Housing associations, landlords, and freeholders…. Solicitor, Zahrah Aullybocus, explains what you need to know.
In Part 2 (Pitfalls), we’ll cover the following potential pitfalls:
- Fewer benefits and more risk when the housing association is not the freeholder
- Liability for ALL the housing association’s costs, including payments they make to their own landlord
- Weak accountability for repairs and maintenance, and duplicate management fees
- Ground rent might be payable in the housing association’s lease, and charged on to the shared owner
- The housing association’s own interest in the lease might be too short to offer meaningful lease extension to shared owners
In Part 3 (Questions to ask) we’ll provide a checklist of questions to ask the sales team and your solicitor if you’re considering purchasing a shared ownership home.
But we start by discussing landlords and ownership structures.
Is the housing association always the landlord?
The terms ‘freeholder’ and ‘landlord’ are sometimes used interchangeably. A freeholder owns the freehold of a building. This means they own both the building and the land the building is on. Your housing association is your landlord. And sometimes your housing association is the freeholder. But not always!
For example, if a developer sells an entire block of flats to a housing association, they may transfer the freehold. But if only a few flats in a block are designated as shared ownership, the developer may sell the housing association a lease specifically for those flats, making the housing association the ‘Head Landlord’ when the flats are sold on to shared owners.
Complications can arise if your housing association is your landlord but not the freeholder. In this case, shared owners may have fewer benefits than where the housing association is the freeholder, and face more risks and restrictions. We discuss this in more detail later on. But first we explain what we mean by complex ownership arrangements, and give some examples.
Complex ownership arrangements
If a developer sells a head lease to a housing association, there are three parties with an interest in the lease: the freeholder (developer), the head leaseholder (housing association) and the leaseholder* (the shared owner).
EXAMPLE ONE: THE HOUSING ASSOCIATION ISN’T THE FREEHOLDER BUT HAS A HEAD LEASE
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Freeholder
The Freeholder owns the land. The building reverts to the Freeholder after the Head Lease expires.
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Head lease = Housing association= Landlord to Shared Owner
The Head Leaseholder has an interest in the lease for a specified period of time: for example, 999 years.
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Underlease = Shared owner
The shared owner has an Underlease. They have an interest in the lease for a period of time that is shorter than the Head Lease. It could be for 99-years, 125-years or 250-years. It could be for 990-years.
There is normally a provision in the Underlease that the terms of the Head Lease need to be observed.
But sometimes it’s even more complicated.
EXAMPLE TWO: THE HOUSING ASSOCIATION DOES NOT HAVE A HEAD LEASE
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Freeholder
The Freeholder owns the land. The building reverts to the Freeholder after the Head Lease expires.
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Head lease = Developer / Management Company
The Head Leaseholder has an interest in the lease for a specified period of time: for example, 999-years. In this scenario, the housing association is not the Head Leaseholder; the developer/management company is the Head Leaseholder.
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Underlease = Housing association= Landlord to Shared Owner
The housing association has an Underlease for a specified amount of time. In some cases, the housing association may have agreed to a short lease, say 125-years. There is normally a requirement to comply with the provisions of the Head Lease.
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Underlease = Shared owner
The shared owner has an Underlease. They have an interest in the lease for a period of time that is shorter than the Head Lease. It could be for 99-years, 125-years or 250-years. It could be for 990-years.
There is normally a provision in the Underlease that the terms of the Head Lease need to be observed.
Shared owner ‘Annie’ discovered that there were four different parties with an interest in her lease: a freeholder, a head lessee, a leaseholder (her housing association) and her (also a leaseholder*). She discusses her experiences in My SO Home: No. 17.
Does it matter if the housing association isn’t the freeholder?
In Part 2 (Pitfalls) we go on to discuss some potential pitfalls if the housing association is the landlord, but isn’t the freeholder.
We are extremely grateful for the support of Zahrah Aullybocus, Consultant Solicitor with Nexa, in creating this content.
Mobile: 07740 775 345 | zahrah.aullybocus@nexa.law
DISCLAIMER: The information provided on this website is for general purposes only. It is not intended to be a substitute for legal, financial, tax or other professional advice. Everyone’s situation is different so always seek expert advice on any questions you may have.
This article is the personal opinion of the author and without any liability to Nexa. Any concerns should be checked with the solicitor that is acting for you.
Featured image: Freepik
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