What you need to know about the new shared ownership lease
Following the government’s recent technical consultation, Homes England have released a new model shared ownership house and flat lease for homes in England (other than London) funded under the Affordable Homes Programme 2021-2026. They have also taken the opportunity to refresh the old model lease (2016-21 SOAHP) with, in their words, “minor updates for clarity”. We cover below the changes to look out for in the updated 2016–21 lease and the major overhaul of the shared ownership model in the 2021-26 model lease. You can visit shared ownership section of the Capital Funding Guide can be found on the Government’s website.
Updated 2016 – 21 Model Lease – When does it have to be used?
The model house and flat leases were updated on 21 September 2021, and providers should use them going forward for homes funded through the SOAHP 2016 to 2021 programme. Providers do not, however, need to reissue updated model leases where scheme documentation was prepared prior to this date and, while Homes England recommend early adoption of the updated form of lease, they have confirmed that the previous forms of lease for the SOAHP 2016 to 2021 remain compliant.
Changes to the updated leases
- Underletting is no longer prohibited, but is subject to landlord’s consent, which consent may not be unreasonably withheld or delayed, and may be reasonably refused, if, for example, the underletting does not comply with Homes England guidance or grant funding conditions.
- Rent review – The definitions have been clarified and notice of the reviewed rent is now required prior to the review date.
- House Lease – The date of the relevant market value valuation has changed from 8 to 12 weeks.
- Flat Lease – Landlord’s deadline for responding to an offer to surrender has been reduced from 8 to 4 weeks.
- The use clause now includes “Permitted Use”, which allows working from a home office.
- Flat lease – express reference is made to the external fabric of the building being the Landlord’s responsibility.
- Drafting has been added in the house lease to:
- Include a full-service charge alternative to the ad hoc maintenance charge.
- Add a restriction to protect dealings.
- Require payments of estate charges under any estate transfer.
- Add a statement that the remedies in section 121 of the Law of Property Act 1925 do not apply in the transfer on final staircasing.
- The interest rate is now by reference to the Bank of England’s base rate.
- SDLT alternatives have been added, to be chosen by the leaseholder.
- Appendix 3 has been removed and is now a separate Key Information Document.
- Formatting has been amended and typos corrected, with plain English and inclusive terms more often used.
New Model Lease 2021 – 26 – When does the new model have to be used?
The Affordable Homes Programme 2021-2026 started on 1 April 2021. Any homes delivered through this programme must use the new model. Providers may, if they wish, use the new model for homes funded through the Shared Ownership Affordable Homes Programme 2016-2021 which complete after 1 April 2021.
The Government’s intention is that national planning policy will change to ensure that all new shared ownership homes delivered through section 106 developer contributions will need to be based on the new model, and we recommend providers speak to their planning advisors for the latest position.
Changes to the new model leases
- The minimum initial share that can be purchased has reduced from 25% to 10%.
- Option to staircase in 1% increments every year for the first 15 years of home ownership. Providers can’t charge an admin fee when the leaseholder staircases like this and both parties must pay their own costs. Larger shares can be purchased, although the minimum share has reduced from 10% to 5%.
- Introduces a 10-year period from the date of the lease while the home remains shared ownership during which:
- Providers are responsible for repairs to the external fabric of the building and structural repairs inside the home. They must not pass any expense on to leaseholders or use sinking fund contributions for the cost of these repairs.
- Leaseholders remain responsible for general repairs. They may, however, apply to providers for an annual contribution of up to £500 towards qualifying repairs and maintenance, including the repair and maintenance of installations for the supply of services to the home. If the shared owner does not claim the full repairs allowance in one year, a maximum of one year’s allowance will roll over to the following year.
- The leaseholder can end the nomination period at the four-week point if they wish to pursue a sale on the open market (or surrender the lease in the case of a flat) rather than the previous eight weeks.
- The lease must be granted with a term of 990 years; providers cannot grant a lease with an unexpired term of 989 years or less.
- The mortgage protection clause is now a fundamental clause so providers will need permission from Homes England to change its terms.
- Underletting is no longer prohibited, but is subject to landlord’s consent, which consent may not be unreasonably withheld or delayed, and may be reasonably refused, for example, if the underletting does not comply with Homes England guidance or grant funding conditions.
- The transfer on Final Staircasing must include a statement excluding the remedies available under section 121 of the Law of Property Act 1925.
What else has changed?
- A key information document pack must be given out by providers with the memorandum of sale, rather than including the KIDs within the lease, and the onus is on providers to ensure that the leaseholders understand the terms of the new lease.
- Providers must notify the leaseholder of the current value of their property each year, calculated with reference to the House Price Index.
At Clarke Willmott, we have been advising our registered provider clients on implementing the updated and new model leases across their developments, and drafting updated precedents, so please do contact us if we can be of assistance with the transition.