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Practitioners should note that rent reviews for shared ownership leases have now been aligned with social and affordable rent tenancies.
Up to 12 October 2023, shared ownership rents could be increased once a year by the Retail Prices Index + 0.5%, but government has said this is an outdated measure of inflation.
By way of reminder, the 2021 recommended shared ownership leases were introduced by the Affordable Homes Programme 2021-2026, and are mandatory for most shared ownership under the 2021 AHP.
Shared ownership enables home buyers whose combined household income is lower than a fixed amount and who cannot buy their own home without assistance. The buyer, usually a first time buyer, purchases their property share – between 10% and a maximum of 75% - on a leasehold basis. They then pay rent on the share owned by the registered provider.
For homes delivered through AHP 2021 and which received grant confirmation on or after 1 April 2021, it is compulsory to use the Fundamental Clauses within the 2021 shared ownership model lease. These fundamental clauses will differ depending to the date on which HE agreed to grant funding for the property concerned.
Shared ownership leases must not be for a term less than 989 years. If a standardised commencement date is required for multiple leases, the Commencement Date is expected to ensure the first lease is granted with at least a 990-year term from the date of the lease; and no lease is granted with an unexpired term of less than 989 years.
During the ownership, the buyer may buy further shares in the property, reducing their rent proportionately - and staircasing to full ownership if they want to. The minimum share capable of being purchased is 5% and owners can exercise their right to staircase by 1% each year. Landlords must not unreasonably delay the staircasing.
Rent reviews
The new formula to determine shared ownership rent review is now CPI + 1%, replacing the previous review which was based on RPI + 0.5%. It means shared owners may be better protected from particularly high rent increases because of high inflation.
Further, the floor for shared ownership rent increases has been reduced from 0.5% to 0%, so rent cannot be increased if CPI is -1% or lower. There are a few exceptions, including new homes already in contract to deliver via the AHP. The rent review schedule in the model leases have also been amended accordingly.
The rent review shifts will apply to new leases not only under the 2021 AHP, but also under the previous AHP 2016 – if agreed on or after 12 October. It will also apply to the leases of new shared owners who purchase a leasehold interest in their homes through the Right to Shared Ownership and Rent to Buy schemes.
Practitioners should note that the 2021 model lease was updated in June 2023. The changes were not particularly significant and range from variations to the definition of Valuer’s Certificate in some leases, additional examples and a new paragraph (1.9) in the Staircasing Provisions and in the 1% Staircasing Schedule.
We our covering this topic in our Residential Property Online Webinar Event. Join today to find out more on Model Shared Ownership Leases.
