policy holder will make a claim.
Alienation, pre-emption and underletting – Under the new model, the housing association/landlord has an exclusive right to market the property for four weeks only, rather than eight weeks under the earlier model. The valuation validity period has also been extended to 12 weeks prior to the date of exchange (this was previously 8 weeks).
A shared owner can also underlet the property, subject to consent being reasonably withheld if it fails to comply with Homes England guidance or grant funding conditions. Shared owners cannot underlet their property under the old model lease until they own it outright.
Buyers, particularly first-time buyers, have found it increasingly difficult to buy their own home because of rising property prices and squeezes on income and living costs. The government’s aims are laudable, but whether it will achieve those aims remains to be seen.