5.1.1 For grant funded 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 their lease. Providers developing grant funded homes on Shared Ownership terms must ensure that their Shared Ownership leases are mortgageable and contain provisions (including Homes England’s required fundamental clauses – see section 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 Shared Ownership providers, Homes England has published various model leases for houses and flats, Designated Protected Areas, Older Persons Shared Ownership and Social Homebuy. These model leases can be found in section 11. We strongly recommend that providers developing Shared Ownership with Homes England grant should adopt the model lease though this is not a requirement.
However, the model leases provided by Homes England are considered as a widely accepted route to providing the necessary protection and comfort to providers, leaseholders, lenders and others. Providers looking to use alternative leases that differ too much from the model leases in content and format may find particular difficulties in selling or re-selling their Shared Ownership homes.
Providers can amend the model leases to suit circumstances without the consent of Homes England. However, Homes England’s consent is required if providers wish to vary one of the fundamental clauses as detailed in section 5.2. Any such consent should be requested via firstname.lastname@example.org though agreement is only usually provided on a very exceptional basis.
The model leases and related documentation may be amended from time to time in order to reflect changes in legislation and / or policy. In most cases such changes will be prospective and therefore should not affect leases that were issued before a particular change was implemented.
Land Registry restrictions
From 1 October 2008, our model leases have not required the parties to enter a restriction on property title at the Land Registry in favour of Homes England. Such restrictions used to be entered when Shared Ownership leases were registered to ensure that Homes England’s consent was sought to any variation to the terms of the registered lease and to protect public funds.
We no longer rely on a restriction at the Land Registry to protect the fundamental clauses in Shared Ownership leases. Instead, we will rely upon adherence to both the conditions set out in the affordable housing programme delivery contract and this Capital Funding Guide, and potentially the grant recovery provisions.
For further information about the removal of the restriction please refer to our guidance entitled ‘Procedures for varying Shared Ownership leases’ in section 11.9 of this guide.
5.1.2 The current suite of Shared Ownership leases can be found in section 11 of this guide.
Please note that there are two separate suites of leases to reflect the changes introduced to the Shared Ownership product for homes being delivered through Homes England’s AHP 2021 to 2026 as well as homes still being delivered through the SOAHP 2016 to 2021.
5.1.3 To qualify for Homes England grant providers must ensure that leases contain the fundamental clauses provided in the model lease as described in section 5.2 below.
5.1.4 Where providers are not using Homes England’s model leases, they must ensure that their leases comply with our scheme / grant criteria and that they contain the fundamental clauses exactly as worded in the model leases.
5.1.5 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. Alternatively, electronic original copy documents are acceptable provided they are stored securely.
5.1.6 Providers should refer to Homes England’s guidance entitled ‘Procedures for varying Shared Ownership leases’ (see section 11.9 for further information) if they wish to vary any of the lease clauses. Providers should note that we will not normally agree to requests to vary any of the Shared Ownership model lease fundamental clauses.
5.2 Fundamental clauses
5.2.1 The model leases, published in section 11 below, are for use by providers for grant funded Shared Ownership homes completed on or after 30 April 2015 (see paragraph 5.1.3 above). They contain the following fundamental clauses which must be included in all Shared Ownership leases for homes funded by Homes England.
For both SOAHP 2016 to 2021 and AHP 2021 to 2026 Shared Ownership homes the following fundamental clauses apply:
- 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
- rent review (refer to the Schedule 5 of the model flat lease and the Schedule 4 of the model house lease)
- pre-emption provisions (refer to clause 3.19 and Schedules 7 and 8 in the model flat lease and clause 3.20 in the model house lease)
New Shared Ownership homes provided through the AHP 2021 to 2026 from 1 April 2021 have the same fundamental clauses as the SOAHP 2016 to 2021 programme with the following amendments or additions. For ease of reference these are highlighted in blue in the model leases.
Amendments or additions to fundamental clauses
- The landlord’s period to nominate a purchaser or accept a surrender of the lease in the alienation provisions shall be reduced from eight weeks to four weeks and the related new standard form restriction inserted in LR13
- The new 1% Staircasing schedule (Schedule 10 in the model flat lease and Schedule 7 in the model house lease) together with any associated cross references in the main body of the lease
- The new Initial Repair Period schedule (Schedule 9 in the model flat lease and Schedule 6 in the model house lease) together with any associated cross references in the main body of the lease (note the Right to Shared Ownership section 12 of this chapter has more information about the Initial Repair Period in relation to where this is exercised)
- The mortgagee forfeiture notification proviso (clause 6.2.3 in the model flat lease and clause 5.2.3 in the model house lease)
- Any transfer deed on final Staircasing which creates an Estate Rent Charge must exclude section 121 of the Law of Property Act 1925 (part 2 of Schedule 5 in the model house lease only)
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 AHP 2021 to 2026 homes this is covered by a fundamental clause (clause 6.2.3 in the model flat lease, clause 5.2.3 in the model house lease) and therefore an undertaking may not be required.
For additional guidance on providers’ obligations, please see the Shared Ownership Joint Guidance published by the Homes and Communities Agency (now Homes England), National Housing Federation and the Council of Mortgage Lenders (now UK Finance). Please note that this guidance will be updated in 2022 to reflect the new Shared Ownership model and current good practice.
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 5.3.39 below). For enquiries relating to proposed changes to existing leases already granted, please contact Homes England at email@example.com.
5.2.3 In addition to the fundamental clauses, where any defined terms in the lease is used within a fundamental clause, that defined term similarly cannot be altered without Homes England’s consent.
Key information for shared owners
5.2.4 For SOAHP 2016 to 2021 Shared Ownership homes, 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. Homes England has published a version which can be found in section 11.2 and forms part of the model leases at Appendix 3. 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 For AHP 2021 to 2026 Shared Ownership homes, in addition to these fundamental clauses providers must complete and supply the prospective customer with the Key Information Documents as set out in section 11.3. The information provided in these is to ensure that the customer can make an informed decision. The documents detail the stage at which they should be provided to the prospective purchaser.
18.104.22.168 The provider must also send the individually completed Key Information Documents to the purchaser’s solicitor with the Memorandum of Sale and obtain confirmation from the solicitor that the buyer has received them.
5.2.6 Varying Shared Ownership leases
Where providers seek to vary a lease, they must first refer to Homes England’s guidance entitled ‘Procedures for varying Shared Ownership leases’ (see section 11.9 for further information).
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 Homes England’s approval for the variation via firstname.lastname@example.org. It is anticipated that approval will only be given to correct errors or in very exceptional circumstances.
Having first referred to our guidance document above, 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 a 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 The variation of a fundamental clause without Homes England’s approval may result in grant recovery.
5.3 General features
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.
Shared Ownership and Affordable Homes Programme (SOAHP) 2016 to 2021
5.3.2 The minimum lease term for Shared Ownership homes funded under the SOAHP 2016 to 2021 is 99 years. However, providers should consider offering the maximum lease term possible to avoid issues with mortgage lending and costly lease extensions.
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.
Affordable Homes Programme (AHP) 2021 to 2026
5.3.4 The minimum lease term for Shared Ownership homes funded under the AHP 2021 to 2026 is 990 years.
22.214.171.124 The only exception to this policy is for the HOLD variant product where the minimum lease term should be 125 years. However, for all purchases through HOLD, providers should still offer the maximum lease term available, including the minimum 990 years where possible. A lease term of shorter than 990 years is only permissible where no suitable alternative home with a longer lease is available. Providers should fully explain the implications of a shorter lease to the customer and highlight the potential costs of a lease extension
126.96.36.199 Providers offering a lease term of below 990 years for HOLD purchases do not need to seek the permission of Homes England to do so. Homes England, however, should be notified of all such instances via email@example.com.
Initial share to be purchased
5.3.5 For Shared Ownership homes being delivered through Homes England’s AHP 2021 to 2026 from 1 April 2021 the shared owner’s initial share of the property must be a minimum of 10% and a maximum of 75%. For homes delivered through the SOAHP 2016 to 2021 then the minimum share should be 25%, even if completion and sale may take place after 1 April 2021. However, providers do have the option of offering the provisions of the new Shared Ownership model for the AHP 2021 to 2026 and so can offer shares at a minimum of 10%.
5.3.6 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 Institution of Chartered Surveyors registered valuer. By independent we mean that the valuation is undertaken by an individual or organisation external to the grant recipient organisation. For example, 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 990 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.
Selling at a discount
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 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.
Market value of property | £400,000
Market value of 10% share | £40,000
The provider may choose to sell a 10% share for £36,000 rather than the £40,000 it is worth. This is selling at a discount, as the leaseholder obtains their10% 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 - £36,000 - and sell them an appropriate equity share. However, in this example the provider would have to sell only a 9% share. As this is below the minimum 10%, 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 Homes England. Proposals to sell at a discount will only be considered where the provider provides evidence that prospective buyers cannot afford to purchase at least 10% of the market value.
5.3.10 Discounts cannot be considered:
- where the price would be reduced to below the cost of provision
- 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 rural exception sites, Designated 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 accordance with the Shared Ownership provisions of the Homes England programme under which the home was funded. Shared Ownership homes provided through the AHP 2021 to 2026 allows leaseholders to purchase a minimum 5% share or, alternatively, allows them to purchase an additional 1% per year for up to 15 years (or allows a combination of both). For Shared Ownership delivered under the SOAHP 2016 to 2021 (or previous programmes) the minimum staircasing tranche / share that can be purchased remains at 10%. Note that these minimum staircasing provisions include the final tranche to 100% outright purchase.
Maximum tranche percentages: guidance
Homes England 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 model Shared Ownership house leases reflect this requirement by way of the staircasing provisions and the definition for portioned percentage.
Landlords should seek their own legal advice, but we 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:
a) Lease extension
b) Collective purchase of the freehold
c) Right to manage
2 Houses - Buying the freehold
3 Right of first refusal / first option to buy)
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.
188.8.131.52 However, the Government has announced its intention to extend the statutory right to a lease extension to shared owners. See section 7.6 for guidance on lease extensions.
Providers must ensure that there are appropriate rent provisions (see section 4) and a clear mechanism to review the rent on an annual basis.
5.3.18 Stamp Duty and legal fees
Purchasers of Shared Ownership homes 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
- 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
Her Majesty’s Revenue and Customs (HMRC) allows purchasers of properties sold on Shared Ownership terms from a qualifying body to elect whether to pay Stamp Duty Land Tax on the value of the initial share purchased only (Option A) or on 100% of the value of the equity (Option B). The lease contains both options so that the purchaser’s conveyancer can mark the purchaser’s choice. Where a shared owner elects to pay Stamp Duty Land Tax on the value of the initial share purchased only, Option B should be removed from the lease. Where the purchaser intends to pay Stamp Duty Land Tax on 100% of the value of the equity, then Option A should be removed. The certificate appears in the model House lease at paragraph 8 and in the model Flat lease at paragraph 9.
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 and both options could have potential benefits for the purchaser. 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 seek advice from their conveyancing solicitor over the best option for them. For additional guidance please see below.
Shared Ownership leases must prohibit sub-letting by the leaseholder to protect public funds and ensure applicants are not entering Shared Ownership potentially for commercial gain.
Whilst Shared Ownership leases must prohibit sub-letting by the leaseholder, Homes England’s model Shared Ownership lease does not prohibit the leaseholder from taking in a paying guest or lodger. For more information on renting a room to a lodger, read ‘Letting rooms in your home: A guide for resident landlords’.
However, providers should be reminded that the provision of Shared Ownership and other grant-funded affordable home ownership products is intended to help with buying accommodation to meet an applicant’s residential needs and not business needs. Therefore, Shared Ownership accommodation should not be used for commercial purposes including short term lets and bed-and-breakfast type accommodation.
5.3.22 Although the leaseholder does not have the right to sub-let their home, a Shared Ownership provider may agree to sub-letting arrangements in exceptional circumstances with requests to be considered on a case-by-case basis.
5.3.23 It is the provider’s decision as to whether they agree to any request to sub-let. The following issues should be considered 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?
- If required, does the leaseholder have the permission of the mortgage lender?
- Where the need for sub-letting is a result of issues linked to building safety challenges
Where a provider has any doubt as to whether to allow a subletting request, they should contact Homes England via firstname.lastname@example.org in the first instance.
5.3.24 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.
5.3.25 In all cases providers must seek their own legal advice before agreeing to sub-letting.
5.3.26 Pre-emption Right
The Pre-emption Right is a fundamental clause of the Shared Ownership lease. Until 30 April 2015, Homes England’s model lease included a post final staircasing right of pre-emption as well as a pre-final staircasing right of pre-emption.
5.3.27 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.
5.3.28 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 to 30 April 2015) there are a number of different scenarios which may apply:
Existing leases pre final staircasing – we recommend 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.
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.
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 is 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.
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 through the 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 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.
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.
Flexible Tenure and Leasehold Repurchase
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 section 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.
The right of first refusal / first option to buy 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 buyback 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 it will consider buying back the property
- Where the leaseholder has not staircased to 100% but 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
5.3.31 Where a provider considers repurchasing under the above conditions they can use their own resources or their Recycled Capital Grant Fund (RCGF) if resources are available. The usual RCGF rules will apply to the subsequent sales receipts.
5.3.32 Providers can offer 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 Designated Protected Area Shared Ownership leases was introduced (please see section 1.4.17 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, is able to be retained for the benefit of local people.
5.3.36 Homes England 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. Note that the time a provider has to nominate a purchaser or opt to take a surrender of the lease (known as the ‘nomination period’) is set down in the lease. For homes provided through the SOAHP 2016 to 2021 and previous programmes this will normally be 8 weeks. For Shared Ownership homes provided through the AHP 2021 to 2026 this has been reduced to 4 weeks.
5.3.38 If the provider is unable to nominate a suitable purchaser within the specified nomination period as set out in the lease (and does not intend to take a surrender of the lease), under the terms of the lease the owner will be able to sell the property on the open market at a price below, above or the same as the independent RICS valuation. In practice, this will often mean that the shared owner will perform a ‘back-to-back’ staircasing sale. That is, they will staircase to 100% ownership and sell the property outright simultaneously. If the proposed purchaser only wants to buy a share of the home they will need the provider’s permission, which should only be given where the proposed purchaser meets Homes England’s Shared Ownership eligibility criteria current at the time of purchase.
5.3.39 Please see below for guidance. 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. Homes England 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
Homes England recognises that the form of wording used in the current model leases will not be appropriate in all circumstances. Whilst we no longer require the service charge clause as worded in the model leases to be one of the fundamental clauses, the inclusion of a service charge within the lease 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 relating to service charges, 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 without Homes England’s consent. 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 as part of Homes England’s rural programme (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)
- To restrict the maximum level of equity that can be purchased to 80% on rural exception sites only (restricted staircasing)
The restricted staircasing route is one of a number of options 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 than they would with a restricted staircasing lease. 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 buyback 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 buyback 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.
5.4.2 The Designated Protected Area regulations require landlords to include the clauses in their leases as detailed 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 Homes England 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 equity in the property
- 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
- That the sale must be at market value as prescribed in the regulations (Statutory Instrument 2009/2097)
The Housing (Right to Enfranchise) (Designated Protected Areas) (England) Order 2009 (SI 2009/2098) provides full details of the locations classified as having Designated Protected Area status. In the main these are settlements of less than 3,000 inhabitants and the same areas that are 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 1.4.18, whilst the regulations apply to houses, it is Homes England’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 Designated Protected Area programme. When using the above provisions landlords must include relevant clauses in the lease or use Homes England’s model Designated Protected Areas leases (see section 11).
5.4.5 Providers intending to use the buyback option should consider mortgage lender requirements in drafting this clause, in particular the timescales. We will accept variation to that part of the clause if the lender reasonably requires it.
5.5 Older Persons Shared Ownership (OPSO)
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. Whilst it is not the intention to place a direct restriction on the identity of persons who may inherit the home, where the property is inherited by someone under the age of 55, the Permitted Use clause will prevent the property being used by that person unless they are a deceased leaseholder’s spouse or civil partner residing at the dwelling at the time of death. The restriction on assignment will equally apply 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 For the SOAHP 2016 to 2021, Homes England did not produce a model lease for OPSO schemes. In order to address the points above it is recommended that the updated model leases for SOAHP 2016 to 2021 (published in September 2021) are used as the base document and amended as appropriate to incorporate the OPSO specific features of the new AHP 2021 to 2026 OPSO model leases (see section 11). This will include the deletion of the relevant schedules relating to the Initial Repair Period and 1% staircasing (Schedules 6 and 7 in the house lease and Schedules 8 and 9 in the flat lease).
5.5.3 All fundamental clauses as mentioned at section 5.2 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 Homes England.
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 (applicant 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
5.7.1Within 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 Homes England before varying the date.