Shared ownership: too problematic to expand?
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Marc Bloomfield
Dermot Mckibbin reviews the government’s proposed expansion of shared ownership.
On 17 October 2019, the government announced that it intended to introduce a new right to shared ownership (‘Thousands more people to be given step up onto the housing ladder’, Ministry of Housing, Communities & Local Government press release, 17 October 2019). Tenants in new housing association properties delivered with a government grant would have the automatic right to buy a minimum 10 per cent share of their home, with the ability to increase that share over time, up to full ownership.
The government confirmed that:
the initial minimum share of ownership required would be reduced from 25 per cent to 10 per cent for all shared ownership homes; and
shared owners would be allowed to increase their share of the home in one per cent increments - rather than 10 per cent at a time.
In August 2019, the government consulted on proposals for a new national model for shared ownership with the objective of making it ‘fairer, more affordable, and more consumer-friendly as well as a better model for the market to deliver’ (Making home ownership affordable: discussion paper, 28 August 2019, para 19, page 6). The consultation closed on 29 September 2019. The government has yet to announce its response to this consultation or the detail of how this new right would work in practice.
Unlike the statutory framework for council tenants’ right to buy, the government does not consider it necessary to change the law to promote the expansion of shared ownership.
What is shared ownership?
Shared ownership is described as enabling people to buy a share of a property (usually between 25 and 75 per cent) while paying a subsidised rent on the remaining share.1In Housing associations: a legal handbook (fifth edn, LAG, 2018), Dr Christopher Handy and Professor John Alder describe the usual statutory definition of shared ownership as a lease granted at a premium calculated by reference either to the value of the accommodation or the cost of providing it and which provides that the tenant (or their personal representatives) will or may be entitled on termination of the tenancy to a payment calculated on the same basis (para 8.67, page 173). See also Housing and Regeneration Act (HRA) 2008 s70(4). The size of the share is determined by the purchaser’s ability to afford and sustain the purchase. As their income improves, the size of the share can be increased. This is known as staircasing.
To be eligible for shared ownership, applicants must earn £80,000 a year or less (or £90,000 or less in London). The buyer must be a first-time buyer, someone who used to own a home but can no longer afford to buy one, or an existing shared owner looking to move.2Homes England has issued guidance (Capital funding guide, chapter 1 (‘Help to buy: shared ownership’), 4 November 2016; last updated 14 August 2020) about shared ownership including eligibility rules for all shared ownership providers, using its powers in HRA 2008 s40.
All shared ownership properties are leasehold. The housing association or private sector provider must comply with standard conditions of funding from Homes England as a condition of obtaining the grant.
Legal issues
Shared owners must pay ground rent and service charges irrespective of the size of their interest. Permission fees are required to make improvements and to staircase. They are liable for repairs including fire safety work and stamp duty. Clauses 88 and 89 of the draft Building Safety Bill (CP 264, 20 July 2020) will make shared owners liable to pay building safety charges. Table 36 of the bill’s impact assessment (page 64) shows that the potential cost of these charges per leaseholder in a block of over 30 metres high could be £78,000.3See also Fire safety: government consultation, Home Office, 20 July 2020; closes 12 October 2020.
Shared owners are, in fact, assured tenants with a long lease of at least 99 years with only a contractual right to any increase in the value of the property. In Midland Heart Ltd v Richardson [2008] L&TR 31; September 2008 Legal Action 23, the High Court held that Ms Richardson could be evicted on the mandatory Housing Act 1988 Sch 2 Ground 8 due to rent arrears of £3,009. She lost all the capital appreciation (£45,000) and the premium that she paid.4See also Sebastian O’Kelly, ‘Shared ownership: a misnomer that can be worse than renting and worse than leasehold, says solicitor’ (Leasehold Knowledge Partnership, 26 March 2020), which reports on an address to the All-Party Parliamentary Group on Leasehold and Commonhold Reform by housing specialist Giles Peaker.
Any shared owner who wishes to staircase in reverse will have no statutory right to do so; this is purely at the discretion of the provider. They will be eligible to apply for housing benefit on their rent. A loan towards any mortgage costs will only be offered under universal credit after a waiting period.
Bereavement
When a shared owner dies, the family relative who inherits cannot generally sublet their property. The property must be sold to another person who qualifies for shared ownership. The Guardian reported on A2Dominion saddling a shared owner’s estate with a debt of £25,000 due to difficulties in selling the property (Rupert Jones, ‘Shared ownership flats: “Mum died not knowing I would be left with £25,000 debt”’, 21 March 2020).
Shared ownership leases must run for at least 99 years. The scheme started in the late 1970s. Some leases are now running at below the level at which mortgages can be obtained. If the shared owner does nothing when their lease expires, they become an ordinary assured tenant.5Housing associations: a legal handbook, see above, pages 172–185.
Marketing
Shared ownership has been difficult to market. On 20 February 2019, the Advertising Standards Authority (ASA) upheld a complaint (Complaint Ref A18-469887) about a Notting Hill Genesis advertisement that stated: ‘I own a 2 bedroom apartment and pay less per month than my friends pay to rent a room in a flatshare!’ The regulator decided that the advert was misleading as it did not make clear that ownership was, in fact, shared ownership.
Shared owners have unsuccessfully complained to the ASA about housing association marketing that does not make it clear that shared owners are, in fact, only tenants, despite its stated aim to ensure that adverts are ‘legal, decent, honest and truthful’. Many housing association adverts include a government video on shared ownership. It is arguable that this video itself does not comply with the advertising codes as it does not explain that a shared owner is, in fact, an assured tenant with a long lease. This contravenes transparency requirements of consumer legislation by ignoring the disadvantages of the product offered. No evidence is produced to support a claim that monthly costs could be lower than full renting or private renting.
Consumer protection issues
Housing association lawyers are worried about the implications of the consumer protection from unfair trading regulations (Consumer Protection from Unfair Trading Regulations 2008 SI No 1277 (CPUT Regs)). These regulations make it a criminal offence to mislead consumers either directly or by omission.
According to Walker Morris partners Karl Anders and Louise Power:
It … follows that it is incorrect – and therefore misleading and potentially an offence in contravention of the [CPUT Regs] – for [housing associations], landlords, developers or lenders to advertise, or to refer in any way and in any of their marketing or customer-facing materials or discussions, to shared ownership schemes as ‘part buy, part rent’ (as is very commonly done). The same equally applies to using any other terminology or slogan which could give rise to confusion or which suggests or could suggest that the shared ownership customer purchases anything other than merely an assured tenancy leasehold interest at any time prior to the 100% staircasing stage (‘Housing associations, shared ownership and consumer protection considerations’, Walker Morris, 15 January 2018).
The Competition and Markets Authority is currently about to take enforcement action against certain developers over the mis-selling of leasehold houses (‘CMA finds evidence of serious issues in leasehold selling’, CMA press release, 28 February 2020). Shared ownership is outside the scope of this action, although many shared owners will claim that they were also misled. Often, they are first-time buyers and are encouraged or required to use solicitors recommended by the housing association.
Criticisms of shared ownership
Many shared owners have taken to social media to voice their concerns. On 14 October 2019, the BBC’s Inside Out London programme included a video by the National Leasehold Campaign. The Sunday Times contained a critical article on 30 September 2018 (Alexandra Goss, ‘The scandal of shared ownership schemes’). For the three years between 1 April 2017 and 18 May 2020, the housing ombudsman upheld 56 complaints of maladministration and 34 of partial maladministration from shared owners (Freedom of Information request no 202000658).
Many shared owners are concerned that they cannot extend their leases until they have staircased up to 100 per cent. They cannot afford to staircase. The House of Commons Library claims that existing data also suggests that it is currently ‘fairly rare’ for shared owners to staircase to owning 100 per cent of the equity in a property (Hannah Cromarty, Shared ownership (England): the fourth tenure?, Briefing Paper No CBP-8828, House of Commons Library, 24 February 2020, page 28). They can only sell their property on the open market after the housing provider has had a chance to sell the property.
The briefing paper points out that the proposed right to shared ownership is not a new concept (see page 24). The Rent to Mortgage Scheme was introduced in 1993 to give council tenants who could not afford to take advantage of the right to buy their homes the opportunity to purchase them on a shared ownership basis. By 1999, there had been just 40 completed sales (Hansard HC Debates vol 336 col 488W, 19 October 1999).
The London Assembly Housing Committee met with shared owners on 4 November 2019 to listen to their concerns. In London, the mayor’s office distributes shared ownership funding on behalf of the government. A meeting was held on 21 January 2020 (‘Shared ownership – is it really ownership?’, London Assembly press release, 20 January 2020).6See also this video. All-party representation was made to the mayor for more help for shared owners. The outcome is not yet known.
Shared ownership does not appear to be very affordable. Owners must increase their share in a rising market. The scheme favours those with access to capital as there are no limits on the amount of capital that they can supply to support their application. Inside Housing deputy editor Peter Apps describes in an article how he was required by a housing association to increase the size of his share from 40 per cent to 55 per cent. This increased his monthly repayments by over £200.
The Law Commission, leasehold reform and shared owners
The Law Commission was asked ‘to ensure that shared ownership leaseholders have the right to extend the lease of their house or flat, but not the right to acquire the freehold of their house or participate in a collective enfranchisement of their block of flats prior to having “staircased” their lease to 100%’ (The Law Commission: residential leasehold law reform – terms of reference, page 1). Recommendations 42–45 in Leasehold home ownership: buying your freehold or extending your lease (HC 584/Law Com No 392, Law Commission, 21 July 2020, paras 7.6–7.93, pages 397–423) reflect this approach.
The commission points out that the government has committed to changing the law so that long leaseholders will not be classed as assured tenants simply because they pay a high rent. ‘We assume that government’s work in this area will also extend to shared ownership leaseholders paying rent on the unacquired share which exceeds the limits in Sch 1 to the Housing Act 1988’ (see Leasehold home ownership: buying your freehold or extending your lease, footnote 5, page 398, and footnote 7, page 399).
It remains to be seen whether the government agrees with this assumption, which would remove shared owners from Ground 8 possession proceedings. Apart from enfranchisement, the commission did not look at the other legal problems that shared owners face.
Shared ownership would make an ideal issue for a parliamentary select committee inquiry. What are the views of shared owners themselves? Are the profits from shared ownership in fact recycled to provide extra homes for social renting? Why is the marketing so misleading? Is the government’s policy feasible? Will housing associations sign up to the proposed expansion if their development programmes are threatened by tenants wishing to exercise their shared ownership rights? Parliament must scrutinise the proposed expansion of shared ownership.
The views expressed here are the author's alone.
 
1     In Housing associations: a legal handbook (fifth edn, LAG, 2018), Dr Christopher Handy and Professor John Alder describe the usual statutory definition of shared ownership as a lease granted at a premium calculated by reference either to the value of the accommodation or the cost of providing it and which provides that the tenant (or their personal representatives) will or may be entitled on termination of the tenancy to a payment calculated on the same basis (para 8.67, page 173). See also Housing and Regeneration Act (HRA) 2008 s70(4). »
2     Homes England has issued guidance (Capital funding guide, chapter 1 (‘Help to buy: shared ownership’), 4 November 2016; last updated 14 August 2020) about shared ownership including eligibility rules for all shared ownership providers, using its powers in HRA 2008 s40. »
3     See also Fire safety: government consultation, Home Office, 20 July 2020; closes 12 October 2020. »
4     See also Sebastian O’Kelly, ‘Shared ownership: a misnomer that can be worse than renting and worse than leasehold, says solicitor’ (Leasehold Knowledge Partnership, 26 March 2020), which reports on an address to the All-Party Parliamentary Group on Leasehold and Commonhold Reform by housing specialist Giles Peaker. »
5     Housing associations: a legal handbook, see above, pages 172–185. »
6     See also this video»

About the author(s)

Description: Dermot Mckibbin - author
Dermot Mckibbin is a retired housing adviser. He is a member of the National Leasehold Campaign and a supporter of the Leasehold Knowledge...