Specialist shared ownership lawyer, Chloe Hawkes, discusses the complex issue of shared ownership lease extensions and buying a shared ownership property with a short lease.
There are increasing numbers of shared ownership properties being built, to help facilitate home ownership of first-time buyers and parties looking to upsize from their existing property. Not only does this mean a greater amount of new build shared ownership properties are available, but also re-sale properties, where current owners are moving on.
The shared ownership scheme allows a buyer to purchase a percentage of a property using a mix of deposit and/or mortgage, while paying rent on the remaining share to a Housing Association or Local Authority. For example, owning a 25% share would result in paying rent on the remaining 75% share.
When purchasing a shared ownership property, the Landlord, which is the Housing Association or Local Authority, will own one of:
Your shared ownership conveyancer will be able to advise on which of these is applicable to your own situation.
When purchasing a new build shared ownership property, the Landlord will grant the first Lease, which will be for a specified number of years, known as the term.
For a re-sale property, where the shared ownership Lease has already been granted, the existing Lease will be transferred to the buyer by the current owner, and the buyer will be bound by the terms of the existing Lease.
As properties purchased on the shared ownership scheme are leasehold, even if it is a house rather than a flat being purchased, the term of the Lease reduces every year. As the length of the Lease decreases there are things for a homeowner to consider.
When a lease reaches the 80-year threshold, under current law, marriage value becomes payable if you choose to extend your Lease. This is an additional premium for extending the Lease, which can materially increase the cost. Specialist valuation advice would be required from a surveyor to estimate the value of the property once the Lease has been extended. Marriage value is based on the difference between the current value of the property, and that when the Lease has been extended.
At the 80-year threshold, you may also find mortgage lenders are more reluctant to offer mortgages. Re-mortgaging, may still be an option if it is used for the purpose of extending the Lease. As such, if you are selling a property with a short Lease, you may have to look for a cash buyer. It is therefore recommended that a Lease is extended before reaching the 80-year threshold.
It is worth noting that with Shared Ownership properties, there is no statutory right to extend the Lease until 100% of the Property is owned. However, where less than 100% is owned, a lease extension could be requested on a voluntary basis. This means that if a Lease needed to be extended, the Landlord should be approached to request a lease extension, and the terms of the agreement would need to be negotiated.
Although it is not common, a Landlord is able to decline a request to extend a Lease. In addition, a Landlord who may initially be agreeable, could change their mind at a later stage in the transaction. If this were to happen, there is nothing that can be done to force them to proceed, unless the owner has staircased to 100% ownership. In this case, subject to meeting the relevant criteria set out by legislation under the Leasehold Reform, Housing and Urban Development Act 1993, the statutory route could be taken.
If an extension is required, you may be able to request amendments to the Lease as part of the lease extension process. However, Landlords are not required to agree to additional changes. To increase the likelihood of success, engaging the services of a lawyer who knows what the client is looking for in a Lease is extremely important, especially given the constant changes to legislation.
When extending a shared ownership Lease, it would be extremely beneficial for a homeowner to use the services of a lawyer who has specialist knowledge of both shared ownership and lease extensions when looking to extend a shared ownership Lease. Each shared ownership scheme and Lease will contain nuanced differences of which a standard conveyancer may not be aware.
Holmes & Hills have specialist divisions for shared ownership and leasehold transactions, and work closely with each other.
There are talks within the government about abolishing marriage value, however, at this time there is no indication of timescales, or if it will indeed happen. You can read our article about potential leasehold reform in 2023.
Multiple online platforms offer shared ownership lease extension calculators - services which allow you to calculate how much it will cost to extend your Lease. However, these calculators are often not reliable, and should only be taken as an initial guide. In the instance of a Shared Ownership Lease extension, you are likely to be provided with a valuation by the Landlord of which is non-negotiable. However, some Landlords may be open to discussions, but a specialist surveyor is likely to be required to determine the premium that is due.
In conclusion, it is extremely important to ensure that the law firm handling your matter has the required knowledge and expertise in both shared ownership and Lease extensions, due to the complexity and nuances of these areas of law.
Call us on 01206593933 today to speak with one of our specialist shared ownership lease extension solicitors. Or complete the form below.
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