It’s complicated….
The shared ownership scheme is complicated. As a consequence, the Law Commission is concerned that members of the public, including homebuyers, don’t always have sufficient understanding of how the scheme works.
‘….members of the public do not always understand exactly how shared ownership schemes operate, or the precise nature of the legal arrangement which the purchaser of a shared ownership property is entering into.’
The Law Commission
(Shared Ownership Market Review 2020, Appendix 3, CCHPR)
Are over-simplified advertising campaigns to blame? Or is the fundamental underlying problem that Homes England’s model shared ownership lease creates and perpetuates misunderstanding?
Do shared owners understand what they’re getting into?
The Law Commission isn’t the only body to express concerns about public understanding of shared ownership schemes. The Mayor of London has also emphasised: “the need for greater consistency, transparency and clarity in guidance for potential shared owners“.
In 2020, the Ministry of Housing, Communities and Local Government (now the Department for Levelling Up, Housing and Communities (DLUHC)) duly published a ‘commitment to introduce a fairer and more transparent model of shared ownership. Yet confirmed reforms to the shared ownership scheme do little to resolve fundamental issues of transparency and understanding.
‘There are significant challenges with the shared ownership product, including a lack of clarity and transparency around the shared ownership model…’.
London Assembly Housing Committee response to MHCLG’s technical consultation: New model for shared ownership
‘The new model… adds further complexity for applicants in understanding what the shared ownership model is and what it means for them practically in the short and medium term, in weighing up whether home ownership generally and the model in particular is right for them. These factors have the potential to increase lack of awareness and understanding of the model’,
CIH response to MHCLG’s technical consultation: New model for shared ownership
Recent reforms may even exacerbate difficulties for homebuyers in understanding the shared ownership model, and in making informed purchase decisions.
Making informed purchase decisions
The new shared ownership model isn’t retrospective. However, some housing associations may extend at least some of the changes to at least some of their existing shared owners. Consequently, even beneficial reforms could add additional complexity to what is already a confusing market place.
So it’s even more vital that homebuyers have accurate and reliable information in order to make informed purchase decisions, and to plan their pathway through the tenure.
‘This type of home ownership brings with it particular risks and limitations, so it is particularly important that prospective buyers are well informed. Whilst solicitors will, of course, play a role in this… this will not always be the case. In our view, the UK Government should produce information to ensure consistent messaging from all those professionals involved in the process and to alert prospective buyers to risks when they are not professionally advised’.
Law Society response to MHCLG’s technical consultation: New model for shared ownership
What’s the problem with marketing campaigns, and with Homes England’s shared ownership model lease (and the accompanying key information document)?
Marketing campaigns
Housing providers position themselves as reliable sources of information with a promise to bust the ‘myths’ around shared ownership. Shared Ownership Resources has previously suggested that endemic over-simplification in shared ownership marketing campaigns does homebuyers no favours at all.
However, the National Housing Federation justify their marketing strategy, in part, by reference to how the Government refers to the product. Which takes us straight to a fundamental underlying problem.
Homes England’s shared ownership model lease
Buying a home is one of the most expensive decisions most people will ever make. Consequently, homebuyers need a good understanding of potential risks and costs associated with shared ownership. So it’s essential that the language used in Homes England’s model lease is precise, comprehensive and consistent with terminology in the wider legislative framework. But this is not the case.
Shared ownership isn’t shared, and it isn’t ownership
To start off, with the Law Commission say: ‘the term “shared ownership” is itself something of a misnomer’. Firstly, the property asset isn’t shared and, secondly, the degree of ‘ownership’ is widely misunderstood. As Professor Cowan et al explain that: “there is no such thing recognised in property law as “shared ownership” (Ownership, Narrative, Things).
Yet Homes England’s Capital Funding Guide 2021-26 includes the statement: ‘The term ‘Shared Ownership’ has a legal meaning and is used in this context’. Perhaps the Guide is referring to the Housing and Regeneration Act (HRA) 2008?
‘Shared ownership low cost rental – Accommodation which is both low cost rental accommodation and low cost home ownership is to be treated as the latter and not as the former’.
Housing and Regeneration Act 2008, Section 71
Regardless, shared ownership doesn’t constitute meaningful ‘ownership’ of property because it is fundamentally a rental arrangement. Hence not featuring in property law (which would require legal ownership of an actual property asset). Nonetheless, the Government still refer to the arrangement as ‘shared ownership’. And Homes England title their model lease a ‘Shared Ownership Lease’. Is it surprising that many homebuyers aren’t aware that they won’t legally ‘own’ their home? And should it be of greater concern that many feel misled when they find out?
Shared ownership: landlords and tenants
If shared ownership isn’t really ‘ownership’, it follows that shared owners aren’t really ‘owners’. But, oddly enough, the description ‘tenant’ isn’t that common in advertising materials, with ‘shared owner’ and ‘leaseholder’ appearing more frequently. Homes England’s model shared ownership lease does makes reference to tenants in relation to service charges.
‘The parties agree that the provisions of sections 18 to 30B of the Landlord and Tenant Act 1985 and of Part V of the Landlord and Tenant Act 1987 all of which regulate service charges shall apply to the provisions of this Lease’.
Nonetheless, the model lease refers to the homebuyer (tenant) as ‘the Leaseholder’ throughout.
Tenants or leaseholders?
Obviously, the legal experts who created Homes England’s model lease would argue that shared owners are leaseholders. But the devil is in the detail.
‘In legal terms, a shared ownership lease almost always takes the form of an assured or assured shorthold tenancy…. The purchaser of a shared ownership lease in effect purchases a very long assured or assured shorthold tenancy, with the right to staircase to 100% in accordance with the terms of the lease. At that point, the shared ownership leaseholder will own the property in the same way as any other freeholder (in the case of a house) or leaseholder (in the case of a flat).’
The Law Commission
(Shared Ownership Market Review 2020, Appendix 3, CCHPR)
Note the Law Commission’s distinction between an assured or assured shorthold tenant and any other leaseholder. They are not the same thing. A shared owner is not an ‘ordinary’ or ‘true’ leaseholder. In fact, a lease (whether it is an assured tenancy or assured shorthold tenancy) is not a long lease because there is an express statutory limitation under the Commonhold & Leasehold Reform Act 2002, s.76 unless and until staircasing to 100% has occurred.
Does it matter if shared owners are assured or assured shorthold tenants rather than leaseholders?
Referring to shared owners as ‘Leaseholders’ obscures key risks which don’t apply to ‘true’ long leaseholders. The risk of possession without any reimbursement of equity invested is something many shared owners are oblivious to.
‘The fact that a shared ownership lease is an assured or assured shorthold tenancy means that until the shared ownership leaseholder has fully staircased, he or she has much more limited security of tenure than most ordinary leaseholders. In particular, the shared ownership leaseholder runs the risk of eviction under the Housing Act 1988 on the basis of one of the grounds for possession listed in schedule 2. This includes “Ground 8”, which provides that the court must make a possession order when the tenant is in two months’ rent arrears. In effect, the shared ownership leaseholder is at risk of losing his or her lease, and the entire purchase price paid for it, for non-payment of rent.’
The Law Commission
(Shared Ownership Market Review 2020, Appendix 3, CCHPR)
Unfortunately, the risk of possession is far from theoretical. Recent research by CCHPR found that shared ownership possessions are on the rise. Given that inflation is forecast to rise in 2022, energy prices are rising rapidly, and the long-term implications of Brexit and COVID are as yet unknown, this trend may will increase. There are other downsides too.
- As assured or assured shorthold tenants, shared owners have no statutory right to enfranchise, or extend a lease.
- Shared owners in flats don’t get a right of first refusal on a disposition of the freehold.
- They are subject to restrictions vis-à-vis subletting and the selling process.
‘Caveat emptor’ and the shared ownership model lease
Both politicians and housing professionals default to ‘caveat emptor’ in the event of shared owner dissatisfaction. However, blaming first-time buyers – by definition inexperienced in property matters – for incomplete understanding of such a complex housing product hardly seems fair.
It is perhaps an inconvenient truth that the shared ownership model is legally complex. But the Government subsidise shared ownership under the banner of Affordable Homes Programmes. Shouldn’t this create a moral obligation on Government and housing providers to ensure homebuyers understand exactly what they’re getting into?
Fairness, transparency and consumer protection
As outlined above, shared ownership is burdened with legal risks and restrictions. which do not apply in the case of full leasehold status. Consequently, using ‘leaseholder’ terminology when ‘assured tenant’ or ‘assured shorthold tenant’ would be more accurate creates unnecessary ambiguity.
Homes England’s model lease (and accompanying key information document) should be much more transparent about the implications of an assured or assured shorthold tenancy. It’s only fair! Otherwise homebuyers simply won’t have all the information they need to make informed purchase decisions.
It’s instructive to read the Committee of Advertising Practice (CAP) advertising code which states:
- ‘Marketing communications must not mislead the consumer by omitting material information.
- They must not mislead by hiding material information or presenting it in an unclear, unintelligible, ambiguous or untimely manner.‘
Shouldn’t a similar standard apply to Homes England’s shared ownership written materials generally, and to model leases in particular?
Shared Ownership is neither shared nor ownership. Any reasonable and honest reform would make it both of those things, and this would be extended to legacy shared ownership tenants as well as new ones. But when the government expects social housing providers to be self-funding, and money raised from shared ownership tenancies is used to cross-subsidise social rented properties, we can begin to see why they don’t. It suits any number of organisations and bodies to obfuscate the nature of shared ownership, and it is shameful that so many shared ownership purchasers are being conned into thinking they have a “foot on the ladder” when in reality they have a tenancy that is less secure than the one my grandma had on her council house.
What you won’t be told as well, the costs of repossessing the property are also taken out of your share – estate agent’s fees, solicitors fees, housing association fees. The shared ownership lease provides for EVERY SINGLE COST to be passed onto the shared owner, so any equity you have left in the property could be swallowed by this cost. Not to mention the mortgagee protection clause still allows your mortgage lender to pursue you for any shortfall.
‘Shared’ ownership is a red herring. The only bit that is shared, is the initial purchase. Even then, there are lines and lines of restrictions as to what you can and cannot do with the property (covenants), you will need permission from the Landlord to make modifications. The Government have not thought about this properly – the cost of staircasing in 1% tranches is prohibitive in terms of legal fees and ensuring that the acquisition is noted at the Land Registry (as you’ve got to prove how much you own when you sell – let’s hope the paperwork doesn’t get lost).
Staircasing to 100% is a headache where it is freehold as housing associations and the shared ownership lease does not correctly point the leaseholder in the right direction, especially if there is a third party management company on the site – you could end up paying still two sets of service charges (1) to the wider managed area to the third party and (2) to the housing association where they have retained private roads within their ownership. You’re still not free of them on 100% ownership. A lot of people are still confused when I tell them they still have to pay service charges on 100% ownership. (“We weren’t told that when we bought the property?!”) This causes difficulties where you have a third party management company on site and the developer still hasn’t handed over management to them at the point of staircasing. Housing Associations are unaware that they are also being taken advantage of by developers and ‘fleecehold’.