Capital Funding Guide

1. Help to Buy: Shared Ownership

This chapter sets out the Agency’s requirements that apply to grant funded Help to Buy: Shared Ownership schemes. The chapter also includes the Agency’s standard model lease and details concerning the fundamental clauses of the shared ownership lease.

1. Overview

1.1 Purpose

1.1.1 Help to Buy: Shared Ownership is one of two products available under the Help to Buy branding. The other is Help to Buy - which offers Equity Loans to support the purchase of newly built homes from participating builders. This chapter sets out the Agency’s requirements that apply to grant funded shared ownership schemes.

1.1.2 Sales through Social HomeBuy and the Right to Acquire, together with their associated funding criteria, are separately covered in their own chapters of the Capital Funding Guide (CFG). Please note that shared ownership does not include rented property sold on shared ownership terms, such as Social HomeBuy.

1.2 Context

1.2.1 Help to Buy: Shared Ownership covers all properties developed with grant funding specifically for sale on shared ownership terms from January 2016. In addition to general shared ownership, it includes properties developed in/for:

  • Rural locations
  • Protected Areas
  • Older Persons
  • People with Long Term Disabilities

Funding for self builders is also included. For further details on all of these options, please see relevant entries below.

1.2.2 Following a consultation in 2015, the standard model lease has been updated to remove the requirement for leaseholders who have staircased to 100% and/or their assignees (‘Former Shared Owners’) to offer their former shared ownership homes back to the originating landlord prior to sale on the open market within the first 21 years following the final staircasing event (the Post Final Staircasing Right of Pre-emption). Where former shared owners or current shared owners have the post final staircasing right of pre-emption contained either within their existing form of lease or registered against their freehold title, this guidance makes clear that this should be removed from the lease or title to the property. Further detail is contained below at Section 5.

1.2.3 In circumstances where a shared owner has not staircased to 100% and wishes to sell, the obligation to offer their home back to their landlord (either for them to put forward a nominee purchaser or take a surrender of the lease) remains in place and must be complied with before they may offer a home on the open market. This is the pre-final staircasing right of pre-emption.

1.2.4 Schemes given grant confirmation before 1 April 2011 must follow procedures as set out in previous versions of the CFG. Where a scheme has been converted to shared ownership as part of an agreed programme of conversions agreed as part of an AHP delivery contract, the procedures in the current CFG should be followed irrespective of when the scheme originally received grant confirmation.

1.2.5 Registered Providers may also offer Affordable Rent properties to the existing tenants on shared ownership terms at the end of their tenancy. In these cases there are some differences, in particular to notifications to the Agency, customer eligibility and the role of the Help to Buy agent. For further guidance please see below.

In some cases an applicant offered a property on Affordable Rent terms has the option to purchase that property on shared ownership terms at the end of or during their tenancy.

Providers must notify the Agency of such sales, which will be administered in the same way as voluntary sales on shared ownership terms – please see Grant Recovery section 3.5.

Properties must be sold on usual shared ownership terms, following the requirements and guidance contained within this chapter. The only variations to this guidance are as follows:

  • Applicants need not be registered with their Help to Buy agent as for all other schemes. Their tenancy in an Affordable Rent property confirms the first stage of their eligibility for such a purchase and
  • Registered Providers must ensure that other eligibility criteria are met. These can be found in Applicant eligibility section 3.1. In particular providers must ensure that applicants can afford the purchase and sustain the costs of home ownership

In such cases the sales receipt, including the appropriate proportion of Agency funding, will be expected to be reinvested in further new supply of Help to Buy: Shared Ownership properties.

When disposing of Affordable Rent properties providers are reminded that they will be subject to the Regulator’s Consents to dispose regime.

1.2.6 Classifications of sale schemes Shared ownership may be provided using the following scheme types:

  • New build including Acquisition & Works, Off the Shelf (does not include the purchase of a single property) and Works Only schemes
  • Rehabilitation including Acquisition & Works, Existing Satisfactory*, Purchase and Repair and Works Only schemes

*only applies where a property is to be provided through Home Ownership for People with Long Term Disabilities (HOLD) (please see 1.3.8 below).

1.3 Main features of the schemes

1.3.1 Help to Buy: Shared Ownership is largely the same as shared ownership products. In all of these products the dwellings are part-rent/part buy (i.e. the property title and equity are split between the leaseholder (the shared ownership purchaser) and the landlord (the shared ownership provider) and are provided using the standard model shared ownership lease (please see section 5). The term ‘shared ownership’ has a legal meaning and is used in this context.

For a brief explanation of how shared ownership works please see the guidance below.

Purchasers of Help to Buy: Shared Ownership leases are allowed to buy an initial share of not less than 25% and not more than 75% based on a percentage of the full market value of the property.

The shared owner raises the funds to purchase their share in the normal manner e.g. some savings, possibly some family assistance, but primarily by taking out a mortgage from a bank or building society. NB it is not an absolute requirement that a purchaser must fund the acquisition with a mortgage, but it is the usual route to purchase. Where an applicant does not intend to raise a mortgage to make the purchase, they must be able to demonstrate that they have the means to afford and sustain home ownership longer term.

The provider then grants a leasehold interest to the shared owner. The shared owner occupies the entire dwelling, and pays a rent to the provider for the share of the property still owned by the provider.

The rent level is set by the provider, but the annual rent at initial sale must be no more than 3% of the value of the property in the ownership of the provider.

For example:

Property value at Initial Sale £200,000
Equity share purchased at Initial Sale 30%
Payment to provider at Initial Sale £60,000 (£200,000 x 30%)
Equity share retained by provider 70%
Value of share retained by provider £140,000 (£200,000 x 70%)
Max annual rent £4,200 (£140,000 x 3%)
Max rental payment £350 pcm /£81 per week

The leaseholder is liable for all maintenance costs on the property even if they only have purchased the minimum 25% equity share.

Over time, the leaseholder can purchase further shares in the property. In most cases they can if they wish, purchase up to 100% of the equity in the property, thus becoming the outright owner. This is a process known as ‘staircasing’ and is a fundamental clause of the grant funded shared ownership lease which guarantees the right of the shared owner to acquire 100% of the equity share. The only exceptions to this are specific types of shared ownership in which the lease is subject to staircasing restrictions. Please see section 1.3.7 for details.

For example:

Property value that Initial Sale £200,000
Equity share purchased at Initial Sale 30%
Provider’s share at Initial Sale 70%
Payment to provider at Initial Sale £60,000

Three years later:

Property value that Next Sale £240,000
Equity share purchased at Next Sale 30%
Payment to provider at Next Sale £72,000

As the leaseholder purchases greater shares in the property, their rent falls according to the proportion of unsold equity. Where the shared owner has become the outright owner of a house, the provider transfers the freehold, where applicable, of the property to the new owner. Where the leaseholder becomes the outright owner of the flat, the provider retains the freehold of the block of flats.

1.3.2 Help to Buy: Shared Ownership is aimed at helping people in housing need who are unable to afford to purchase a property on the open market. Help to Buy: Shared Ownership applicants are subject to applicant eligibility and affordability requirements.

It is anticipated that eligible applicants purchasing under Help to Buy: Shared Ownership will purchase a share in a property though:

  • Savings (if any)
  • A mortgage obtained through a qualifying lending institution (please see the Glossary chapter)

1.3.3 The following variations are also permitted under the shared ownership product and may be provided using grant:

  • Home Ownership for people with Long Term Disabilities (HOLD)
  • Rural schemes
  • Protected Area schemes (part of the rural programme framework) (from 7 September 2009)
  • Older Persons Shared Ownership and
  • Self build

For further details on these options, please see relevant entries below.

1.3.4 The minimum initial equity share that can be purchased is 25%; the maximum initial equity share is 75%. Further shares can be purchased at a later date; some restrictions might apply - see Help to Buy: Shared Ownership section 7.2. Providers should not fix the share of a given property to be sold in advance, but offer specific buyers a size of share appropriate to their individual circumstances.

1.3.5 Purchasers are encouraged to buy the maximum share they can afford and sustain from the outset.

1.3.6 Help to Buy agents will undertake an initial headline eligibility assessment at application stage to ascertain the maximum share that an applicant could afford and whether they could sustain homeownership in the long term. Providers that offer Help to Buy: Shared Ownership must then ensure that a further rigorous financial assessment is carried out taking into account savings, access to capital or any other assets, and outgoings, to assess the affordability of the purchase. For further guidance please see section 3 (eligibility) and section 6 (sustainability and affordability).

1.3.7 A self build option can allow some of the equity acquired by the shared owner to be based on the self builder’s notional labour cost during the construction period. For details on self build, please see 1.3.23 below and the Glossary chapter.

1.3.8 All sales must allow the shared owner to buy further shares and buy the property outright, with the following exceptions:

  • Older Persons Shared Ownership
  • Schemes funded in rural exception sites where the provider has chosen to restrict staircasing and
  • Schemes in Designated Protected Areas where the provider has opted to restrict staircasing.

1.4 Variant forms of Help to Buy: Shared Ownership

1.4.1 Home Ownership for People with a long-term disability (HOLD)

HOLD is a variant form of Help to Buy: Shared Ownership. The product operates in the same way as the Help to Buy: Shared Ownership lease, except that it is designed to assist people with a long term disability to purchase a second hand home on the open market more suitable for their needs, where such properties are not being offered for Help to Buy: Shared Ownership where they need to live. For further guidance please see below. There is also additional guidance, including FAQs, available on the Agency website.

People with long term disabilities’ is not defined for the purposes of affordable home ownership, but would include people with learning difficulties.

By way of an example of a situation where HOLD may be appropriate, someone with a long term disability may have a need for a single ground floor property whereas only two storey properties are being developed for shared ownership assistance, or there may not be shared ownership within a reasonable distance of necessary support networks.

In such instances a provider would arrange to purchase a suitable property being offered for sale on the open market, and then sell the property to the applicant on standard shared ownership terms.

Changes to Support for Mortgage Interest payments from the Department of Work and Pensions may affect the ability of some applicants to afford and sustain a purchase via HOLD. However, the Agency will not prohibit applicants who would otherwise rely on Support for Mortgage Interest, provided that they can demonstrate that they are able to sustain their mortgage payments.

1.4.2 There are no additional HOLD applicant eligibility criteria and people with long term or other disabilities would normally be expected to apply for Help to Buy: Shared Ownership, without the need to resort to the HOLD variant, where providers are developing properties that meet their individual needs.

1.4.3 Note HOLD is not available as a right and participation of providers to make HOLD available is entirely at their discretion. The Help to Buy Agent will be able to provide further information.

1.4.4 It is expected that providers assisting purchasers via HOLD will have had experience of working with and/or providing on-going support for the client groups they are proposing to assist. As HOLD supports individual purchases and not scheme development it is not recommended that provider seek an allocation of grant funding to offer HOLD in advance but when progressing a HOLD allocation providers must manage purchasers’ expectations as funding will be dependent on individual case by case assessment and budget availability.

1.4.5 HOLD will comply with all the requirements elsewhere in the programme and the Agency’s model shared ownership lease requirements (i.e. fundamental clauses, initial rent, and staircasing opportunities). However, because the provider has not developed the property as part of its shared ownership development programme there is an opportunity to offer, and include in the lease, an optional repairs and maintenance service paid for by the leaseholder. There is no requirement for such an optional service to be part of the Agency’s fundamental clause (please see section 5.6.5 below).

1.4.6 The lease for the HOLD variation of Help to Buy: Shared Ownership is no different from standard shared ownership lease. HOLD has as its aim to assist people with a long term disability to purchase a home more suitable to their needs on the open market on a shared ownership basis, rather than one being developed by a provider. The usual shared ownership requirements apply, and it is anticipated that providers would use the Agency’s standard model leases.

1.4.7 The home selected for purchase must be in England and meet the following criteria:

  • The size of the home must be suitable for the applicant’s current housing needs as determined by the provider. For guidance on “suitability” see section 3 (eligibility) and section 6 (sustainability and affordability)
  • The home selected must have a wholly residential use. A home where the planning use is part commercial is not eligible

For examples please see below.

A home where planning use is part commercial is not eligible. Flats over a shop would be eligible, provided that the flats are self-contained and wholly residential and the access to the flat is appropriate for the purchaser’s requirements.

1.4.8 The home selected must be bought with vacant possession with the following conditions:

  • Be immediately habitable or
  • Be a new home under construction, provided
    • the property is available freehold or have a lease length of at least 99 years as well as meet the lender’s requirements
    • the property does not benefit from any other form of public subsidy
  • The home selected must be acceptable to the HOLD provider and for mortgage loan purposes, and be in a reasonable state of repair as evidenced by a homebuyer’s survey and valuation or equivalent
  • A new property must have a National House Building Council guarantee or a similar warranty by a reputable insurance company as agreed by the HOLD provider
  • Second hand open market leasehold property must provide the HOLD Provider with sufficient length of term i.e. a leasehold interest of more than 55 years as well as meet the conventional mortgage lender’s requirements

1.4.9 The provider may reject a home it considers is in poor condition, based on the information provided in the survey or by the vendor. Where the vendor has agreed to carry out works before completion, the provider may approve the home on condition that the works are completed to a satisfactory standard prior to purchase.

1.4.10 Excluded properties The following type of property cannot be purchased:

  • A commercial property
  • A home on sale at auction
  • A mobile home (including fixed homes covered by the Mobile Homes Act 1983), caravan or houseboat
  • A home offered at a discount or on shared ownership terms by a provider or local authority or other public body. This includes properties sold with a discount funded through a section 106 agreement, except where the property has been privately funded and no other public subsidy has been used. This is a temporary measure only, and is intended to help to minimise the hardship experienced by home buyers. The Agency will keep this under ongoing review
  • A plot of land on which to build
  • A home which is to be built by the applicant or a self build group
  • A property occupied by sitting tenants

1.4.11 HOLD and supporting people Providers participating in the provision of the HOLD variant of shared ownership must be familiar with relevant local strategic priorities and services for people with long term disabilities and ensure that the purchasers are aware of and supported, if required, by appropriate local arrangements for example Supporting People services which the relevant local authority has in place.

1.4.12 As the property purchased through the HOLD variant of shared ownership will not have been developed by a provider, providers offering HOLD must consider whether it is appropriate to provide a repairs and maintenance service in return for a fee, to purchasers within the terms of the shared ownership lease. There is no requirement for such a service to be included as part of the Agency’s required service charge clause.

1.4.13 Older Persons Shared Ownership

Older Persons Shared Ownership operates on shared ownership principles but with some differences from Help to Buy: Shared Ownership:

  • It is only available for people aged 55 or over
  • The maximum level of equity that can be purchased is 75%
  • When the maximum level of equity has been purchased the leaseholder does not have to pay rent on the remaining 25% share of the property
  • At 75% ownership the leaseholder does NOT have to pay rent on the remaining 25% share of the property

Please see below for additional guidance.

The Agency has been advised that Older Persons Shared Ownership is exempt from Leasehold Protected Area legislation requiring shared ownership leases in protected areas to allow leaseholds to staircase to at least 80%.

1.4.14 Providers must give priority to people who are unable to afford the full costs of purchasing sheltered accommodation.

1.4.15 Providers must not consider any sale to a person younger than 55. The Housing Ombudsman Service has ruled that sales to someone not meeting the age restriction could be a breach of the terms of the lease.

1.4.16 Rural Schemes restricted staircasing

Applicable to rural exception sites only, this allows providers to restrict the limit on staircasing on grant funded shared ownership property to a maximum of 80% of the value of the property. The shared owner will continue to pay rent on the remaining 20% of the property.

1.4.17 Rural Restricted Staircasing may be used in conjunction with the repurchase option outlined above.

1.4.18 Providers will need to take their own legal advice as to the appropriateness of this option but should be aware that a limited range of mortgage products may be available to prospective purchasers as a result of its use.

1.4.19 Designated Protected Areas

Designated Protected Areas are as detailed in the Housing (Right to Enfranchisement (Designated Protected Areas) (England) Order 2009 (Statutory Instrument 2009/2098). These are settlements also currently designated as being exempt from the Right to Acquire (i.e. with a population of less than 3,000). Locations currently covered by the above order may be subject to review in due course by The Department for Communities and Local Government. The maps referred to in the regulations are available in electronic format from rural champions at local offices of the Agency. To obtain a copy of any of the maps please contact mail@homesandcommunities.co.uk.

1.4.20 Due to a previous anomaly in the law (Statutory Instrument 1987/1940) relating to leasehold enfranchisement and shared ownership leases of houses, the Housing (Shared Ownership Leases (Exclusion from Leasehold Reform Act 1967) (England) Regulations 2009 (Statutory Instrument 2009/2097) were enacted with effect from 7th September 2009. The regulations set out criteria that a shared ownership lease must fulfil that where a tenant cannot acquire 100% of the property they cannot exercise their right to enfranchise under the Leasehold Reform Act 1967. For further guidance please see below.

Before the enactment of these regulations, restricting staircasing carried the risk of “early” enfranchisement, i.e. that the shared owners of houses could purchase the freehold under rights in the Leasehold Reform Act 1967 before they owned 100% of their home. This is because under that legislation providers were only protected from the risk of early enfranchisement if their shared ownership leases allowed purchasers to eventually staircase to 100%. If staircasing was restricted as a means of retaining shared ownership properties as affordable, providers would not be protected under the legislation and would be at risk of early enfranchisement. It was possible in some circumstances for providers to rely on “the low rent test” to avoid early enfranchisement but this is an old mechanism which has gradually been phased out and around which there is some confusion.

This was a risk for shared ownership houses only, not flats, since under current legislation the tenant’s share of a shared ownership lease of a flat must be 100% before the lease is regarded as a long lease for the purpose deciding whether or not the tenant has the right to join together with other tenants to buy the freehold of the property containing their flats (collective enfranchisement).

1.4.21 The Agency’s Designated Protected Area policy is designed to maintain availability of grant funded shared ownership properties within these areas. Although the regulations only apply to houses, (for the reasons set out above) it is the Agency’s policy that it will apply the requirements for retention in the legislation to grant funded shared ownership schemes for both flats and houses developed in Designated Protected Areas.

1.4.22 The Agency has included the requirement to retain flats in its Designated Protected Areas policy for the following reasons:

  • It will assist the with retention of all new shared ownership property in Designated Protected Areas
  • It will put leaseholders in flats on a similar footing to leaseholders in houses

1.4.23 The legislation aims to ensure that grant funded shared ownership property in difficult to replace areas can be retained for the benefit of local people.

1.4.24 A key aspect of the Designated Protected Areas regulations is that shared ownership leases issued in respect of property in Designated Protected Areas must contain certain clauses to retain the property as shared ownership for future purchasers. Shared ownership leases in Designated Protected Areas must include a requirement either:

  • To restrict staircasing to a maximum of 80% or
  • Where the lease allows staircasing to exceed 80%, for the leaseholder to sell their share back to the landlord when they wish to sell the property

1.4.25 For further information concerning repurchase please see below.

Designated Protected Area leasehold repurchase

This variant is still Help to Buy: Shared Ownership, except that the provisions only apply when the leaseholder staircases to beyond 80% and wishes to sell on. It enables providers to fulfil the legislative requirements and repurchase the property from the (former) shared owner (at full market value) in order to resell it on a shared ownership basis to another local person in housing need.

Where providers have robustly explored and exhausted all other funding options, including the use of recycled grant and or a transfer of recycled grant, the Agency will positively consider applications to fund the repurchase of grant funded property within a Designated Protected Area, where funding is available.

1.4.26 From 1 April 2011, if a local authority considers a development that is situated within a Designated Protected Area does not need to be protected in order to retain properties as shared ownership for future purchasers, then they can apply to the Agency for a waiver of Designated Protected Area grant conditions on a site specific basis. Further guidance on Designated Protected Areas and the waiver form can be found on the Agency website. If providers consider that the nature of their proposed development does not require protection, they should approach the local authority in the first instance, which if in agreement may approach the Agency.

1.4.27 Where cases are supported by the local authority and waiver of Designated Protected Area grant conditions is approved by the Agency’s operating area, providers can develop properties for sale as shared ownership without the requirement to include one of the two Designated Protected Area lease clauses set out at 1.3.32.

1.4.28 For further information on Designated Protected Area lease requirements see section 5 below.

1.4.29 For further information on additional grant eligibility requirements for Designated Protected Area schemes see section 9 below.

1.4.30 Designated Protected Area restricted staircasing

Designated Protected Area legislation allows landlords to restrict the limit on staircasing on shared ownership property in Designated Protected Areas to a maximum of 80% of the value of the property. Where a shared owner has purchased shares to the maximum of 80% they will be required to pay rent on the remaining 20% of shares retained by the landlord.

1.4.31 Alternatively landlords can permit the shared owner to acquire more than 80% of the property, but in this case the Protected Areas repurchase provision must apply (please see section 9 below).

1.4.32 Landlords will need to take their own legal advice as to the appropriateness of these options, and which one to use. Landlords must be aware of the potentially limited range of financial products which may be available from lenders to prospective purchasers should they restrict staircasing to 80%.

1.5 Self build

1.5.1 This is shared ownership, except in respect of the manner in which the property is constructed. For further guidance please see below.

Where self build shared ownership is offered and potential shared owners can reduce the cost of developing the properties by contributing some of the construction labour themselves. This contribution to the development costs by the self builder is recognised by the vendor who assigns a share in the equity of property to the self builder equivalent to the value of the labour which the self builder provided during the construction process.

1.5.2 Please note that ‘self build’ in this context is different from the ‘Self Build’ product that was previously funded by the Housing Corporation and developed for outright sale by a mutual co-operative Self Build Group. Please see chapter the Glossary chapter for details of the distinction between the two.

1.5.3 Self build schemes developed for shared ownership must be financially viable and must look to demonstrate a maximum scheme cost/value relationship of 80% i.e. the costs of the scheme must be at least 20% less than the value of the completed properties. Any schemes that fall short of this criterion will be subject to technical assessment by the Agency.

1.5.4 Providers must also ensure that:

  • The self build group is registered with the Registrar of Friendly Societies on National Housing Federation model rules
  • The selfbuild group works with a provider which can claim grant
  • The provider signs an appropriate Development Agreement with the selfbuild group
  • The rules and working regulations of the selfbuild group provide adequate management structures and procedures for the provider

2. Funding principles

2.1 General

2.1.1 The total subsidy (new grant and recycled capital grant) eligible for a Help to Buy: Shared Ownership scheme should be the minimum necessary to bring the scheme forard is set out in the provider’s original allocation as agreed by the Agency. Where there are changes to the number or cost of units, or where delivery is otherwise altered from the original allocation, any agreed changes to subsidy will be addressed through the contract management process (please refer to the relevant form of Affordable Homes Programme Grant Agreement).

2.2 Financial viability

2.2.1 It is expected that the proposed initial sale and rent income will have been considered and that, in the long term operational costs including the repayment of loan principal and interest can be met. Any initial revenue deficits must be within providers’ general capacity. The Social Housing Regulator will monitor the impact of development on the providers’ general financial status.

2.3 Sales valuations

2.3.1 Providers must obtain valuations from a Royal Institute of Chartered Surveyors qualified independent valuer at the initial sales stage and on staircasing.

2.3.2 Initial sales must be based on the full market value of the property which shall be assessed as the price the leasehold interest in the property would fetch if sold on the open market by a willing seller upon the terms and conditions contained in the shared ownership lease on the assumption that the leaseholder would acquire a 100% interest in the lease.

2.3.3 For subsequent staircasing transactions, the provider shall follow the valuation requirements in Schedule 6 (Staircasing Provisions) of the model form of flat lease or Schedule 5 (Staircasing Provisions) of the model form of house lease.

The following additional conditions apply to staircasing valuations:

  • The tenant’s improvements and failure of the tenant to keep the property in good repair are to be disregarded*
  • Any service charges or improvement contributions payable will not be less than the estimates contained in the landlord’s offer (if such an offer was made)
  • For freehold property, the landlord is selling a freehold interest with vacant possession
  • For leasehold property, the landlord is selling with vacant possession for the appropriate term, i.e. not less than 125 years (where applicable) or a term expiring five days before the term of the landlord’s lease is to expire

*For guidance regarding the classification of improvements and repairs please see below.

The Agency anticipates an improvement being something that might add to a property’s value rather than something that is being replaced or repaired. The staircasing valuation should therefore be based on the market value had the improvement not been undertaken.

If the tenant has not kept the property in good order, as is required by the shared ownership lease, the staircasing valuation should be based on the market value as if it had been.

Therefore a current market valuation may need to be adjusted upwards or downwards depending on any act or omission committed by the tenant.

2.3.4 Where, in exceptional circumstances, providers set sale prices above the valuation, they must:

  • Seek the approval of the Agency’s operating area before proceeding, providing a robust business case for selling above the valuation and
  • Document the reasons and keep a record on file for audit purposes and
  • Satisfy themselves the price remains within the means of the potential purchasers

2.3.5 If, in exceptional circumstances, providers wish to reduce prices below the valuation they must:

  • Have the prior agreement of the Agency’s operating area (agreement will NOT be given where the discounted price is below the cost of providing the homes)
  • Demonstrate how discounts would benefit subsequent purchasers (for example, reductions in the initial rent will provide a longer term benefit to purchasers and enhance affordability)

2.3.6 Validity period for a valuation Where no validity period is given for the valuation it will be assumed that the valuation is valid for three months. When an offer is made on a property, the valuation current at the time of the offer will be assumed valid for three months from the date of the offer.

2.4 Rents and service charges

2.4.1 Providers are required to provide rents and service charge information for shared ownership properties and must keep details of rents, including service charges, on file for Compliance Audit purposes. Rents for shared ownership properties are not subject to the Regulator’s Rent Standards and Rent Influencing Regime. For more detailed requirements see section 4.

2.4.2 Providers are expected to propose levels of rents that are considered affordable to potential purhcasers.

2.4.3 A provider’s proposed rent as a percentage of unsold equity is set as part of the initial allocation. Providers are then required to maintain the same percentage through to completion.

2.5 Notifications to the Regulator

2.5.1 Registered Providers do not need to notify the Regulator when issuing shared ownership leases that cannot be classed as assured tenancies (e.g. because of low rent).

2.6 Grant

2.6.1 Providers may use grant and Recycled Capital Grant funds for shared ownership schemes, on condition that the scheme is consistent with the permitted uses of the Recycled Capital Grant Fund (see the Grant Recovery chapter).

2.6.2 Providers may combine new and recycled grant in one scheme (on condition that the scheme is consistent with the permitted uses of all forms of grant), but must declare the total amount of grant to be used as part of the bid for funding. Providers cannot add additional recycled grant to contribute towards the costs of the scheme without prior approval from the Agency.

2.6.3 For details of how to claim grant and payment arrangements see Finance section 3.

2.7 Builders’ warranties

2.7.1 Providers must ensure that house builder warranties suitable for mortgage purposes together with the accompanying ‘cover note’ as required under the Council of Mortgage Lenders initiative are available upon completion of homes.

2.8 Conversions of unsold Shared Ownership homes

2.8.1 It is expected that providers will conduct their own market research before bidding for grant and make development decisions based on expectations of sales. However, the Agency appreciates that local demand may change and leave providers unable to sell their shared ownership homes.

2.8.2 In such circumstances the Agency will consider a permanent or temporary change of use to Rent to Buy.

2.8.3 In exceptional circumstances only, requests to convert homes to Affordable Rent may be considered.

2.8.4 As a minimum, the Agency expects that shared ownership homes will have been marketed for six months before considering requests to approve conversions. Providers should make a business case to their local operating area which provides details on:

  • How long the property has been marketed for
  • What actions have been taken to find a suitable purchaser
  • Why these have not been successful
  • What local authority support exists for the proposed new tenure
  • Evidence from the relevant Help to Buy Agent that the provider has made all reasonable attempts to market and sell the properties

2.8.5 Providers should note that a change of use is a relevant event (relevant event j) for recycling of grant and can be permanent or temporary. 3.4.1 of the Registered Provider Grant Recovery chapter and section 3.4.8 of the Unregistered Bodies Grant Recovery chapter for more details.

3. Applicant eligibility

3.1 General

3.1.1 Help to Buy: Shared Ownership aims people that are in housing need who are otherwise unable to purchase a property on the open market.

3.1.2 In order to be eligible to purchase a shared ownership property under Help to Buy: Shared Ownership, applicants must have a household income of less than £80,000 and be otherwise unable to purchase a property suitable to meet their housing needs on the open market.

3.1.3 Applicants are primarily expected to be first time buyers, though some applicants who own or have previously owned a home may be eligible - please see section 3.5 below for further details.

3.1.4 Providers must direct all households that are interested in accessing Help to Buy: Shared Ownership to the Help to Buy agent for their locality, with whom the applicant must register (see guidance on Help to Buy Agents).

3.1.5 Following initial eligibility assessments by the Help to Buy agents, it is required that providers conduct their own assessment of individual applicants to ensure that they meet all eligibility criteria. Where there are long delays between initial application and exchange of contracts, providers must ensure that applicants continue to meet the eligibility criteria, as their circumstances may have changed (for example, an applicant may have changed jobs or formed a new partnership).

3.2 Applicant Priority

3.2.1 The government has removed all priority groups for assistance, where there is under supply. The exception is when Armed Forces personnel apply and in circumstances of under supply priority must continue to go to Serving military personnel and former members of the British Armed Forces discharged in the last two years.

For guidance on the specific eligibility requirements for military personnel please see below.

Military personnel

Ministry of Defence personnel will be prioritised for shared ownership schemes where:

  • They have completed their basic (phase 1) training and they are one of the following:
    • Regular service personnel (including Navy, Army and Air Force)
    • Clinical staff (with the exception of doctors and dentists)
    • Ministry of Defence Police Officers
    • Uniformed staff in the Defence Fire Service
  • They are ex-regular service personnel who have served in the Armed Forces for a minimum of six years, and can produce a Discharge Certificate (or similar documentation) as proof, where they apply within two years (24 months) of the date of discharge from service or
  • They are the surviving partners of regular service personnel who have died in service, where they apply within two years (24 months) of the date of being bereaved. For details of how surviving partners are defined, please see the link below.

Further information about surviving partners can be found in the MOD surviving partners guidance

There will be some service personnel such as the Ghurkhas and those from Foreign and Commonwealth countries that qualify under the criteria but do not have indefinite leave to remain in the UK. A Ghurkha is guaranteed indefinite leave to remain on completion of their term of service but no such guarantee applies to Foreign Commonwealth Office personnel. Immigration status should be taken into account by the provider in deciding whether an applicant can sustain the costs of home ownership. The Agency would encourage providers to highlight this in marketing material in order to manage the expectations of groups without indefinite leave to remain.

Forces Help To Buy

This enables Service personnel to borrow by way of an advance, up to half their annual salary. Please see the Forces Help to Buy guidance note for further details.

3.2.2 Where shared ownership properties are being delivered on a rural exception site the priority for allocations will be set out in the section 106 agreement agreed between the local planning authority and developer/registered provider. This will often stipulate that priority will be given to applicants that meet the criteria set out in 3.2.1 with a connection to the local area – and provide a cascade out to the subsequent areas that will be given priority; this stipulation will take precedence over the general applicant priority rankings in 3.2.1 above. For guidance on what is considered to be a rural exception site, please see below.

The National Planning Policy Framework provides a definition of ‘Rural exception sites’ as small sites used for affordable housing in perpetuity where sites would not normally be used for housing. Rural exception sites seek to address the needs of the local community by accommodating households who are either current residents or have an existing family or employment connection. Small numbers of market homes may be allowed at the local authority’s discretion, for example where essential to enable the delivery of affordable units without grant funding.

3.2.3 An applicant who is an existing tenant must not be in rent arrears or in breach of their current tenancy agreement at the time of the application. Where a tenant is or has been in arrears for a short period due to a sudden change in circumstances or an administrative delay or error in recording the rent paid in the provider’s rent accounts, the Help to Buy agent may use their discretion to allow the case to proceed where it is satisfied the rent is being paid and the applicant has sufficient income to support a mortgage loan. In the case of private sector tenants, the Help to Buy agent must be satisfied that the tenant has not had a history of rent arrears.

3.2.4 Where there is an application from a provider’s own tenant, the rented property must be able to be re-let to a local authority nominee. However, if the Help to Buy agent has instructed the applicant to proceed and the local authority then fails to nominate someone from its waiting list, the application can proceed on the basis that the provider will nominate a household from its own waiting list for the rented property.

3.2.5 An existing social tenant whose property has to be vacated for repairs or demolition and who needs to be re-housed in alternative accommodation from the provider may also be accepted onto the programme providing they meet the other eligibility criteria.

3.2.6 Tenants of mutual co-operatives are also eligible to participate if they meet all the other eligibility requirements.

3.2.7 In the case of joint tenants where only one tenant qualifies for the programme, the purchase can proceed in the name of the qualifying tenant provided both tenants surrender the joint tenancy and vacate the tenanted property on completion of the sale. In these circumstances the Help to Buy agent should satisfy itself that the non-qualifying tenant is either intending to live with the qualifying tenant or has identified alternative private living accommodation suitable for their housing needs.

3.3 Joint applicants

3.3.1 An eligible applicant who wishes to buy a home with someone else can only proceed on the condition that all joint applicants become joint owners. Although joint applicants need not all be existing tenants, or other priority buyers, they must have their financial status assessed by the Help to Buy agent.

3.3.2 Anyone joining in the application who already owns or part owns a home must sell it at the time of jointly buying through Help to Buy: Shared Ownership.

3.3.3 A sole qualifying applicant wishing to purchase jointly may only proceed on the condition that they are to be a joint legal owner of the property. A deed of trust providing rights of occupation for a qualifying applicant is unacceptable as an alternative to becoming a joint legal owner.

3.3.4 An existing tenant qualifying for the programme may have a partner who does not want to join in the application. The application can proceed in the sole name of the qualifying applicant provided the current landlord gains vacant possession of their current property and there is no obligation to re-house the partner.

3.4 Income and assets

3.4.1 For all Agency grant funded for Help to Buy: Shared Ownership, £80,000 is the maximum household income threshold. Only in exceptional circumstances will the Agency consider applications from households with incomes above the maximum threshold. Where providers consider cases are exceptional they are required to prepare a robust business case setting out why the threshold should be waived and submit this to the Agency’s operating area.

3.4.2 Capital, access to that capital, and any income generated by it will be taken into account when assessing their eligibility for Help to Buy: Shared Ownership. However, any lump sums paid to eligible members of the armed forces as a result of illness or injury are to be disregarded when assessing eligibility and sustainability – please see section 6.1.5 below. Please note that the above applies to one-off lump sums only and not to other payments, such as pensions, which are still classed as income.

3.4.3 ‘Access to capital’ as detailed in the above section means that applicants will be expected to liquidate what capital assets they may have. Capital assets could include savings, bonds, shares, land and any other financial investments.

3.4.4 Applicants must be able to afford their purchase and sustain their housing costs. Providers must undertake appropriate checks on the applicant to ensure that they are able to do this. Please see section 6.

3.4.5 As part of this process, providers will need to check the applicant’s immigration status. Please see section 3.6.

3.4.6 It is the applicant’s responsibility to notify the provider and Help to Buy agent of any changes to their circumstances after the application details have been checked by the Help to Buy agent.

3.4.7 Where applicants may have received, or be eligible for, cash incentives from local authorities and intend to use them as a contribution towards a purchase through Help to Buy: Shared Ownership, this may class as double subsidy. Such incentives will not make applicants ineligible provided that the relevant local authority has approved its value-for-money test. The Agency will not ask to see a copy of the local authority assessment but providers must retain confirmation that the local authority test has been completed.

For further guidance please see below.

Prior to April 2011, providers were required to make an individual business case to the Agency in all cases of potential double-subsidy. This decision has now been devolved to the local authority. This approach will give local authorities greater flexibility to assist social tenants in their areas and to respond to local circumstances.

The Agency is not prescriptive in terms of how local authorities should make such decisions and is supportive of local authorities who wish to encourage social tenants in their area into sustainable home ownership. Some things which local authorities may wish to consider include:

  • The combined cost of the incentive and the grant funding for the affordable home ownership home compared with the cost of new rented provision
  • The type/size of homes likely to be vacated (e.g. large family homes or bungalows) and whether these may be more expensive/difficult to develop
  • Particular pressures on rented housing in the area and comparative costs associated with this (e.g. costs of temporary accommodation for homeless households) and
  • Whether or not the incentive payment is repayable, in what circumstances and subject to what conditions. A genuine loan would not count as double-subsidy and therefore not need to be subject to this test

Assisting existing social tenants to meet their home ownership aspirations by purchasing affordable housing where this is sustainable can generate re-lets at lower cost than new rented provision. Where existing tenants intend to support their affordable home ownership application with their ‘incentive’ local authorities will be required to sign off their value-for-money test. This test forms part of the local authority’s consideration of its tenants’ incentive schemes.

3.4.8 The structure of such incentive schemes is a matter for the local authority but providers must satisfy themselves that their legal interests are not jeopardised. For the avoidance of doubt the Agency will not allow any incentive schemes which involve a legal charge on the property where the Agency already holds a legal charge. Providers can allow a legal charge to be applied on other forms of affordable home ownership but such charges will not affect the amount of grant due to be repaid/recycled, for further information on calculating recoverable grant please see Grant Recovery section 3.

3.5 Existing owners

3.5.1 Owner occupiers, can, in exceptional cases, have access to the scheme subject to the following conditions:

  • That they meet the general eligibility criteria for the scheme, that is that the annual household income is no more than £80,000 and are otherwise unable to afford to purchase a property without assistance
  • Each application will be assessed on its individual merits by the Help to Buy agent and provider
  • Existing home owners must have written support from the relevant local authority that the applicant has a housing need before being accepted onto the scheme. It is for local authorities to determine how best to make such assessments of housing need and determine their own processes which are likely to be most responsive to their local housing markets and
  • The provider must retain a record of the local authority’s written support

3.5.2 Other existing shared owners who qualify for assistance are able to move from their existing shared ownership home and purchase a new home built under the Help to Buy: Shared Ownership programme which can also include the resale of a shared ownership property. Existing shared owners are not required to meet the conditions set out at 3.5.1, save that they must continue to meet the general eligibility criteria of earning less per household than £80,000 and be otherwise unable to afford to purchase unassisted. Existing shared owners are required to have disposed of their existing shared ownership home at the point of purchase.

3.5.3 Existing owners deemed eligible in accordance with 3.5.1 above are required to have already sold their property or sell their property at the same time as buying through shared ownership. In exceptional cases where an applicant is prevented from accessing or selling their existing home an application may be considered, but only with the Agency’s prior written agreement. For an example please see below.

An example might be an applicant who is prevented from returning to the country where their home is located. Providers must contact the Agency’s operating area and provide full details of why they consider an application should be allowed to proceed.

3.5.4 Requests to waive the requirement to sell an existing property will normally be denied unless there are truly exceptional circumstances, such as explained above. Should providers receive requests from applicants to waive the requirement to sell existing property in other circumstances they should bear in mind the following guidance.

Requests to waive the requirement to sell existing properties in the following circumstances will normally be denied where such properties are:

  • Second homes
  • Holiday homes
  • Homes abroad and
  • Homes in negative equity

It is the Agency’s policy that the above properties should be sold before it is asked to help someone purchase a property intended to be the applicant’s main residence.

3.5.5 If, having considered the above requirements and guidance, a provider is still of the opinion that an application should proceed the provider must forward a detailed request to the Agency’s operating area setting out the following:

  • The applicant’s reasons why the application should be allowed to proceed
  • Details of how the applicant has demonstrated that the existing property could not be sold
  • Why the applicant could not borrow against the existing property to fund a purchase without government assistance and
  • The provider’s own reasons for supporting the application.

The fact that the Agency is prepared to consider exceptional cases is not an indication that there will be a positive outcome.

3.5.6 Applicants with existing property which may be considered commercial in nature may be excused from selling such property where the following criteria are met and provided the Agency has given its prior approval:

  • The property is not or would not be suitable as a residential dwelling, such as a shop, or other business premises which provides the applicant’s main source of income
  • The property is residential and is already tenanted and the applicant can demonstrate:
    1. No access to the property for their own residential needs
    2. That the rental income is the applicants main source of income
    3. That the total household income is below the maximum household income permitted
  • The applicant has satisfactorily explained why s/he should not sell the property and put the proceeds towards the purchase of a residential home.

3.6 Immigration Act status

3.6.1 People accessing grant funded shared ownership properties are required to demonstrate that they can afford and sustain home ownership in the longer term (see section 6 below).

3.6.2 Those applicants who are subject to immigration control (i.e. who require leave to enter or remain in the United Kingdom under the Immigration Act 1971) are less likely to be able to satisfy this requirement unless they have indefinite leave to remain in the UK.

3.6.3 However, there is nothing which legally prevents individuals subject to immigration control and without indefinite leave to remain from accessing shared ownership, provided that they fulfil the provider’s usual requirements. If such an applicant can demonstrate their ability to sustain their home ownership obligations, it is likely to be discriminatory to deny them access to affordable home ownership assistance.

3.6.4 Providers may wish to take the view that if a qualifying lending institution is willing to provide finance for the purchase then the individual is considered good security and therefore should be allowed access to the scheme.

3.6.5 Providers must adopt a case by case approach and are responsible for the decision as to whether the individual in question qualifies for Help to Buy: Shared Ownership.

3.7 Specialist eligibility criteria

3.7.1 There are additional considerations regarding eligibility for Home Ownership for People with Long Term Disabilities (HOLD) and Older Persons Shared Ownership.

3.7.2 Home Ownership for People with Long Term Disabilities (HOLD) People with long term or other disabilities would normally be expected to apply for and receive shared ownership assistance through Help to Buy: Shared Ownership, but in certain circumstances can have access through the specialist HOLD product.

3.7.3 If there are no shared ownership or Equity Loan properties available in a particular area or the existing properties are unsuitable, purchase of a property on the open market may be considered provided that there is a registered provider willing to participate. In these cases applications to purchase via HOLD will also require a letter of support from the applicant’s local authority, stating that the applicant has a specific need that means that available shared ownership properties are unsuitable, or that an applicant needs to live in a particular area where no suitable Help to Buy: Shared Ownership properties are available.

3.7.4 As with Help to Buy: Shared Ownership applicants need to be able to sustain the cost of home ownership. This will require applicants to either have a lump sum sufficient to cover the initial purchase without the need for a mortgage, or an on-going source of income sufficient to secure mortgage finance.

3.7.5 Please note that there are currently a very limited number of lenders providing interest only mortgages for applicants intending to cover their mortgage repayments solely through the Support for Mortgage Interest benefit. Participating lenders have geographical restrictions and product information can only be accessed via My Safe Home.

3.7.6 Providers intending to offer HOLD should therefore ensure that applicants are strongly advised to get independent financial advice on what assistance may be available to them, and their ability to afford shared ownership.

3.7.7 Older Persons Shared Ownership Applicants must meet the Agency’s standard eligibility criteria (see section 3.2 above). However the following exceptions and additions should be followed:

  • Older Persons Shared Ownership is only available for people aged 55 or over
  • Older Persons Shared Ownership applicants who are currently homeowners will need to sell their existing property before buying using Older Persons Shared Ownership, though they will not require a local authority nomination in order to be approved as eligible
  • The Help to Buy agents/provider will not carry out the usual sustainability assessment, but in determining eligibility must take into account the level of equity available from the sale of any existing property along with any additional savings. Applicants with sufficient equity to be able to purchase a suitable property on the open market should not be assessed as eligible
  • Older Persons Shared Ownership applicants may need to retain a higher level of savings or investments than other applicants to provide ongoing income (in which case it should be taken account of in the headline eligibility check) to cover ongoing living and care costs. The provider should make a judgement on this on a case-by-case basis, according to the individual circumstances of the applicant, but the overall expectation remains that Older Persons Shared Ownership applicants will use the majority of their capital to fund the purchase of the property and
  • For extra care schemes providers can use an additional degree of flexibility when making this assessment, to take into account the higher ongoing costs of the care being provided

4. Rents and service charges

4.1 Rent levels at initial sale

4.1.1 For some explanatory guidance about Help to Buy: Shared Ownership rents please see below.

Shared ownership leases are assured tenancies and as a result are not subject to rent control under the Rent Act 1977. The setting of rents for shared ownership is a matter for the provider to agree with the leaseholder at the point at which the lease is granted. However for grant-funded schemes, the provider has to comply with the relevant requirements set out this Guide, which sets a maximum rent level and maximum rate of rent increase.

4.1.2 Rents and service charges must be reasonable and consistent with those agreed at bidding stage and in compliance with the Regulator’s standards.

4.1.3 The initial rent must not exceed 3% of the capital value of the unsold equity at the point of initial sale, but it can be less.

4.1.4 Providers are encouraged to set rents that average no more than 2.75% of the value of the unsold equity at the point of initial sale.

4.1.5 In setting rents providers must have regard to the affordability of the total housing expenditure of the residents i.e.

  • Mortgage costs
  • Rent and
  • Service charges (including the cost of management and insurance)

4.2 Rent increases

4.2.1 Once the method of setting increases has been decided on and written into the lease, then the provisions of the lease will be binding.

4.2.2 Annual rent increases are to be limited to RPI plus 0.5%, using the RPI figure, for a specified month, published annually. NB. registered providers should note that the change introduced from April 2015 for calculating target rent incorporating CPI does not apply to the annual rent increases for shared ownership.

4.2.3 When the RPI figure for the specified month is nil or negative, the Agency requires any rent increase to be limited to a maximum of 0.5%.

4.2.4 However increases may be set below this figure, a rent increase not applied, or, where considered appropriate by the landlord, a rent reduction may be applied.

4.2.5 This is a matter for landlords to decide but in doing so landlords should consider whether or not the terms of the lease would be breached. For further guidance please see below. For advice on interpretation of the terms and enforcement by or again the landlord, the landlord and or the leaseholder should take their own legal advice.

4.2.6 Although the wording in the Agency’s fundamental Rent Review clause defines “New Gross Rent” as the “Gross Rent increased…” when the RPI figure for the specified month is nil or negative and landlords choose not to apply an increase, the Agency will not consider this a breach of that fundamental clause and will not consider grant recovery on these grounds. Neither would the Agency anticipate a formal variation to shared ownership lease for this purpose. Please see below for further guidance.

When choosing not to apply a rent increase when RPI is nil or negative the Agency does not anticipate that shared ownership leases should be subject to a formal variation as this would be both costly and time consuming for both landlords and leaseholders. However both parties to the lease should seek their own legal advice as necessary.

4.2.7 Providers can choose whether to increase rents on the anniversary date of each lease, or whether to increase all of their shared ownership rents on the same date each year e.g. 1 April.

4.2.8 Notice of any rent increase must be given in writing to the leaseholder according to the manner and time stated in the lease.

4.3 Level and quality of management and maintenance services and service charges

4.3.1 It is a condition of grant that shared ownership leases must include a service charge clause where appropriate. Please see section 5.3.40.

4.3.2 Where providers are selling flats and maisonettes on a leasehold basis they will continue to be responsible for the repair and maintenance of the building and the provision of services such as lighting in communal areas. Providers will need to apportion these costs to the individual unit and recover the costs from the leaseholders by way of the service charges.

4.3.3 Providers must comply with the Regulator’s Standards and Landlord and Tenants Acts in respect of setting service charges. The level of service charge must be affordable for the intended client group and not vary from the proposed service charge at bid stage.

4.3.4 The provider must ensure, in consultation with the leaseholder, that its building insurance policy provides adequate/appropriate cover particularly in respect of alternative accommodation for the leaseholder should the property become uninhabitable.

4.3.5 Providers must set up and maintain sinking funds for the long term upkeep of flats. It may also be appropriate in some instances to levy an estate rent charge for houses on estates with communal facilities. However, the contribution to a sinking fund for freeholders is a contractual obligation, as a condition of conveyance, rather than statutory one. Providers will need to consider the most appropriate mechanism for the recovery of these monies bearing in mind the purchasers and potential purchasers involved.

5. Leases

5.1 General

5.1.1 For grant-funded Help to Buy: Shared Ownership, the rights and obligations of both the landlord (i.e. the provider) and tenant (i.e. the shared owner) are set out in the shared ownership lease. The provider has a contractual right to ensure that the shared owner complies with the terms of the lease. Providers developing grant funded homes on shared ownership terms must ensure that their shared ownership leases are mortgageable and contain provisions (including fundamental clauses – see 5.2) that qualify the scheme for grant (see sections 5.3 to 5.8 below). In all cases, providers must consult their solicitors on the form of lease to be used in particular in relation to the scheme type for which the shared ownership lease is required.

To assist Help to Buy: Shared Ownership providers, the Agency has published model house and flat leases for Help to Buy: Shared Ownership. Social HomeBuy and Protected Areas variants are also available on the Agency’s website. The Agency recommends that providers developing shared ownership with grant should adopt the model lease. The model leases and related documentation may be amended from time to time, in order to reflect changes in legislation and policy. In most cases such changes will be prospective and therefore should not affect leases that were issued before a particular change was implemented.

The Agency has consulted with the Council of Mortgage Lenders and others in the preparation of its published model leases, and providers are strongly advised, but not obliged, to use them.

From 1st October 2008, the Agency’s model leases have not required the parties to enter a restriction on property title at the land registry. This used to be entered when shared ownership leases were registered to ensure that the Agency’s consent was sought to any variation to the terms of the registered lease and to protect public funds.

The Agency will no longer rely on a restriction at the Land Registry to protect its fundamental clauses in shared ownership leases. Instead it will rely upon adherence to both the conditions set out in the affordable housing programme delivery contract and the CFG, and potentially the grant recovery provisions.

Providers only need the consent of the Agency if they want to vary one of the fundamental clauses (please see 5.2).

For further information about the removal of the restriction please refer to the Agency’s guidance document entitled Procedures for varying shared ownership leases - background information (refer to section 11 below and scroll to bottom of page).

5.1.2 Following changes to remove the pre-emption right post 100% staircasing the Agency has re-published a suite of model leases for use from 30 April 2015, which are current.

5.1.3 For guidance on the Agency’s current suite of shared ownership leases, please see section 11.

5.1.4 To qualify for grant providers must ensure that leases contain the fundamental clauses detailed in the model lease (see 5.2 below).

5.1.5 Where providers are not using the Agency’s model leases, they must ensure that their leases comply with the Agency’s scheme/grant criteria and contain the fundamental clauses exactly as worded in the Agency’s model leases.

5.1.6 Providers must retain a copy of the form of lease granted for each scheme (i.e. one example pro forma for the scheme) as well as retaining the original counterpart lease signed by each leaseholder (i.e. for each individual property) at their registered office or solicitor’s office.

5.1.7 Providers must refer to the Agency’s guidance document entitled ‘Procedures for varying shared ownership leases’ - background information. Please see section 11.7 for further information, particularly on varying any of the lease clauses. Registered Providers are asked to note that the Agency will not normally agree to requests to vary any of the fundamental clauses.

5.2 Fundamental clauses

5.2.1 The model leases, published in section 11 below, which are for use by providers for grant funded Help to Buy: Shared Ownership properties completed on or after 30 April 2015, contain the following fundamental clauses, that must be included in Help to Buy: Shared Ownership leases:

  • Alienation provisions (refer to clause 3.18, in the model flat lease and 3.19 in the model house lease)
  • Mortgagee Protection (refer to clause 8 in the model flat lease and clause 6 in the model house lease and see below for additional guidance on the clause)
  • Staircasing provisions (refer to the sixth schedule of the model flat lease and part 1 of the fifth schedule in the model house lease)
  • Protected area staircasing provisions, where appropriate (refer to clause 3.17 and the sixth schedule of the model flat lease and the fifth schedule of the model house lease)
  • Rent review (refer to the fifth schedule of the model flat lease - fourth schedule in the model house lease)
  • Pre-emption provisions (refer to clause 3.19 and seventh and eighth schedules in the model flat lease- and clause 3.20 in the model house lease)

Mortgage lenders need to ensure that adequate security exists at all times for their lending on properties purchased on shared ownership terms from providers. Although lenders can rely on the standard form of shared ownership lease as security for lending, there are circumstances in which a lender will view their security as being at risk - for example, where a provider is considering possession or forfeiture proceedings under the provisions of Schedule 2 to the Housing Act 1988 (Grounds for Possession of Dwelling-Houses let on Assured Tenancies).

To ensure mortgage lenders have a reasonable opportunity of remedying a breach of the lease (which could result in a provider taking legal action under the provisions of 1988 Housing Act), lenders will require providers to provide a written undertaking to give reasonable notice before legal proceedings are commenced

For additional guidance on providers’ obligations, please see the Shared Ownership Joint Guidance published by the Agency, National Housing Federation and the Council of Mortgage Lenders.

5.2.2 For leases issued with effect from 22 October 2010, the service charge clause is not treated as a fundamental clause (please see section 5.3.40 below). For enquiries relating to proposed changes to existing leases already granted, please contact the relevant operating area of the Agency.

5.2.3 In addition to the fundamental clauses, where one of them is referred to in the defined terms in the lease, that defined term cannot be altered without the consent of the Agency

5.2.4 In addition to these fundamental clauses all leases granted on or after 30 April 2015 must include an appendix setting out key information for shared owners. The Agency has published a version which can be found in section 11.2.2 below. The information contained in this document explains to the shared owner, in plain English, their rights and responsibilities under the lease. Providers can add further information to this but must not change any of the existing wording.

5.2.5 This key information sheet explains how shared ownership works as well as the operation of the lease in relation to: standard obligations, rent reviews, disposals, the landlord’s right of first refusal and mortgagee protection. It also makes clear to shared owners the importance of paying their rent to the provider and meeting their other obligations under the lease. In addition to shared owners it may also be of assistance to non-experts who wish to understand the operation of shared ownership.

5.2.6 Varying shared ownership leases Where providers seek to vary a lease, they must first refer to the Agency’s guidance document entitled ‘Procedures for varying shared ownership leases - background information’ (please see section 11.7 below). They will then need to seek their own legal guidance on whether the proposed variation affects a fundamental clause, either by directly changing it or by introducing other changes that affect the application of the clause. Where it is the case that a variation affects a fundamental clause, providers must seek the Agency operating area’s approval for the variation. It is anticipated that approval will only be given to correct errors or in exceptional circumstances. For further guidance please see below.

Having firstly referred to the Agency’s guidance document entitled Procedures for Varying Shared Ownership Leases - Background Information, providers must, as a minimum. confirm and provide details as follows:

  • Whether or not the variation affects a fundamental clause
  • Whether it is a draft lease or an existing one
  • Which fundamental clause is affected and the consequences for the operation of the lease should change be approved
  • Why the variation is necessary
  • The implications should approval to vary not be given and
  • A track changes version of the proposed revision

5.2.7 Variation of a fundamental clause without the Agency’s approval may result in grant recovery.

5.3 General features

5.3.1 Term To qualify for grant funding the term of the lease must be at least 25 years longer than the term of the provider’s long term loan and be acceptable for mortgage purposes. For information, the Agency’s model lease provides for a 99-year term.

5.3.2 Where providers themselves only have a short term leasehold interest i.e. fewer than 55 years, the scheme is ineligible for grant.

5.3.3 Where the provider’s interest (the landlord’s interest) is leasehold and that interest is 99 years or fewer, the term of the lease granted on the initial sale must be for a period which terminates five days prior to the termination of the landlord’s interest.

5.3.4 Providers can grant leases for a period of more than 99 years.

5.3.5 Initial share The shared owner’s initial share of the property must be a minimum of 25% and a maximum of 75%.

5.3.6 Premium The premium payable (sale price of the lease) on the grant of the lease must be equal to the relevant percentage of the market value of the property as assessed by an independent Royal Institute of Chartered Surveyors qualified valuer e.g. if 25% is sold, the premium will be 25% of the market value.

5.3.7 Providers must instruct the valuer to assume that:

  • The sale is for the freehold interest, or where the provider’s interest is leasehold, a 99 year lease or such lesser term of years as the provider holds
  • The sale is an open market sale
  • A shared ownership lease has not been granted
  • The sale is to be with vacant possession

5.3.8 In exceptional circumstances providers may sell at a discount, where there has been a change of market circumstances since the allocation stage. For an explanation of selling at a discount please see below.

Where property prices are very high compared with local incomes, many applicants may have difficulty funding their purchase, even where they only wish to buy the minimum 25% share.

Under these circumstances, the provider can sell their share of the property at a discount - i.e. selling an equity share at a lower price than the value of their share.

For example:

Market Value of property £200,000
Market Value of 25% share £50,000

The provider may choose to sell a 25% share for £40,000 rather than the £50,000 it is worth. This is selling at a discount, as the leaseholder obtains their 25% share for less money that it is worth. The provider has therefore “lost out” financially.

An alternative approach would be to assess what the applicant can afford - £40,000 - and sell them an appropriate equity share. However, in this example the provider would have to sell only a 20% share. As this is below the minimum 25%, the provider is unable to do this on a grant funded scheme.

5.3.9 All proposals to sell at a discount must be agreed by the Agency. Proposals to sell at a discount will only be considered where the provider provides evidence that prospective buyers cannot afford to purchase at least 25% on the basis of market value.

5.3.10 Discounts cannot be considered:

  • Where the price would be reduced to below the cost of provision or
  • Where the value of the discount would exceed the maximum allowed for the statutory Right to Buy or Right to Acquire for the area, whichever is the higher

5.3.11 Where a discount is being offered, providers must ensure (in consultation with their legal advisors) the benefit of the discount is passed on to all future purchasers. Discounts must NOT be given where only the first purchasers would benefit.

5.3.12 Staircasing provisions (see also section 7.2)

With the exception of specified rural, protected area and Older Persons Shared Ownership, all grant funded shared ownership leases must contain provisions allowing the leaseholder to buy further shares up to 100%.

5.3.13 Leases containing restrictive staircasing provisions (other than for the products mentioned above) will render a scheme ineligible for grant funding.

5.3.14 The lease must provide that the leaseholder can staircase to 100% in minimum tranches/shares of 10% (including the last tranche). For maximum tranche percentages please see the guidance below.

Agency policy does not restrict staircasing to a maximum tranche percentage, however clause 5(2) of The Housing (Shared Ownership Leases)(Exclusion from Leasehold Reform Act 1967)(England) Regulations 2009 allows for additional shares to be acquired in instalments of 25% (or such lesser percentage as may be specified in the lease). The Agency’s model shared ownership house leases reflects this requirement by way of the staircasing provisions and the definition for portioned percentage.

Landlords should seek their own legal advice, but the Agency would allow more than one separate staircasing transaction to occur on any one day if deemed appropriate to enable staircasing purchases in excess of 25%.

5.3.15 Exclusion from leasehold enfranchisement

What is leasehold enfranchisement?

Leasehold Enfranchisement is a loose term which is used to refer to a number of rights to which leaseholders may be entitled, allowing them to improve the “quality” of their title in the following areas:

  1. Flats

a) Lease extension b) Collective purchase of the freehold c) Right to manage

  1. Houses - Buying the freehold
  2. Right of first refusal

5.3.16 All leases granted in respect of houses and bungalows must be excluded from the enfranchisement provisions of the Leasehold Reform Act 1967, Leasehold Reform (Housing and Urban Development Act) 1993 and The Commonhold and Leasehold Reform Act 2002 in order to qualify for grant. Changes to the above legislation by means of the Housing (Shared Ownership Leases (Exclusion from Leasehold Reform Act 1967) (England) Regulations 2009 are designed to further protect landlords from early enfranchisement. Landlords must take their own legal advice as appropriate.

5.3.17 Rent Providers must ensure that there are appropriate rent provisions (see section 4) and a means of reviewing rent increases.

5.3.18 Stamp Duty and legal fees Purchasers of shared ownership properties are responsible for the payment of their own legal fees and Stamp Duty Land Tax.

5.3.19 The shared ownership leases must contain an appropriate Stamp Duty Land Tax statement which gives an option of paying either:

  • On a market basis as if the property had been purchased outright from the beginning or
  • In stages, paying the amount due on the initial share, and then only paying further amounts when the shares purchased exceed 80% of the value of the property

For guidance please see below.

HM Revenue and Customs gives beneficial treatment regarding Stamp Duty Land Tax to properties sold on shared ownership terms, if the lease contains an appropriate statement that the tenant wishes to take advantage of this treatment. Where a shared owner elects to pay Stamp Duty Land Tax on the value of the initial share purchased only, the Stamp Duty certificate should be removed from the lease. The certificate appears in the model House lease at paragraph 7 and 9 in the model Flat lease. N.B. where the purchaser intends to pay Stamp Duty Land Tax on 100% of the value of the equity, then the certificate should be retained in the lease

A Stamp Duty Land Tax enquiry line (0300 200 3510) can help calculate the amount of tax payable in any particular scenario, but cannot advise which option is in the purchaser’s best interest. Providers are encouraged to bring the availability of this service to the purchaser’s attention in order that they may make an informed choice.

Please also refer to the HMRC website for more information.

5.3.20 Providers should recommend that purchasers should seek advice from their conveyancing solicitor over the best option for them. For additional guidance please see below.

As per 5.2.1 above, the standard model lease contains a “staircasing” clause. This is a fundamental clause that allows shared owners to purchase additional shares in the property, usually up to 100% ownership, in tranches as and when they are able. The lease prevents landlords from being able to fetter or otherwise interfere with the operation of this fundamental clause and therefore a shared owner’s ability to staircase. There may be cases where a shared owner wishes to staircase to full ownership by making two simultaneous or near simultaneous transactions, the effect of which may be to reduce their stamp duty liability.

If providers have any concerns about the way in which a shared owner is structuring their proposed staircasing transactions, and the potential consequential impact on their liability to pay Stamp Duty Land Tax, then they are advised to seek their own legal and/or tax advice regarding how they should proceed.

5.3.21 Sub-letting Shared ownership leases must prohibit sub-letting by the leaseholder to protect public funds and ensure applicants are not entering shared ownership for commercial gain. For further guidance please see below.

Whilst shared ownership leases must prohibit sub-letting by the leaseholder the Agency’s model shared ownership lease does not prohibit the leaseholder from taking in a paying guest/lodger.

However, providers should be reminded that the provision of shared ownership and other grant funded low cost home ownership products are intended to provide assistance to purchase accommodation to meet an applicant’s residential needs and not business needs. Therefore the Agency does not anticipate shared ownership accommodation being used as commercial bed and breakfast accommodation.

For more information on renting a room to a lodger, please see the Department for Local Government and Communities booklet, Letting rooms in your home: A guide for resident landlords.

This stops the leaseholder having the right to sub-let, but allows the provider to agree to sub-letting arrangements if they choose to do so in exceptional circumstances

5.3.22 Providers must consider requests to sub-let on a case-by-case basis. It is the provider’s decision as to whether they agree to the request and permit sub-letting. Providers must consider the following issues when dealing with requests:

  • Do the reasons for sub-letting genuinely stem from unavoidable need, and are not primarily for speculation or gain?
  • Does the person(s) to whom the leaseholder sub-lets also satisfy the provider’s criteria for shared ownership?
  • Are the terms of the sub-let for a fixed period during which the shared owner will retain ownership of the lease? and
  • If required, does the leaseholder have the permission of the mortgage lender?

Where a provider has any doubt as to whether or not to allow a subletting request, they should contact the operating area in the first instance.

5.3.23 If a request is from a serving member of the Armed Forces whose tour of duty requires them to serve away from the area in which they live (a distance of at least 50 miles or 90 minutes travelling time) for a fixed period, and the general criteria above are also met, the shared owner may sub-let subject to the provider being satisfied that all of their additional criteria (if any) are met.

5.3.24 In all cases providers must seek their own legal advice before agreeing to sub-letting.

5.3.25 Pre-emption Right

The Pre-emption Right is a fundamental clause of the shared ownership lease. Until 30 April 2015, the Agency’s model lease included a post final staircasing right of pre-emption as well as a pre-final staircasing right of pre-emption.

5.3.26 Changes introduced in 30 April 2015 removed the requirement to include the post final staircasing right of pre-emption. The pre-final staircasing right of pre-emption remains as a fundamental clause.

5.3.27 A revised form of model lease has been published on the Agency’s website for Registered Providers to use for new shared ownership properties from 30 April 2015. Please see section 11 below.

5.3.28 For properties where a shared ownership lease has been entered into prior to 30 April 2015 (or using the model form of lease applicable prior 30 April 2015) there are a number of different scenarios which may apply:

Flats

  1. Existing leases pre final staircasing – the Agency recommends that the pro forma deed of variation should be entered into prior to or on final staircasing at the option of the leaseholder. The deed of variation is intended to remove the lease provisions relating to the post-final staircasing right of pre-emption. Once amended by the variation, the form of lease will allow the leaseholder to apply to remove the restriction from the title on final staircasing.

  2. Existing leases post-final staircasing – the same form of deed of variation will apply. The amended form of lease will enable to leaseholder to apply to remove the restriction as it will no longer be required by the lease.

Houses

  1. Existing leases pre-final staircasing – although a similar deed of variation could be used for the House lease, the only provisions which need to be changed are contained in the form of draft transfer which is appended to the lease. In our view it therefore very difficult to provide a useful pro forma deed of variation as each transfer will be specific to the property in question. As the draft form of transfer contained in the house lease is subject to further amendment in any case upon final staircasing, a more pragmatic approach would be to remove the Right of Pre-emption from the transfer at this stage. We confirm that the inclusion of the post final staircasing right of pre-emption is no longer a funding condition. Removal of the pre-emption provisions from the transfer on final staircasing will mean that a title restriction is no longer required for this purpose.

  2. Freehold houses post-final staircasing – Shared ownership providers who have the benefit of restrictions on title protecting post final staircasing Rights of pre-emption in relation to houses (former landlords) and former shared owners should note that the title restriction protecting the post final staircasing right of pre-emption is no longer a funding condition and should be dealt with, either through withdrawal or cancellation, prior to any onward sale on the open market. Once achieved the former shared owner would be free to sell on the open market without first having to offer back their property to the former landlord. Where the former shared owner intends to apply to remove the restriction on title, they may choose to make an individual application to cancel restriction in Land Registry Form ‘RX3’ supported by evidence that the restriction is no longer required. Former landlords should provide reasonable assistance to former shared owners in providing confirmation of their support of such applications. Where the former landlord intends to withdraw the restriction on title themselves this can be achieved through Land Registry form ‘RX4.’ For further guidance please see below.

For flats once the deed of variation has been entered into the restriction will only be required to stay on the property title prior to final staircasing.

Once the deed of variation has been registered against the title to the property, upon final staircasing the memorandum of final staircasing can be provided to the Land Registry as confirmation that the former shared owner has purchased 100% of the equity in support of the leaseholder’s application to remove the restriction.

For existing leases post-final staircasing, the former shared owner will need to apply to the Land Registry to remove the existing Form M restriction at the same time as applying to register the deed of variation against the title to the property.

We have agreed with the Land Registry that the executed form of deed of variation together with a copy of the memorandum of final staircasing will be sufficient supporting information to enable the leaseholder to apply for the removal of the restriction using Land Registry form RX3. Ordinarily the Land Registry provides specific notification to parties with the benefit of a restriction confirming that an application to remove a restriction has been submitted. In these circumstances we have agreed with the Land Registry that specific notification to the landlord will not be required as they will have entered into the deed of variation and executed the memorandum of final staircasing.

In the case of a house pre-final staircasing, the restriction protecting the right of pre-emption is only registered against the title to the property after final staircasing and the transfer of the freehold to the former leaseholder. There will therefore be no requirement to remove a restriction from the title relating to the Landlord’s rights of pre-emption where the leaseholder has not acquired a 100% interest in the property

In the case of a house post-final staircasing, the former shared owner’s Form RX3 would need to be supported by the former landlord in providing evidence of their support to the application.

Or

An individual application by the former landlord (or their successor) could be made to withdraw the restriction. This application would be made on Form RX4 (section 47, Land Registration Act 2002 and rule 98, Land Registration Rules 2003.)

Currently no Land Registry fee would be payable in either case.

5.3.29 Leasehold Repurchase

Please note that this is not the same as Flexible Tenure. For an explanation please see below.

Flexible Tenure or downward staircasing involves the re-purchase of some or all of the equity from the existing shared owner. Following flexible tenure the shared owner or former shared owner (tenant) continues to live in the property either owning a smaller share and paying a higher rent or simply paying rent as a sitting tenant.

By contrast, Leasehold Repurchase (other than in the circumstances outlined in 7.4.2) involves buying all of the current leaseholder’s share of the property because they need to move and the provider is unable to find another household in housing need who can afford to purchase the current leaseholder’s equity.

The difference is that in Flexible Tenure the intention is the leaseholder remains in the property, whereas under Leasehold Repurchase, the leaseholder vacates the property.

Right of first refusal is when someone who has staircased to 100% is required by a clause in their shared ownership lease (or freehold transfer) to firstly offer the originating landlord the option to buy back the property before selling on the open market.

5.3.30 The landlord may offer to repurchase the lease where the following conditions are satisfied:

  • The property was grant funded
  • The shared ownership lease was issued after April 2006 and contains a clause giving the landlord an option to indicate whether or not it will consider buying back the property – clause 3(16) b ii in the Agency model shared ownership lease
  • The leaseholder has not staircased to 100% and
  • The leaseholder is required to move, for example the property is no longer suitable for the leaseholder’s needs, or the leaseholder’s employment requires a change in location

However, the Agency would only expect the provider to exercise the repurchase option as above where the value of the property means that it has not been possible to find a suitable nominee able to afford to purchase the existing share, and the leaseholder has been unable to find a purchaser on the open market.

5.3.31 Where a provider considers repurchasing flats under the above conditions they can use their own resources or recycled grant. The usual recycled grant rules will apply to the subsequent sales receipts.

5.3.32 Providers will then be required to sell the lease on current shared ownership terms at a lower percentage to make the property more widely affordable. For example, the original leaseholder held a 60% share but the provider nominee could only afford to purchase a 40% share.

5.3.33 Rural schemes: Leasehold repurchase option

(See section 8 below)

This product is the same as shared ownership, except that its provisions extend beyond the time when the leaseholder staircases to full ownership and covers when the shared owner wishes to sell the property. It enables providers to repurchase the property from the outright owner (at full market value) in order to resell it on a shared ownership basis to another local person in housing need.

5.3.34 This scheme only applies in settlements with a population of up to 3,000, and to leaseholders who were granted a shared ownership lease prior to 7 September 2009 when the requirement to issue Protected Area shared ownership leases was introduced (please see section 1.3.34 and section 9 below).

5.3.35 This ensures that grant funded low cost housing in rural areas, where the provision of replacement housing can often be difficult, can be retained for the benefit of local people.

5.3.36 The Agency will endeavour to make grant funding available to fund rural repurchases, where the homes are required to remain affordable in perpetuity, only when all other funding options have been explored and exhausted by providers.

5.3.37 Resale nominations Where a shared owner who has less than 100% of the equity in their property, is looking to sell their share, the terms of the lease require them to offer the property (initially) to qualifying applicants nominated by the provider.

5.3.38 If the provider is unable to nominate a suitable purchaser within eight weeks, under the terms of the lease the owner will be able to sell the property on the open market. In practice, this will usually mean that the shared owner will perform a “back-to-back” sale i.e. they will need to staircase to 100% ownership and sell the property outright simultaneously. If the proposed purchaser only wants to buy a share of the property they will need the provider’s permission, which should only be given where the proposed purchaser meets the Agency’s shared ownership eligibility criteria current at the time of purchase.

5.3.39 Please see below for guidance. However, it will be for providers to satisfy themselves that resales have been conducted in accordance with the terms of the lease.

Leaseholders may have concerns about their financial capacity to undertake back to back sales, the Agency anticipates that providers or the leaseholder’s conveyancing solicitor will be able to provide guidance and advice to those shared owners on the mechanics of such sales.

5.3.40 Service charge clauses

The Agency recognises that the form of wording used in the current model lease will not be appropriate in all circumstances, and whilst the Agency no longer requires the service charge as worded to be a fundamental clause, the inclusion of a service charge is still a condition of grant.

5.3.41 In light of this, for leases issued on or after 22 October 2010, the provider is permitted to make such amendments to the model clause (and the related definitions) as are required to reflect the requirements of the individual development. It will be for providers to ensure that the form of service charge clause included in the relevant lease is compliant with the relevant statutory and regulatory requirements and provides an appropriate mechanism to enable the landlord to recover its service charge costs.

5.3.42 If a provider wishes to alter the service charge clause in a lease granted before 22 October 2010, then they are able to do so. However the provider should ensure the lease remains compliant with the relevant statutory and regulatory requirements and must seek their own legal advice about changing leases retrospectively. The provider should also keep on file a record of when the change is made and the reason for the change.

5.4 Rural Provision

Please also see section 8.

5.4.1 Providers developing schemes currently as part of the Agency’s rural programme (i.e. in settlements of up to 3,000 inhabitants or less, including rural exception sites) have been required to employ one or both of the following options:

  • To repurchase the property once the maximum share permissible has been acquired and the shared owner wishes to sell (see above guidance) and
  • To restrict the maximum level of equity that can be purchased to 80% on rural exception sites only (restricted staircasing).

The restricted staircasing option is one of a number open to providers looking to develop shared ownership properties with grant on rural exception sites where the provider is required to retain the homes in perpetuity.

In deciding whether to use this option providers need to be aware of local circumstances and the fact that, by being able to staircase to 100% equity, the purchaser gains access to a wider range of financial products to fund their purchase. The concerns of local planners and landowners should not be overlooked in arriving at a decision.

Providers have the option of retaining the properties in perpetuity through the Rural Repurchase scheme. Although the initial purchaser can staircase to 100%, under the buy-back arrangements providers can offer the property back on shared ownership terms to another local household enabling them access to affordable home ownership - see section 8.1.1 below for funding arrangements for buy back and the circumstances in which grant may be available.

When using the above provisions providers have been required to include relevant clauses in the lease. Please note that where schemes in rural areas have been sold without staircasing restrictions, new shared ownership leases should allow 100% staircasing.

For some comments on these options please see above.

5.4.2 The Designated Protected Area regulations require landlords to include the clauses in their leases as detailed immediately below.

5.4.3 Designated Protected Areas provision

Landlords developing schemes in Protected Areas as designated by the Housing (Right to Enfranchise) (Designated Protected Areas) (England) Order 2009 (SI 2009/2098), and as required by The Housing (Shared Ownership Leases)(Exclusion from Leasehold Reform Act 1967) Regulations 2009 (SI2009/2097), are required by the Agency to include the following conditions in their shared ownership leases:

  • That the shared owner is able to acquire at least 80 per cent of the total shares of the equity in the property
  • That where the lease enables the shared owner to acquire more than 80 per cent of the shares in the property and the shared owner wishes to sell those shares the shares must be sold to the landlord or its nominee and
  • That the sale must be at market value as prescribed in the regulations (Statutory Instrument 2009/2097)

For further guidance please see below.

The Housing (Right to Enfranchise) (Designated Protected Areas) (England) Order 2009 (SI 2009/2098) provides full details of the locations classified as having protected area status. In the main these are settlements of less than 3,000 inhabitants and those areas exempt from the Right to Acquire. They are also the same rural areas where local authorities may apply the rural exception site policy.

For full details of the order please refer to the Government’s Legislation website.

5.4.4 As indicated in section 1.4.24, whilst the regulations apply to houses, it is the Agency’s policy that both houses and flats will be included in its designated protected area programme. Where the Regulations refer to the term ‘houses’ this should be read to include flats for the purposes of the Agency’s Designated Protected Area programme. When using the above provisions landlords must include relevant clauses in the lease or use the Agency’s model Designated Protected Areas leases.

5.4.5 Providers intending to use the buyback option should consider mortgage lender requirements in drafting this particular clause, in particular the timescales. The Agency will accept variation to that part of the clause if the lender requires it.

5.5 Older Persons Shared Ownership

5.5.1 In addition to the requirements listed above at 5.3, leases must:

  • Be granted to a person aged 55 years or over. Providers must not consider any sale to a person younger than 55. The Housing Ombudsman Service has determined that sales to someone not meeting the age restriction must be regarded as a breach of the terms of the lease
  • Restrict the maximum share to 75% of the open market value (either at initial sale or upon staircasing)
  • Contain no rent provision where the maximum share of 75% has been acquired
  • Make provision for access to person centred services to support individuals. Where no resident warden is available the lease must detail the service available to the leaseholder for obtaining emergency assistance. This may be provided by a peripatetic warden employed by the provider, a local authority or a private agency
  • Restrict assignment to a person of or over the age of 55 at the date of assignment except where assignment is to a deceased leaseholder’s spouse residing at the dwelling at the time of death. The restriction on assignment equally applies to a mortgage company
  • Contain a covenant prohibiting underletting of the whole or part of the dwelling
  • Not provide for the leaseholder to acquire the landlord’s interest under an option to purchase and
  • Contain a landlord covenant to provide the leaseholder with a list of duties included in the basic management fee and itemise and price those which are to be charged separately

5.5.2 The Agency does not produce a model lease for Older Persons Shared Ownership schemes. In order to address the points above, it is recommended that the model Designated Protected Area lease be used, with the restricted staircasing clauses used (and the buyback clauses in blue deleted). The maximum percentage will need to be amended to 75% in the particulars. In order to meet the requirements of restrictions on assignment, a clause can be inserted in addition to the fundamental alienation clause.

5.5.3 If the Agency’s published Designated Protected Areas leases are amended as recommended above there is no need for formal Agency approval. Should the Agency discover that variations have been made that do not meet the above, this will be considered a breach of grant conditions and grant may be recoverable.

5.5.4 All fundamental clauses as mentioned at 5.2.1 must remain in the lease in the correct form, including the mortgagee protection clause, but other clauses (including those above) can be added to the lease to suit the scheme without reference to the Agency.

5.6 Self build shared ownership

5.6.1 All leases must be granted simultaneously after confirmation of final costs and values and the determination of the ‘sweat equity’ (i.e. the proportion of equity to be granted as a reward for the self builder’s labour).

5.6.2 If the sweat equity amounts to less than 25% of the total value of a dwelling, the self builders must purchase additional equity to have the minimum of 25%. If this is to be purchased with a mortgage the provider must check that the self builder can raise that mortgage and sustain it (see section 3 (eligibility) and section 6 (affordability).

5.6.3 A provision must be inserted into the lease as to the effect that it is a lease under which the tenant (or tenant’s personal representative) will or may be entitled to a sum calculated by reference directly or indirectly to the value of a house or dwelling.

5.7 Account year-end date

5.7.1 Within the flat leases, the account year is shown as ending on 31 March. Whilst this date can be varied to reflect the end of the landlords’ accounting year, a specified date must be included. There is no requirement for providers to consult the Agency before varying the date.

6. Sustainability and affordability

6.1 General

6.1.1 Providers must direct all households that are interested in accessing Help to Buy: Shared Ownership to the Help to Buy agent for their locality, with whom the applicant must register. As part of their role the Help to Buy agent will undertake an initial eligibility and sustainability assessment, which will establish the share that can be purchased and whether the applicant can sustain homeownership in the long term. They must provide the applicant with an ‘Indicative Mortgage Level’. Providers must then carry out their own more detailed affordability assessment at the purchase stage, and retain copies of both assessments on file.

6.1.2 Providers must encourage purchasers to buy the maximum share they can afford and sustain. Providers must sell shares flexibly in accordance with the purchasers specific circumstances (e.g. not just to nearest 10%) and must not sell all properties in a scheme at the same share rate (e.g. all at 25%) regardless of individual purchaser circumstances.

6.1.3 The Agency requires providers to use the sustainability calculator and guidance or a methodology of comparable standard to determine the share an applicant can purchase and an applicants’ ability to sustain home ownership when accessing shared ownership. This can be adapted to suit individual circumstance, whilst ensuring that long term sustainable home ownership remains the primary objective. The sustainability calculator is not to be used as an affordability calculator which providers must make their own provision for.

Please see below for calculators and guidance:

6.1.4 For additional guidance on establishing sustainability and affordability, please see below.

The Agency recommends that Help to Buy agents and providers maintain a panel of Independent Financial Advisers to provide a more in-depth assessment of applicant’s ability to sustain and afford home ownership in the long term.

To assist providers/Help to Buy agents in offering a financial advice service the Agency has produced a model Independent Financial Advisors Service Level Agreement that covers all those aspects of the service required of Independent Financial Advisors.

6.1.5 Capital sums held by applicants will be taken into account when assessing long term sustainability, but should allow sums to be retained for costs associated with buying and moving home (please see below for guidance).

Applicants should have access to funds or be allowed to retain sufficient savings to cover the costs and fees associated with buying and moving into their new home.

Such costs and fees would include:

  • Legal transactions
  • Stamp Duty Land Tax where applicable
  • Mortgage application fees
  • Valuation fees and
  • Any associated moving costs

This could typically be up to £5,000 where Stamp Duty Land Tax is included depending on the purchaser’s circumstances.

Where applicants are required to provide essential items (for example a cooker/fridge) because they do not already own such items, and they are not being provided as part of the purchase, consideration can be given to allowing a reasonable amount of savings to be retained for this purpose.

6.1.6 This does not include lump sums paid to medically discharged ex-members of the armed forces (please see section 3.4.2).

6.1.7 The Financial Conduct Authority’s rules require lenders to take into account a borrower’s ability to repay a loan and the sustainability of the particular loan being considered.

6.1.8 Further guidance is available to lenders and mortgage intermediaries when assessing a borrower’s ability to repay a loan, and can be found by accessing the Financial Conduct Authority’s website.

6.1.9 Applicants in receipt of benefits such as housing benefit are not precluded from applying for affordable home ownership products, subject to affordability and sustainability assessments.

6.1.10 Applicants must note that the Agency would expect that assessment of income would not wholly rely on self-certification.

7. After sales

7.1 General

7.1.1 This section outlines the Agency’s requirements relating to events after the initial sale.

7.2 Staircasing

7.2.1 Shared owners may increase the percentage share of the equity that they own at any time during the term of the shared ownership lease. This process is known as staircasing. Staircasing requirements are a fundamental clause and must be set out in the shared owner’s lease. Please see sections 5.2 and 5.3 above for further details.

7.2.2 The price paid for further shares is based on the full open market value of the property in accordance with the requirements set out at section 2.3 above. The lease makes provision for the resolution of disagreement or dispute that may arise, between the landlord and the leaseholder, in respect of choosing a valuer.

7.2.3 Under the terms of the Agency’s model lease, leaseholders have three months to complete their staircasing purchase from the date providers receive the valuation from the valuer.

7.2.4 Providers have discretion to extend the three month period to six months where there has been a delay which is outside the control of the leaseholder and the provider, for example if documents were lost in the post or there were legal delays.

7.2.5 Where providers apply discretion, they must retain on file documentary evidence explaining the reasons for waiving the three month validity period.

7.2.6 Except on:

  • Older Persons Shared Ownership schemes
  • Rural Restricted Staircasing schemes and
  • Protected Area schemes

the staircasing provisions must allow staircasing to 100% where the properties have been grant funded.

7.2.7 Details of the staircasing requirements are set out in the model shared ownership lease. The lease makes provision for the resolution of disagreement or dispute that may arise, between the landlord and the leaseholder, in respect of choosing a valuer.

7.2.8 Profit making registered providers should note that where they have received shared ownership stock from a non-profit making Registered Provider (regardless of whether that stock is grant funded or otherwise) in the event of staircasing or onward disposal this results in the proceeds being paid in the registered provider’s Disposal Proceeds Fund. This is an exempted relevant event under 7m) exemption xiv) in the Recovery of Capital Grant and Recycled Capital Grant Fund Determination 2015.

7.3 Rural and protected area repurchase

7.3.1 The Rural Repurchase scheme is described at section 1.3.4 and section 8 below. The lease and freehold arrangements (once the leaseholder has staircased to outright owner and acquired the freehold - if appropriate) must ensure the provider has the opportunity to repurchase the property.

7.3.2 The Designated protected area repurchase programme is described at section 1.4.19.

For full details of grant eligibility see section 9.3.

7.4 Mortgage difficulties

7.4.1 As a last resort option when a shared owner is in, or is about to be in, mortgage arrears and potentially lose their home, including the likelihood of repossession by the main mortgage provider, providers may use their recycled grant to act as a ‘safety net’ and offer Flexible Tenure. Flexible Tenure is designed to enable a shared owner to remain in their home either by selling some of their shares back to their landlord in order to reduce their mortgage to a more affordable and sustainable level, or by selling all their shares back to the landlord and becoming a tenant. This is also known as downward staircasing. For further information and requirements see Grant Recovery section 6.5.

7.4.2 Leasehold repurchase

In exceptional circumstances, where providers have exhausted all other funding options, new grant may be available as a contribution to Leasehold Repurchase costs. As with funding Leasehold Repurchase with recycled grant, new grant will only be available for up to 70% of the market value of the share to be purchased. Whilst there should be no presumption of grant funding being made available, the Agency will, where funding is available on a case by case basis, consider funding applications for Leasehold Repurchase in circumstances where the provider can demonstrate:

  • That the shared owner is about to or is likely to lose their home
  • That the shared owner meets all relevant criteria outlined in Grant Recovery section 6.5
  • That the provider meets all other relevant criteria as outlined in Grant Recovery section 6.5
  • That all other funding options have been exhausted including:
    • The use of the provider’s own reserves
    • The use of its recycled grant
    • The transfer of recycled grant between Registered Providers as per Grant Recovery section 5.8
    • Other private funding
  • That the property was previously grant funded and
  • A justifiable case for new grant

7.4.3 For details of how the provider can demonstrate it meets the above requirements please see guidance below. Copies of relevant documents supporting these requirements should be retained by the provider for audit purposes.

Where a provider considers it meets the requirements for new grant as outlined in section 7.4.2 it must first contact the Agency’s operating area, and be able to demonstrate that it meets those requirements. Whilst the Agency will not expect to see copies of relevant documents it will expect to be sent a written business case outlining:

  • The shared owners circumstances
  • Previous grant funding
  • The relevant arrears documents or other supporting papers from the mortgage provider it has seen
  • Full details of what other funding options it has explored and why these are not available
  • Why a provider cannot use its own or transferred recycled grant
  • Details of the leasehold repurchase transaction costs based on the property’s full market value, the share to be purchased, the value of that share, details of other available funding, how much grant would be required, and confirmation that new grant in excess of 70% is not required and
  • Any other pertinent information

7.4.4 Providers who consider they meet the above requirements must contact their relevant operating area prior to submitting a bid for new grant in IMS to ascertain whether an application would be supported. Providers should note that, unlike Flexible Tenure, Leasehold Repurchase is only available for shared ownership properties that were previously grant funded by the Agency.

7.4.5 Following Flexible Tenure or Leasehold Repurchase, any subsequent upward staircasing will lead to grant recovery.

7.4.6 Mortgage default

For an explanation of what lenders do when a shared owner defaults please see the guidance below.

If a shared owner defaults on his/her mortgage payments, the commercial mortgage lender may apply to the courts for a ‘judgement’ or ‘order’ seeking to secure the arrears.

If the arrears are still not forthcoming, the commercial mortgage lender may apply to a court for an interim charging order. The interim charging order enables the commercial mortgage lender to apply for a restriction on the leaseholder’s title to the property at the Land Registry.

Court rules specify that all known parties with an interest in the property must be served with a copy of the interim charging order after it is made but before the final charging order is made.

Alternatively a lender may enforce its power of sale under its first legal charge over the leaseholder’s interest, in which case, it is unlikely the lender would apply for an interim charging order/final charging order.

In October 2008 the Agency removed the requirement to register a restriction seeking the Agency’s consent to vary a shared ownership lease. However, clauses in shared ownership leases issued prior to that date may have resulted in the Agency’s predecessor organisation’s details (the Housing Corporation) being entered on the Land Registry title document. Due to these details being recorded on the document, the Agency is occasionally sent a copy of an interim charging order.

Commercial mortgage lenders are not legally obliged to seek the Agency’s consent when applying for an interim charging order to be made. This is because the Agency has no legal interest in the property which is to be the subject of the order.

7.4.7 Providers must seek their own legal advice before replying to the lender’s solicitor, or before taking any action against a defaulting leaseholder. For more information on mortgage default in shared ownership properties, please see the Shared Ownership Joint Guidance.

7.4.8 It is advised that struggling shared owners approach their lender in the first instance.

7.5 Additional borrowing

7.5.1 Whilst the Agency’s model shared ownership lease does not prohibit additional borrowing, it is subject to conditions contained in the shared ownership lease and in particular the Mortgagee Protection Clause see section 5.2 above. The mortgagee protection clause is a fundamental clause of grant-funded shared ownership leases. Leaseholders should be aware that even if the value of their share has increased lenders may not be prepared to provide additional borrowing if they cannot rely on the mortgagee protection clause to protect those additional sums loaned.

7.5.2 In all cases, the provider’s written approval is required regarding the lender and the terms of the mortgage before the mortgage is entered into. If the provider’s approval is not obtained, the lender does not have the benefit of the mortgagee protection clause, and so is unlikely to advance any borrowings.

7.5.3 In addition to the requirement for provider approval, only certain loans are protected under the mortgagee protection clause, these include:

  • The premium lent to purchase the initial share
  • Further borrowing to enable the purchase of additional shares (staircasing)
  • Further borrowings to comply with the leaseholder’s covenants in the shared ownership lease, such as essential repairs and
  • Further borrowing to allow one leaseholder to buy out another leaseholder’s interest (in the same property)

However, additional borrowing can only be permitted if the premium and any further borrowing do not exceed the market value of the leaseholder’s share in the property.

7.5.4 Leaseholders wishing to borrow additional funds are advised to contact their landlord and lender to discuss the options and implications. For further guidance please see below.

There is nothing in the Agency’s model lease that prevents a leaseholder from increasing the borrowing secured against their share of the property, but any further borrowing is subject to the provider’s approval.

Under the mortgagee protection clause, the landlord’s written approval in respect of the lender and the terms of the mortgage is required before the mortgage is entered into. If the provider’s approval is not obtained, the lender does not have the benefit of the Mortgagee Protection Clause.

Consent shall be deemed to be given by the provider where the lender advances monies to the provider to pay outstanding rent or service charge arrears, subject to a cap comprising of:

  • The amounts advanced by the lender and approved by the provider plus
  • An amount equivalent to interest on the above amount for a period of 18 months at the interest rate in force at the time of default plus
  • Any amounts advanced by the lender to pay outstanding rent and/or service charge arrears plus
  • 3% of the value of the property

The lender shall be able to deduct all monies legally due under the mortgage contract, less anything recovered, from the amount paid to the provider for final staircasing.

However, due to the terms of the mortgagee protection clause, leaseholders are unlikely to be provided with further advances unless the lender and the mortgage terms are approved by the provider. The provider should not agree to further advances unless they are made to enable the leaseholder to staircase, buy out another leaseholder in the same property, or to comply with its covenants under the lease.

Covenants under the lease would allow for repairs to the property etc., but not improvements. Repairs might include works to correct wear and tear to bring the property back to at least the same standard when originally purchased, for example to replace a broken boiler. However, the addition of a conservatory would be classified as an improvement and so not covered by the mortgagee protection clause.

Whilst some home improvements might result in an increase to the property value further borrowings for this purpose are not covered by the mortgagee protection clause. If a lender was prepared to provide a further advance for home improvements it would be for the provider to consider whether it would:

  • Agree to the improvements being undertaken - possibly including how they were to be undertaken and by whom and
  • Approve the terms of any further borrowing

Covenants under the lease would not allow additional borrowing to fund the purchase of a new car, holiday, or to clear other debts etc.

Covenants under the lease would include further advances to pay off rent arrears. However, providers should proactively manage rent arrears and not seek to rely on capitalisation from lenders as a matter of course, as to do so will increase the cost of arrears to the leaseholder, because the lender would apply interest charges to them.

7.6 Lease extensions for property still in shared ownership

7.6.1 The Agency’s model shared ownership leases were first issued in the late 1970s/early 1980s. Many of these leases would have been issued for a term of 99 years, and the remaining term would now be, or would be approaching, less than 70 years. The Agency is aware that this may create difficulties for those shared owners now wishing to sell their share.

7.6.2 Leases with less than 70 years remaining are not an attractive investment to some mortgage providers. This can make it difficult for prospective purchasers to obtain a mortgage. Also it may have the effect of reducing the value of the lease.

7.6.3 Whilst shared ownership leaseholders have no statutory right to a lease extension, the Agency recommends providers consider granting extensions to shared ownership leases wherever possible. However in doing so the Agency requires providers to seek their own legal advice to ensure any obligations under current leasehold legislation are met.

7.6.4 As lease extension is not subject to a fundamental clause (section 5.2) there is no requirement for providers to seek the Agency’s consent to extend a lease. Also as the shared ownership lease is a form of assured tenancy any extension of the lease, and therefore an extension of the assured tenancy, will not require section 172 consent from the Regulator.

7.6.5 Extending leases will have implications for both providers and leaseholders and the Agency recommends providers take various issues into account when discussing extension with shared owners. For further guidance please see below.

When discussing lease extensions with either existing shared owners or prospective shared owners, providers should be mindful of the following.

Rents: A lease extension is not deemed a variation of the lease for rent purposes which means that the original fundamental clause in the lease in respect of rent will remain the same.

Values: A lease extension may initially increase the value of the lease, which in turn may affect the price of any future shares the shared owner may wish to purchase. However it should be remembered that market values can both increase or decrease.

Staircasing: Having extended the lease the value of the both the leaseholder’s and providers’ shares may have increased. When staircasing, consideration should be given to how any increased share value might affect the revised rent calculation when following the rent formula written into the lease.

Legal Costs: The Agency does not wish to be prescriptive, but in most instances it is likely to be the shared owner (lessee) who will instigate the lease extension and it is anticipated that providers may expect the shared owner to pay the legal costs.

Whilst not a regulatory requirement, the Agency recommends, as good practice, that providers produce and publish their own policy on shared ownership lease extensions, for information purposes, having sought legal advice as appropriate. Such a policy might encourage equitable treatment and avoid the potential for future misunderstanding and or complaints.

The Department for Communities and Local Government publish a document entitled Residential Long Leaseholders: a guide to your rights and responsibilities on their website. This publication has been produced in support of Statutory rather than voluntary lease extensions, but its content may be informative.

7.7 Resales – Key worker leases

7.7.1 Until March 2008, key public sector workers accessing shared ownership solely by virtue of their employment were subject to clawback upon leaving their qualifying employment. Since April 2008 that clawback has no longer applied and all shared ownership applicants have been provided with standard shared ownership leases.

7.7.2 However prior to April 2008 a number of key public sector workers would have been provided with a key worker shared ownership lease which would have contained a fundamental clause relating to clawback.

7.7.3 When an existing shared owner who was provided with a key worker shared ownership lease wishes to sell their share, their lease will contain a fundamental clause relating to clawback which is no longer relevant. The continuing inclusion of the clawback clause in the lease may adversely impact on the assignment of that lease. For reasons why this may be so, please see below.

A prospective purchaser of an existing shared ownership share is likely to seek legal advice in connection with such a purchase. Where an existing lease contains the fundamental clause relating to clawback, which is no longer appropriate, a legal representative may question the appropriateness of proceeding with the purchase of the lease whilst the clause remains – even if the Agency’s published policy is that the operation of the clawback policy has been withdrawn.

It is also possible that in certain circumstances a mortgage provider will elect not to lend to leasehold purchasers where the lease continues to contain inappropriate clauses.

7.7.4 There is no requirement to vary the key worker shared ownership lease prior to resale, but the leaseholder may find it beneficial to do so to avoid the situations described above.

7.7.5 To assist leaseholders who wish to vary their key worker shared ownership lease prior to a resale the Agency has produced a pro forma deed of variation for this purpose. The use of this pro forma Deed of Variation, which can be found in section 11.7 below, is intended to have the effect of varying the key worker shared ownership lease into a form substantially in line with standard shared ownership leases by removing the occupation and assignment restrictions. The document, which can be used for both houses and flats, contains explanatory notes which providers should refer to.

7.7.6 The drafting of the pro forma deed of variation has been kept as simple as possible; it has been produced on the basis that the provider and the leaseholder are still the original parties, and has been based on the Agency’s model leases.

7.7.7 Where there has been a change in the original parties or providers have used their own leases, providers must satisfy themselves, by seeking their own legal advice as appropriate, that a variation would not result in any breaches of covenants, consents or similar before completing a variation. In such cases providers are required to apply the same principles as contained in the pro forma deed of variation taking into account any amendments and cross referencing differences as necessary.

7.7.8 It is anticipated that requests to vary a key worker shared ownership lease will not arise until such time as the leaseholder wishes to sell their share. For further guidance please see below.

In deciding whether or not to vary their existing key worker lease to address clawback issues, it is suggested leaseholders discuss the matter with their provider landlord and consider seeking their own legal advice.

Providers may also consider it appropriate to seek their own legal advice.

It is expected that the existing leaseholder will be responsible for meeting the cost of the variation.

7.7.9 As explained above in section 7.7.1, clawback no longer applies and is no longer a fundamental clause. However, varying a key worker shared ownership lease in the manner described above will involve a variation to what was a fundamental clause and proposed variations are dealt with according to the Agency’s guidance document entitled Procedures for varying shared ownership leases - background information. Providing the Agency’s pro forma deed of variation is used, or the principles contained in the pro forma deed of variation are applied where the Agency’s model lease was not originally used, formal consent to vary the lease will not be required unless a restriction still appears on the title registered at Land Registry. See the above guidance document for further information regarding restrictions registered at Land Registry.

7.7.10 If a restriction is still registered at Land Registry then the Agency’s formal consent to vary the lease will be required. In this case providers should contact their operating area in writing requesting formal consent to vary the lease in accordance with the Agency’s guidance document entitled Procedures for varying shared ownership leases - background information and this section of the CFG. Provided the request contains a statement including the details outlined in this section and the pro forma variation etc. consent will not be unreasonably withheld.

7.7.11 In exceptional circumstances, where providers wish to seek a variation that does not follow the pro forma variation or its principles a written explanation containing full details is required to be submitted to the operating area.

7.7.12 Applicant eligibility and prioritisation guidance have been updated (please see section 3 above for further details).Therefore when Key Worker Living funded properties come to be sold on there is no definition of eligible key workers. Bearing this in mind, providers should follow wider national and then locally set prioritisation guidance.

7.8 Resales - Valuations

7.8.1 The Agency’s model lease contains a fundamental clause relating to alienation (see section 5.2). This clause requires that “the market value shall be assessed by the valuer and evidenced by a certification in writing in such form as may be approved from time to time by the Agency.” The certificate should be in writing and confirm that the valuation has been undertaken by an independent Royal Institute of Chartered Surveyors qualified surveyor and based on vacant possession of the whole property.

7.8.2 There is no Agency requirement for providers to charge an admin fee in connection with resales. However, where such a charge is included it must be reasonable and within the means of the purchaser.

7.9 Older Persons Shared Ownership resales

7.9.1 Resales of Older Persons Shared Ownership properties will generally follow the same principles as for mainstream Help to Buy: Shared Ownership and will always be governed by the terms of the lease. For more details on Older Persons Shared Ownership, please see section 1.4.13.

7.9.2 Where home owners are experiencing significant difficulties in selling their Older Persons Shared Ownership home providers are encouraged to explore other options with their leaseholders. This could involve:

  • The possibility of the provider repurchasing the property and letting the property at an Affordable Rent if they have a new supply agreement in place and permitted conversion capacity, or, if not, letting at target rent or
  • Giving temporary permission to the leaseholder to sub-let the property. In all cases tenancies should only be granted to persons aged 55 years or over

7.9.3 Where owners request that subletting be permitted, this should be in line with the requirements of section 5.3.21, with the additional stipulation that tenancies must only be granted to persons aged 55 years or over.

7.9.4 The Housing Ombudsman Service has determined that occupation by someone not meeting the age restriction must be regarded as a breach of the terms of the lease.

7.10 Landlord Repurchase

7.10.1 Shared ownership leases issued in response to the Agency’s Designated Protected Areas programme, which allow leaseholders to staircase in excess of 80% will oblige the leaseholder to sell their shares back to the landlord. In such cases the Agency will expect landlords to repurchase those properties, or nominate another provider to do so. For further information please see section 9 below – Designated Protected Area Repurchase.

8. Rural repurchase

8.1 General

8.1.1 Shared ownership schemes built in qualifying rural areas (i.e. settlements with less than 3,000 inhabitants) and on rural exception sites and grant funded will be subject to repurchase arrangements. For a brief explanation please see below.

The repurchase arrangements allow providers to buy a property back from an existing leaseholder (using grant in some circumstances) to enable a resale to a local household in housing need. The aim of the arrangements is to retain low cost housing for rural communities. See also 5.3.33.

8.1.2 Grant may be made available, on a case-by-case basis, by the operating area to fund rural repurchases where the homes are required to remain affordable in perpetuity. Grant will only be provided when all other funding options have been explored and exhausted by the providers.

8.2 Features of the scheme

8.2.1 The repurchase scheme operates on the basis that when a shared owner (or the owner in the 21 years after the property has been staircased to 100%) wishes to dispose of the property, providers are able to repurchase it and re-sell it on a shared ownership basis. The equity level at which resales take place will depend on the means of local residents.

8.2.2 Providers must fund the repurchase from the following sources if possible:

  • Recycled grant
  • Their own resources
  • A private loan or
  • Any combination of the above

8.2.3 If the provider is unable to fund the repurchase through these routes they are expected to invite another appropriate provider to use its recycled grant, own resources, or private finance to purchase the property instead.

8.2.4 If it is not possible to fund the repurchase through these routes then the provider can seek grant funding from the operating area. The Agency will assess such applications on a case by case basis and where funding is available.

8.2.5 The price to be paid for the property will be the market value of the whole of the property, where the freehold or full lease is being acquired, or the proportion of the market value equivalent to the current shared owner’s equity stake in the property.

8.2.6 Rural repurchase arrangements do not apply to Older Persons Shared Ownership.

8.3 Scheme criteria

8.3.1 To qualify for inclusion in the rural repurchase arrangements a shared ownership scheme must comply with the following criteria:

  • It was developed on a rural exception site or on a rural site as part of the Agency’s Affordable Homes Programme or other historical affordable housing programmes
  • Grant Confirmation was given on or after 1 April 1990 or an allocation after April 2006 and the scheme was identified as Rural Repurchase at that time
  • Grant confirmation was given before 1 April 1990, but the leases were granted after September 1990 and the provider informed the Agency’s local office by 1 November 1990 that it intended to include the option to repurchase clauses in the leases

8.3.2 To qualify for grant for a repurchase the following criteria must be satisfied:

  • The option to repurchase clause is included in the lease
  • A local purchaser has been identified who can purchase at the proposed level of equity. In this context ‘local’ is defined as a person(s) with connections to the area and complies with the planning requirements (the section 106 Agreement, Condition on the planning permission or unilateral undertaking as applicable)
  • The provider has attempted to market the property at the current level of equity and no local purchaser is available who can afford the current level of equity; and (where the provider is selling at less than the original equity percentage sold) no local purchaser has been found who can afford the original percentage of equity sold
  • The provider is unable to fund the repurchase through:
    • Its recycled grant
    • Its own resources or
    • A private loan
  • The provider has attempted to find another appropriate provider to use its recycled grant or private finance to purchase the property but they are also unable to fund the purchase and
  • The sum of surpluses made on any previous staircasing of that home must be less than the grant calculated as due for the repurchase

8.4 Grant framework

8.4.1 There are no cost or value limits when grant is paid on repurchase by the provider but the Agency expects providers to maximise their contribution.

8.4.2 Any surplus made on previous staircasing sales of the unit subject to repurchase will be taken into account in the grant calculation and the grant payable will be reduced by the amount of the surplus. No grant will be payable if surpluses equal or exceed the grant needed.

8.4.3 On repurchase, the unit is treated as a single unit scheme.

8.4.4 There may be more than one repurchase of a particular home.

8.5 Submission of application

8.5.1 When providers have ensured that all the scheme criteria (please see 8.3 above) are met, and the qualifying applicant has exchanged purchase contracts, they can make a submission for grant onto IMS.

8.5.2 Providers must make the submission for grant payment no later than seven days after the exchange of contracts.

8.5.3 Providers must ensure that:

  • The Agency has been notified of any fundamental change that has occurred to the scheme which could affect it
  • The property to be acquired offers good title. A leasehold interest must be at least 99 years to enable providers to offer shared owners a 99 year lease.
  • A valid valuation by a qualified independent valuer has been supplied and is kept on the provider’s file
  • A record of the surpluses made on previous staircasing transactions on the property is kept on file. Where there are no surpluses this fact must be stated on the provider’s records

8.5.4 If a provider offers the dwelling as security for private finance, the provider will need to notify the Regulator about the legal charge (please refer to the Regulator’s guidance on disposal notifications).

8.5.5 Payment will not be made earlier than the completion date. The Agency will pay grant direct to the provider within 15 working days, upon receipt of a correct and accurate claim.

8.6 Lease requirements

8.6.1 Please see section 5.4.

8.7 Grant recovery

8.7.1 For details of grant recovery/recycling on staircasing for rural repurchase schemes refer to the Grant Recovery chapter of the CFG.

8.8 Examples of grant framework.

Please see examples below.

Rising Market Example 1  
Initial Purchase (50%)  
Value of property £180,000
Sale Proceeds (50% of value) £90,000
Grant £54,000
Loan £36,000
Staircase to 75%  
Value £210,000
Sale Proceeds (25% of value) £52,500
Repay grant (50% of total grant as new share is half of equity owned by provider) £27,000
Repay Loan (50% of total loan as new share is half of equity owned by the lender) £18,000
Surplus (sales proceed net of repayable grant and repayable loan) £7,500
Grant remaining £27,000
Loan remaining £18,000
Buy back at 75% and resale of 50% equity  
Value £240,000
Price paid by provider for repurchased equity at 75% £180,000
New Equity sale proceeds at 50% £120,000
Cost of unsold equity £60,000
Grant £36,000
On cost at 5% (of total value) £12,000
Total (Grant and On cost) £48,000
Less surplus £7,500
Total grant paid £40,500
Total grant on property £67,500
Long term loan £42,000
Rising Market Example 2  
Same initial purchase.  
Staircase to 100%  
Value £210,000
Sale proceeds £105,000
Repay grant £54,000
Repay loan £36,000
Surplus £15,000
Buy back at 100% and resale at 50%  
Value £240,000
Sale proceeds at 50% £120,000
Cost of unsold equity £120,000
Grant £72,000
On cost at 5% (of total value) £12,000
Total £84,000
Falling Market Example 1  
Same initial purchase and staircase to 75%  
Value £150,000
Sale proceeds £36,500
Repay loan £18,000
Repay grant £19,500
Grant remaining £34,500
Loan remaining £18,000
No surplus  
Buy back at 75% and resale at 50%  
Value £135,000
Price paid for repurchased equity at 75% £101,250
New Equity sale proceeds at 50% £67,500
Cost of unsold equity £33,750
Grant £20,250
On cost at 5% (of total value) £6,750
Total grant £27,000
Total grant on property £61,500
Long term loan £31,500
Falling Market Example 2  
Same initial purchase  
Staircase to 100%  
Value £150,000
Sale proceeds £75,000
Repay loan £36,000
Repay grant £39,000
Grant remaining £15,000
No surplus  
Buy back at 100% and resale at 50%  
Value £135,000
Sale proceeds £67,500
Cost of unsold equity £67,500
Grant £40,500
On cost at 5% (of total value) £6,750
Total £47,250
Total grant on property £62,250
Long term loan £27,000

9. Designated Protected Area repurchase

9.1 General

9.1.1 In grant-funded shared ownership schemes built in Designated Protected Areas (i.e. settlements designated by the Secretary of State since 7 September 2009 as being in a protected area), where the leaseholder is allowed to acquire more than 80% of the equity in their home, the property will be subject to mandatory repurchase arrangements.

9.1.2 In support of the Government’s aim to retain grant funded shared ownership homes in Designated Protected Areas, and where landlords have robustly exhausted all other funding routes, including the use of and/or transfer of recycled grant, the Agency will positively consider applications for grant to fund the repurchase of shared ownership property, subject to the availability of funding, where:

  • The property was funded under the Agency’s Designated Protected Areas policy
  • The shared ownership lease granted contained the Agency’s Designated Protected Area fundamental clause obliging the shared owner to sell the property back to the landlord, or the landlord’s nominee

9.2 Features of the scheme

9.2.1 The repurchase scheme operates on the basis that when a shared owner who owns in excess of 80% of the shares in their property wishes to move, the landlord (or the landlord’s nominee, who must be a Registered Provider) is obliged to buy back the property in order to re-sell it on a shared ownership basis to another eligible applicant. For shared owners that own less than 80%, where there is no cap on staircasing, landlords have the option to nominate a subsequent purchaser, but would not be obliged to repurchase the lease. Where landlords choose not to nominate or waive their option to repurchase, then the shared owner is free to sell their share on the open market.

9.2.2 Landlords (including the landlord’s nominee) must firstly consider funding the re-purchase from the following sources where possible:

  • Their own recycled grant or recycled grant transferred from another provider (see also scheme criteria below)
  • Their own resources
  • A private loan or
  • Any combination of the above

If, having exhausted the above options, landlords are unable to fund or can only part fund the repurchase, they can apply to the Agency for grant to fund the balance i.e. an amount up to 100% of market value. The Agency will positively assess such applications where the repurchase meets the relevant scheme criteria as detailed below.

9.2.3 The repurchase price must be the market value of the whole property where the freehold or full lease is being acquired, or the proportion of the market value equivalent to the current shared owner’s equity stake in the property.

9.2.4 Having repurchased the property the landlord will then be required to resell the property on Designated Protected Area shared ownership terms as soon as possible. The equity level at which the resale takes place will be subject to normal shared ownership minimum/maximum initial share criteria and governed by the amount of shares the new applicant will be able to afford and sustain.

9.3 Scheme criteria

9.3.1 To qualify for inclusion in the Designated Protected Area repurchase arrangements the property must comply with all the following criteria:

  • It is located within a Protected Area as designated by the relevant Designated Protected Area Order (SI 2009/2098)
  • It was grant funded as part of the Agency’s shared ownership Designated Protected Area policy see section 1.4.24
  • The lease was first granted on or after 7 September 2009
  • The lease contained the Agency’s Designated Protected Area fundamental clause, enabling the shared owner to purchase in excess of 80% of the shares and
  • The lease reflected the additional requirements as indicated below

9.3.2 Having explored and exhausted all other funding options, to qualify for grant to fund the repurchase the shared ownership lease must contain the following information which is based on and reflects the requirements in the Housing (Shared Ownership Leases) (Exclusion from Leasehold Reform Act 1967) (England) Regulations 2009 - Statutory Instrument 2009/2097.

Details of when and how the tenant must notify the landlord, in writing, of an intention to sell his/her/their shares in the properties, including:

a) A requirement that the landlord will respond to such a notice in writing within six weeks explaining that it or its nominee, will purchase the tenant’s shares in the property

b) A requirement that the market value will be established and agreed in accordance with the principles outlined in paragraph 3 of the above regulations

c) A requirement that the price as agreed above will be the price that the purchase will proceed at

d) A requirement that the shared owner(s) must notify the landlord in writing that he/she/they are ready to sell the shares in the property at the price as agreed according to the above valuation arrangements

e) A requirement that the landlord (or the landlord’s nominee) will complete the purchase within three months of receiving the shared owners ‘ready to sell’ notice

f) Details of the remedies available to the shared owner in the event of a failure by the landlord (or the landlord’s nominee) to complete the repurchase in accordance with the terms of the lease which will reflect the requirements set out in the above Regulations

The Agency does not intend to be overly prescriptive with regard its above requirements but has produced additional guidance notes. However, landlords are required to seek their own legal advice regarding the regulations.

a) The Agency does not intend to be prescriptive in this matter other than to require that any such notification should be in writing and confirm the shares to be sold.

b) The Agency anticipates that as part of any local strategic partnership discussions in connection with its proposed development of grant funded shared ownership schemes in Designated Protected Areas, that the developing landlord would include in those discussions, conversations with likely providers or other housing associations who would be prepared to act in the capacity of a nominee in the event that the landlord would not be in a position to repurchase the proposed property.

c) The Agency’s policy is that valuations are anticipated to be valid for three months. Whilst the Agency does not intend to be overly prescriptive as to when the tenant should arrange for a valuation the Agency wishes to point out that the purchase price to be paid will be that agreed between both the shared owner and the landlord in accordance with the criteria set out in the lease (which should be based on paragraph 3 of the relevant Regulations – Statutory Instrument 2009/2097), with any dispute being resolved by reference to an independent body as per the Regulations.

d) Having agreed or determined the purchase price as above, this is the price at which any purchase will proceed regardless of any further changes in market value at the time of exchange or completion.

e) The Agency does not intend to be prescriptive as regards any further details the landlord may wish to include in the tenant’s ‘ready to sell’ notice.

f) Having agreed the purchase price before the tenant’s ‘ready to sell’ notice is issued, the Agency considers that a period of three months from receipt of that notice is sufficient time to complete the transaction.

g) The Agency does not intend to be prescriptive as regards the remedies that must be contained in the protected area shared ownership lease, other than they should reflect the requirements of the Protected Area legislation. However the Social Housing Regulator may cover the subject of compensation. If landlords are in any doubt then it is suggested they may wish to discuss this matter further with the Regulator.

9.3.3 Whilst the above criteria are a requirement of grant eligibility, it is not the Agency’s intention for them to be fundamental clauses. However should a Designated Protected Area lease allowing a shared owner to acquire more than 80% of the property be issued without the above criteria then grant paid to fund a repurchase will be potentially recoverable on the grounds of a failure to comply with any condition attached to the making of grant. This is a relevant event for grant recovery purposes.

9.3.4 Where landlords elect not to use the Agency model Designated Protected Area leases it is recommended they seek their own legal advice.

9.3.5 Any property in a Designated Protected Area that is repurchased wholly or in part with recycled grant and subsequently resold on shared ownership terms will require leases to adhere to the above scheme criteria.

9.4 Grant framework

9.4.1 There are no maximum value limits when grant is claimed under the Protected Area repurchase framework. However, landlords would not be expected to pay, and therefore use recycled grant or claim grant to fund a purchase above market value.

9.4.2 Any receipts and surpluses made on previous staircasing sales of the home subject to repurchase which might be held in the landlords accounts or Recycled Capital Grant Fund should be taken into account when applying for new grant to repurchase the property.

9.4.3 Where the landlord’s recycled grant is deemed as ‘committed’ – on a similar basis as per Grant Recovery section 5.9.4, (e.g. contracted), the Agency will not expect this to then be spent on funding Designated Protected Area repurchases.

9.4.4 On repurchase, the property is treated as a single unit scheme.

9.4.5 A home may be subject to repurchase more than once, and the same criteria would apply for each repurchase of that particular home.

9.4.6 Payment will not be made earlier than the completion date. Upon receipt of a correct and accurate claim the Agency will pay grant within 15 working days - provided this period does not expire prior to completion.

9.5 Lease requirements

9.5.1 Please see section 5.4.2 for details of the Designated Protected Area fundamental clause, and to 9.3 above regarding lease requirements to meet scheme criteria conditions.

9.6 Recovery of grant

9.6.1 For details on the recovery of grant please see Grant Recovery chapter section 4.5.

10. Reporting and audit requirements

10.1 General

10.1.1 Providers must maintain accurate and complete records of sale transactions both for reporting and audit purposes.

10.2 Scheme information

10.2.1 All sales must be recorded on a COntinuous REcording (CORE) sales log. Providers should contact contact DCLG for any queries about CORE and the appropriate forms.

10.3 Supporting documentation

10.3.1 For details see Programme Management section 7.

11. Model leases for use by Registered Providers from April 2015

11.1 General

11.1.1 All shared ownership leases issued in respect of homes funded by the Agency must as a minimum include the Agency’s fundamental clauses contained in the model leases found below. Providers can choose to use the leases as drafted, or issue their own lease containing the fundamental clauses as set out in Shared Ownership section 5.2 above.

11.2 Model form of leases

11.2.1 It is strongly recommended that providers should use the Agency’s model form of lease which is widely recognised by lenders and solicitors. Providers must either use the model leases or the revised fundamental clauses using the form of model leases found below from 30 April 2015. The only exceptions to this requirement are properties with active reservations from prospective purchasers as at 30 April 2015 where use of the updated model lease wording is optional and providers may continue to use the wording contained in the previous versions of the model leases (in use from April 2013).

11.2.2 The current model leases are the same as those in use from April 2013, except that they no longer include the pre-emption right post 100% staircasing. This amendment was introduced following a consultation in early 2015 for new and existing shared owners, while they own less than 100% of their equity the pre-emption right remains a fundamental clause of the shared ownership lease and a feature of the grant funded lease. This change applies to existing grant-funded shared ownership leases as well as new leases issued from April 2015.

11.2.3 Providers should note that we are publishing a pro forma deed of variation to be used in relation to existing flat leases. NB The pro forma deed of variation is only required to be used for existing leases. Prospective leases (as published below) have been amended to remove the pre-emption right following the final staircasing event. For further detail, providers are referred to section 5.3.28 of the Guide, which sets out the detail of the four potential scenarios that may apply to existing and former shared owners, in relation to the removal of the post-final staircasing pre-emption right.

11.2.4 This lease also includes minor amendments introduced in May 2013 to the rent review formula set out in paragraph 3(a)(ii) of the Fifth Schedule (of the shared ownership flat lease) and paragraph 3(a)(ii) of the Fourth Schedule (of the shared ownership house lease). An accompanying explanatory note on the amendment introduced to the rent review formula is also published below.

11.2.5 An explanatory note for the April 2010 leases can be found below along with key information sheets for shared owners (note that these have been updated to reflect the removal of the pre-emption right post 100%).

11.3 Social HomeBuy and Designated Protected Areas

11.3.1 There are separate model leases for properties purchased through Social HomeBuy on shared ownership terms and for shared ownership properties located in Designated Protected Areas. These are published below.

11.4 New Build HomeBuy pro forma deed of variation

11.4.1 We have issued a proforma deed of variation for use with the New Build HomeBuy lease and have republished the Key Worker Living pro forma deed of variation below.

11.5 Key Worker Living pro forma

11.5.1 The updated Key Worker Living lease ‘pro forma variation’ for use when assigning KWL leases is available to view below:

11.6 Historical leases

11.6.1 To view older versions of the Agency’s model leases, please see our historical leases pages below.

Please note that the leases only began to be published online in October 2006. The Agency does not keep a comprehensive catalogue of older leases, but limited historical copies exist. Where users require advice on older leases, they should contact the Agency.

11.7 Lease variation

11.7.1 Providers are able to make amendments to the Agency’s model form of lease where these do not fetter the operation of the Agency’s fundamental clauses without the need to first request Agency permission. It is recommended that providers do not significantly vary the terms of the model form of lease. However there may be certain exceptional circumstances where circumstances dictate that the operation of the fundamental clauses is in some way fettered or compromised and amendment may be the only practical option.

11.7.2 The Agency has produced the following guidance document for reference purposes. This document contains the principal information from the circular, and can be treated as its replacement. Providers are advised that the Agency’s starting position in respect of requests to vary the fundamental clauses is only to agree to this in very limited and exceptional circumstances.