When it comes to statutory lease extension, shared owners have more to think about than other leaseholders. Linz Darlington, MD of Homehold, explains the issues and what shared owners need to know.
A frequent question from people who own flats on a shared ownership basis is: “Can I do a statutory lease extension on my flat?”
And a common follow up is: “If I can’t, do I need wait for two years after I have staircased to 100% ownership before I am eligible for a statutory lease extension?
The conventional wisdom has been that leaseholders who have not staircased their flats to 100% are not entitled to a lease extension using the statutory route set out in the Leasehold Reform Housing and Urban Development Act 1993 (LRHUDA 1993).
Why do people take this view?
To be eligible for a lease extension under the LRHUDA 1993 you need to be a ‘qualifying tenant’ of a ‘long lease’ of your flat.
For your flat to be let on a long lease it must meet any one of the criteria in set out in Section 7 of the legislation.
This section explicitly states that any shared ownership flat where the leaseholder owns 100% is a long lease and therefore does qualify.
This is where the confusion comes from: many people have interpreted this as meaning that any flat where the owner does not own 100% doesn’t qualify.
However, another one of the criteria for a long lease is that the flat must be let on a lease of 21 years or more. Critically, the way the law is written is that you must meet any one of these criteria to qualify, but you don’t have to meet all of them.
So, do shared owners have the right to extend?
In Avon Ground Rents Ltd v Canary Gateway (Block A) RTM Company Ltd & Anor (2020) UKUT 358 (LC), it was decided that shared ownership leaseholders were qualifying tenants for the purposes of a Right to Manage Claim. Despite the freeholder’s efforts to argue otherwise, this decision was also upheld by the Court of Appeal.
They were qualifying tenants because they fulfilled all the criteria of a long lease – because the leases were for 21 years or more.
The fact they did not meet the criteria of owning 100% was not considered relevant because the flats were let on leases above 21 years. The judge ruled the flats only had to meet one of the criteria, not all of them.
It is noteworthy that the criteria they met in this case was from Section 76(2) of the Commonhold and Leasehold Reform Act 2002. However, the wording is the same as the LRHUDA 1993.
Great! Lease extensions for all
Unfortunately, it’s not that simple.
One of the requirements of a lease extension under the Leasehold Reform Housing and Urban Development Act 1993 is that any new lease shall be on a peppercorn rent. This wouldn’t work for a shared ownership lease, where the landlord collects rent for the share of the property they still own.
I know at this point some of you are thinking: “Wait! Not only can I extend my lease but I can also prevent my landlord from collecting rent on the share I don’t own?! This sounds to be too good to be true!”
It is too good to be true. Under the legislation, when you do a lease extension you need to compensate your freeholder for the loss of rent that they suffer because of the lease extension. I haven’t seen any case law which explains how the loss of future rent would be assessed with a shared ownership flat. However, the freeholder is likely to want at least as much as the cost of buying the share you don’t own.
The practical implication of this is that if you want to extend your lease through the statutory route, you’d essentially also need to staircase to 100% at the same time.
OK, so I am going to staircase to 100% before I extend my lease. Do I need to wait before I can extend?
You need to have been the registered owner of your flat for two years before you become a qualifying tenant of the flat. This is set out in Section 39(2)(a).
The date at which you become the qualifying tenant of your flat is the date that your solicitors register your ownership at the Land Registry. This date is usually a few days to a few weeks after completion.
Even if you don’t own 100% of your flat, you still meet the definition of being a qualifying tenant after you have owned it for two years. This means you won’t need to wait an additional two years after staircasing.
So, to summarise…
If you are a shared owner wanting to extend your lease using the statutory route, then you have more rights than you might think.
Even so, it would make more sense to complete the staircasing transaction first, and then extend the lease. This will avoid opportunity to dispute and uncertainty.
Finally, please speak with the solicitor you use to do the lease extension to check that they are happy that you qualify before they start the process.
Linz Darlington is Managing Director of Lease Extension Specialists, Homehold.
Homehold is a sponsor of Shared Ownership Resources.
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