Will the Leasehold & Freehold Reform Bill help shared owners?

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A great many shared owners have been waiting a long time for leasehold reform; particularly when it comes to short leases and lease extension. But will the Leasehold & Freehold Reform Bill help them?

The Bill received Royal Assent on 24 May 2024. It was rushed through following the announcement of a snap General Election. This feature explains the lead-up to the Bill receiving Royal Assent. A follow-up feature on what the Bill delivers for shared owners will be published soon.

The same rights and protections as any other leaseholder

Many shared owners, some in financially dire situations, continue to place great trust that the Leasehold & Freehold Reform Bill will resolve key problems with shared ownership. They hope that MPs and Lords will not overlook the challenges they face, or exclude them from long-awaited reform. Unfortunately, it’s hard to be certain one way or the other.

On 18 January 2024, Sue Phillips, founder of Shared Ownership Resources, gave oral evidence to the Public Bill Committee scrutinising the draft Leasehold and Freehold Reform Bill. She argued that shared owners should have the same rights and protections as any other leaseholder.

This feature explores some concerns the House of Lords might need to tackle – as a matter of urgency – as the Bill makes its way through the legislative process. But, to start with, it explains short leases, lease extension and complex ownership structures.

IT’S VITAL TO NOTE THAT THIS FEATURE IS NOT LEGAL ADVICE. IN FACT, IT HAS BEEN SURPRISINGLY DIFFICULT TO OBTAIN LEGAL VIEWS ON HOW THE LEASEHOLD & FREEHOLD REFORM BILL WILL IMPACT SHARED OWNERS. RATHER, IT IS INTENDED TO FLAG UP KEY CONCERNS AND QUESTIONS IN THE HOPE THIS WILL HELP ENSURE SHARED OWNERS DO NOT FALL BETWEEN ANY LEGISLATIVE GAPS.

SHARED OWNERSHIP RESOURCES HAS RAISED THE ISSUES BELOW WITH A NUMBER OF MEMBERS OF THE HOUSE OF LORDS.

Short leases

The new model for shared ownership offers a 990-year lease. But, prior to the new model, most housing associations sold shared owners ‘short’ leases, with 99-year or 125-year lease terms.

It is harder, and generally more expensive, to get a mortgage once a lease has fewer than 80 years remaining. Consequently, it can become more difficult to sell the property, or to get a good deal when remortgaging. But it is also a lot more expensive to extend a lease once there are fewer than 80 years remaining. Shared owners who have perhaps 70, 60 or even fewer years remaining on their lease face the most intractable problems.

Many shared owners report not being made aware of these issues when they bought their share. (Even though the advertising watchdog – the Advertising Standards Authority – ruled, in 2023, that it is likely to be misleading not to include material information about the costs of lease extension in advertisements.)

Lease extension

At present, shared ownership is – legally – an assured shorthold tenancy. Other residential leaseholders have a statutory right to lease extension. But, as assured shorthold tenants, shared owners have been reliant on the ‘informal route’. This is at the discretion of the landlord, and offers fewer rights and protections.

The Renters (Reform) Bill should address this issue by taking all leases over 21 years – including shared ownership – out of assured tenancy status, The Renters (Reform) Bill has not yet been passed, although it has been estimated that it could become law in or around October 2024.

The Leasehold and Freehold Reform Bill should put this on a functional footing by excluding rent on the landlord’s share from the ‘peppercorn’ provision, which would make lease extension under the statutory route cheaper for shared owners than it would be at present. Though some questions remain.

Complex ownership structures

Shared ownership is often developed under complex ownership arrangements. The housing association may not be the freeholder. The housing association may not even be the head lessee. They might be merely a sub-lessee, like the shared owner, with only a short interest in the lease.

How will the Leasehold & Freehold Reform Bill deal with complex ownership structures?

The statutory route to lease extension adds a set additional number of years to the lease, and reduces ground rent (if applicable) to a peppercorn (i.e. zero). At present, the statutory lease extension process adds 90 years to a lease. Under the Reform Bill, lease extension could be increased to 990 years.

One shared owner reports that her housing association has only a 125-year interest in the lease, so cannot offer her – via the informal route – the 90-year extension she would be entitled to if she had a statutory right to lease extension.

How would the Bill deal with situations like this? At the moment, it’s not clear how – or even if – it does.

Will the Leasehold & Freehold Reform Bill make lease extension more affordable?

Lease extension specialists, Homehold, have written a very helpful – albeit quite technical – feature explaining why there are no guarantees that the Leasehold & Freehold Reform Bill will make lease extension more affordable for all leaseholders.

But it’s even more complicated when it comes to shared ownership…

If a housing association isn’t the freeholder, who will pay for the housing association to extend their own interest in the lease, if needed, in order to offer a statutory lease extension to the shared owner? At present, all and any costs incurred by a landlord can be passed on to a shared owner. Will this still be the case when it comes to lease extension under the Leasehold & Freehold Reform Bill?

Will it be affordable for shared owners to take up any new statutory right to lease extension? Should MPS and Lords consider options to ensure that ‘affordable’ housing really is affordable? Should they consider options to avoid a two-tier market where new shared owners have 990-year leases but existing shared owners remain trapped in unaffordable homes that they can’t sell, with short leases they still can’t extend?

Will any shared owners be excluded from lease extension under the Leasehold & Freehold Reform Bill?

One of the conditions in the draft Leasehold & Freehold Reform Bill is: ‘Condition C: the lease allows for the tenant’s share in the home to reach 100%’

What does this mean? Does it mean that shared owners with staircasing caps (say, OPSO or designated rural schemes) will be excluded from a new statutory right to lease extension?

What do you think?

This feature poses questions about whether the long wait for the Leasehold & Freehold Reform Bill will prove worthwhile for shared owners?

Comments (and corrections) are very welcome.


UPDATE: This feature has been amended to clarify that the Renters (Reform) Bill should take leases over 21 years – including shared ownership – out of assured tenancy status; and that the Leasehold and Freehold Reform Bill should make statutory lease extension for eligible shared owners cheaper than it would be at present.

UPDATE: During a House of Lords debate on 22 April 2024, Lord Young of Cookham raised these issues, stating that: “There is a risk that shared owners will fall between the cracks between conventional leaseholders and those who rent”.

UPDATE: Lord Bailey of Paddington has proposed an amendment to the Bill (105A, published 30 April 2024) asking that, within 6 months of the Act being passed, the Secretary of State present a report to Parliament with “details of their proposals to ensure a fairer deal for shared ownership leaseholders in matters including, but not limited to:

(i) Lease extensions, so as to ensure shared owners enjoy similar rights to other tenants under this Act;

(ii) Terms of leases, in particular means to ensure shared owners have a right to extend their lease to 999 years;

(iii) Service charge liabilities being pro-rated according to the shared owner’s proportion of the equity.

This strongly suggests that the shared owners are currently excluded from the provisions of the Bill as it stands when it comes to lease extension reform.

Featured image: callmetak on Freepik

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