Shared Ownership Leases - a brief guide

 

 

It is not always understood that a shared ownership lease is quite different both from a standard lease, and from the normal concept of joint ownership when a lease is owned say by a couple in equal shares.

What happens is that a Housing Association grants a lease to the tenant, usually for 99 years, on payment by the tenant of a premium and a monthly rent and service charge. The premium represents a proportion of the value of the property, say 50% of the value. The rent payable is reduced accordingly, so the rent payable would be only 50% of the full rent. The tenant usually has mortgaged the lease to a building society in order to raise the premium.

The tenant is entitled to make further payments and ultimately to "staircase" his share up to 100%, at which point he becomes a full leasehold owner. Until then, there are various restrictions on disposition etc, and the tenant technically only has an assured tenancy with a contractual right to be granted a full 99 year lease as set out above. The lease can therefore be terminated under the various grounds in the Housing Act 1988 if, say, the rent is in arrears.

The tenant occupies the property and would receive any rent due from a sub-tenant (although sub-letting is normally prohibited by the terms of the lease).

The on-going rent is payable to the Housing Association. If it is not paid then they can take possession proceedings and end the lease, which may mean that there will be no equity for the tenant and nothing for the mortgagees, who only have a mortgage over the tenant's interest, not the freehold interest of the Housing Association. Because of this the lease contains a mortgagee protection clause requiring them to receive notice of possession proceedings and guarantying them a share of the proceeds of sale.

This is only a brief introduction to shared ownership lease and is not intended as legal advice. If you would like further information please contact Alan Lodge on 024 7623 4205.