Heard about buyback? Not sure what it is? Nexa Property Partner, Zahrah Aullybocus, provides an introductory guide to the jargon and process.

.

Zahrah Aullybocus is a Consultant Solicitor with Nexa Law. The following represents Zahrah’s personal opinion. However, it’s essential to seek your own expert and independent legal advice in relation to your own specific situation if you are actively considering buyback.

What is buyback?

Buyback (also known as leasehold repurchase) refers to a process where a housing association (the landlord) purchases a shared owner’s home back from them. Sounds simple, right? Unfortunately it’s not as straightforward as it sounds. The process can be complicated, stressful and costly. It’s also worth mentioning that buyback is very uncommon at present.

Is buyback the same as downward staircasing?

Downward staircasing (also known as flexible tenure) is when a landlord buys back some, or all, of a shared owner’s equity. Say, for example, if they are struggling to pay their mortgage. In this case, the shared owner remains living in their home.

But with buyback you would be required to vacate your home, the same as for any other sale.

Deed of surrender

When a landlord and tenant enter into a lease, it’s generally for a fixed length of time. In the case of shared ownership, the lease could be for 99-years, 125-years, 250-years. Or – under the new model for shared ownership – 990-years.

If a tenant and a landlord want to terminate a lease by mutual agreement they would usually use a deed of surrender. But things are more complicated when it comes to shared ownership.

A deed of surrender dissolves, or cancels, a shared ownership lease. This means that the landlord can’t sell the lease on to another prospective shared owner. In theory, the property could be used for another purpose; say, social rent. But this may not be feasible for the housing association in any specific instance.

Consequently, buyback might use a TR1 Form. This means the shared ownership lease DOESN’T get cancelled, but the landlord has the flexibility to continue to market it as shared ownership.

TR1 Form

A TR1 Form (also known as a Transfer of Whole of Registered Title Form, or Transfer Deed) is used to transfer property from one party to another. Whenever a shared owner sells their share to another shared owner, or on the open market via a back-to-back sale, a TR1 Form is used to transfer the existing leasehold title to the new owner. 

In the case of a buyback, a TR1 form would transfer the share from the shared owner to the landlord. If the landlord is the freeholder, they would then hold both the freehold and leasehold titles, meaning the existing shared ownership lease could still be sold / transferred by the landlord at a later date. Once the leasehold title is in their name, they can also rent out the property.

What is a settlement agreement?

A settlement agreement is a legally binding document for the sale of the property. Your solicitor may suggest a settlement agreement if there is an ongoing dispute: for example, the amount of service charges payable. Or, say, if you can’t afford to pay any service charge arrears that might have built up, and need to agree a separate repayment method.

Let’s talk about the money: how much does buyback cost?

Clearing your mortgage, rent, and service charges

If you’ve got a mortgage secured on the property, any outstanding balance will be repaid from the amount the landlord is paying for the share. The landlord will also expect any rent or service charge arrears to be cleared, together with any other charges payable to third parties; for example, estate service charges. You will be liable for these charges up to, and including, the date the transfer completes – even if you vacate the property before the transfer date.

Following buyback, the landlord will be responsible to pay any rent (but, obviously, not likely to charge themselves). However, it will complicate matters if the landlord isn’t the freeholder. If there is a head lease and/or third party management company that needs to be paid, the housing association will have to identify funds to do that. Either way, you need to be able to walk away and not have any liability for the property after ‘selling’ it back to the housing association.

Valuation

You will need to pay for a RICS valuation, as for any resale.

Legal fees

You will have to pay your own solicitor’s legal fees And, most likely, the housing association’s legal fees also.

A settlement agreement is more complicated than selling your share in the usual way. If your conveyancing solicitor recommends a settlement agreement, they may also recommend using a litigation solicitor to work on your sale. Conveyancing solicitors often offer a fixed fee, as their work is relatively predictable. However, litigation solicitors generally charge by the hour (including phone calls and emails). This is because it is difficult to know in advance how much time might be needed to complete the assignment.

Administration fees

Different housing associations have different policies when it comes to administration fees. Check with your own housing association if they will charge any administration fees and, if so, ask for details.

The biggest hurdle….

The biggest hurdle you will encounter is that housing associations very rarely offer buyback. There is no obligation on them to do so, and housing associations may not even have a buyback policy. If they do, you will need to meet specified criteria such as those laid out by Homes England and/or as required by the housing association – for example, exceptional circumstances.

Exceptional circumstances are likely to be extremely narrowly defined for the purposes of buyback.

Featured image: yanalya on Freepik

.