Many registered providers are starting to be asked to grant lease extensions to shared owners and the request is set to become more frequent. It is important that registered providers know their responsibilities when considering a request.
Shared ownership lease
The shared ownership model has been around for a while now. Shared ownership leases essentially allow a buyer to buy a proportion of shares in the property on a leasehold basis for a premium. The buyer will then pay a rent on the un-acquired proportion of the property and the registered provider will retain the freehold ownership of the property. Buyers will have the option to acquire further shares in the property at a later date.
Historically, shared ownership leases were granted for 99 years. This means that some shared ownership leases which were granted when the shared ownership model was introduced are likely to be fast approaching having less than 85 years left to run. Most mortgage lenders will not lend against a property unless there is a minimum period of 80 years left of the lease. This may make it more difficult for shared owners to sell or re-mortgage their properties.
Lease extension
Usually, tenants that are granted a lease for more than 21 years will have a right to statutory extend their lease. However, shared ownership leases do not benefit from this right and cannot insist on a lease extension (unless the shared owner has staircased up to 100%). This means there is no obligation on a registered provider to give shared owners a longer lease. However, guidance from Homes England suggests that ‘providers should grant lease extensions wherever possible and necessary’. In addition, if a registered provider were to refuse to extend a lease it is possible that this could have a negative PR impact on the registered provider.
Registered providers
If a registered provider is happy to extend the lease they will need to consider whether any consents are required from the regulator. They will also need to consider how best to structure their lease extensions and whether valuations are required. A lease extension can typically be done by either a variation to the existing lease or a longer lease granted which is based on the same terms which run alongside the existing lease (known as an overriding lease). The former may be more complex if the shared owner has an existing lender as the lender may also need to be involved in the lease extension.
More and more registered providers are being approached by shared owners to extend their leases and this is only set to increase. Registered providers should consider how they want to deal with lease extension requests and whether they want to develop a policy to deal with this.
At Stephens Scown we have specialists in lease extensions and social housing and can help registered providers decide how best to deal with lease extensions.