Shared ownership schemes are sometimes delivered via complex ownership arrangements. In this 3-part series Consultant Solicitor (and Shared Ownership Resources sponsor), Zahrah Aullybocus, explains some potential pitfalls homebuyers need to be aware of when the housing association isn’t the freeholder. She concludes with a checklist of questions to ask the sales team and your solicitor.
In Part 1, we discussed landlords and some typical ownership structures, In particular, why there might be fewer benefits and more risk when the housing association is not the freeholder.
Then, in Part 2, we looked at a number of potential pitfalls:
- 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 the final part of this 3-part feature, we provide a checklist of questions to ask the sales team and your solicitor.
I’m thinking about buying a shared ownership home. What questions should I ask the housing association sales team?
Your solicitor should obtain and explain information about complex ownership structures. Although you will pay a premium for expert independent conveyancing advice, it could avoid unexpected and expensive costs down the line! Do be aware that the cheaper the quote for conveyancing, the less likely you are going to have this sort of information included as ‘standard’ advice. Do look carefully at the Letter of Engagement setting out what the solicitor will do for the fee you are paying.
However, you may want to obtain relevant information about ownership structures prior to engaging a solicitor.
This could help avoid unnecessary legal costs if what you find out makes you reluctant to proceed with the purchase.
Complex ownership: checklist
The following brief checklist of questions to ask the sales team might be useful. Make sure you get answers confirmed in writing. If you do decide to proceed with the purchase, this information could help you have informed conversations with your solicitor. Instruct your solicitor to corroborate any information you are given with the housing association’s solicitors (or seller’s solicitors in the case of a resale).
- Is the housing association the freeholder?
- If the housing association isn’t the freeholder, who is?
- If the housing association isn’t the freeholder, how many parties have an interest in the building?
- How long is the lease? (Lease extension is more expensive once there are fewer than 80 years remaining. Lenders may be more reluctant to lend as the lease approaches the 80-year threshold).
- Is ground rent payable now?
- Is ground rent payable on staircasing to 100%?
- If ground rent is payable now or in the future, is it fixed or escalating? Is it potentially onerous?
- Is the housing association directly responsible for repairs and maintenance, or is there a third party management company? (More cost and complexity).
What questions should I ask my solicitor?
As part of the conveyancing process, you should receive a report (or perhaps a series of reports) from your solicitor. Do read your reports carefully. Ask your solicitor to explain anything you’re not sure about.
Complex ownership: checklist
- Ask your solicitor the same questions you ask the sales team, and check you are getting the same answers.
- It is a requirement for solicitors to provide advice regarding the term (length) of the lease and your rights (if any) to a lease extension. But solicitors may not provide detailed advice if the 80-year threshold isn’t imminent. Ask how long you have left on the lease (especially if it’s a resale) and when is the best time to obtain a lease extension. Most mortgage lenders require a term of 85 years to be left on the lease before they agree to release monies. You must ensure that if you are approaching the 85-year mark you ask the questions below.
- Ask about the likely costs of a lease extension. Most housing associations have a lease extension policy that should cover what you need to pay by way of valuation, administration fees, landlord’s legal fees and potential premium costs. Check if your housing association calculates lease extension premiums on the total value of the property, or on the percentage share you hold.
- If there are any third parties involved in management of your new home, make sure you’re clear who is responsible for what, and obtain contact details so you have them to hand if you need them.
Shared Ownership is marketed as ‘affordable home ownership’. This is because it requires a lower mortgage deposit than buying outright. But it can be financially risky over the longer-term, for the reasons outlined above.
Do be willing to pay a premium for expert independent legal advice. Don’t see it as a waste of money as you need to know what you are getting yourself into before you dive into buying your new home. After all this could be the most expensive purchase you ever make!
For those of you are buying to get onto the property ladder via shared ownership, good legal advice is particularly important, as you want to ensure you will be able to sell without undue difficulty when you need to.
If you decide not to proceed, based on what your solicitor tells you, try not to see the process as a waste of money. What you learn should help you make a more informed home purchase decision next time around.
Zahrah Aullybocus is a Consultant Solicitor with Nexa and Shared Ownership Resources sponsor.
Mobile: 07740 775 345 | firstname.lastname@example.org
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.
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