What is a Shared ownership lease?
Shared ownership leaseholders may be surprised to learn The Upper Tribunal (Land Chamber) has recently found that they have the full rights of long leaseholders with a100% share and need to be consulted in any leaseholder application to take over the management of their own building from their landlord under the Commonhold and Leasehold Reform Act 2002 even though a High Court Judge previously found a shared ownership lease was not a lease at all but a tenancy.
An American spoof TV soap series started each episode by explaining the plot so far with the phrase “Confused? You soon will be”. Shared ownership Leaseholders may well feel the same.
The intention behind the shared ownership Lease is to enable a potential buyer who cannot afford the full purchase price of a flat to buy a percentage interest in the Lease at the market price and then pay rent to his or her Landlord, who is often a Housing Association, for occupying the part he or she does not “own”. As finances improve, the shared ownership leaseholder can “staircase” up and increase the amount of equity he or she owns up to a 100% interest. Mortgages have been created to accommodate these arrangements (sometimes guaranteed by the Housing Association) and the Leaseholder pays a full share of the contribution toward the service charges payable for maintaining the building.
The Courts however have been less clear on the status of shared ownership leases. In 2007 in Midland Heart Ltd v Richardson His Honour Judge Jonathan Gaunt QC sitting in the High Court found that, not withstanding a shared ownership lease was called a lease and appeared to have all the characteristic of a lease and staircasing provisions, it was not a lease at all but a tenancy because rent was paid and it met all the requirements and none of the exclusions of the Housing Act 1988. Moreover there was no implied trust regarding the equitable interest Ms Richardson believed she had paid for, in other words she had no financial interest in the property at all (nor would her mortgage lender had she had one). The parties settled so the Court of Appeal did not consider matters further.
In stark contrast in January 2013 in the Upper Tribunal (Lands Chamber) in Corscombe Close Block 8 RTM Co. Ltd v Roseleb Ltd. His Honour Judge Mole QC had to consider if a shared ownership lease qualified as a long lease under s76 (2) of the Commonhold and Leasehold Reform Act 2002 to decide if the shared ownership leaseholders in the building were “qualifying tenants “as far as an application to a right to manage was concerned. If not then the application was defective as the notice of participation had not been served on the Housing Association that held the intermediate Lease. He had to consider s77 which states that a lease is a long lease if, amongst the six options (a) to (f) :-
(a) It is granted for a term certain exceeding 21 years…….
(e) It is a shared ownership lease….where the tenant’s total share is 100 per cent.
All the leaseholders had been granted leases for over 21 years but owned a less than 100% share, so it would appear therefore that the shared ownership lessees in the building may not qualify.
HHJ Mole said the issue was whether the definitions should read like “a series of gateways “with the lease in question only having to qualify for one of the 6 options (a) to (f) or “like a stack of sieves “so a lease may fall through (a) but qualify under (e). He decided the most natural meaning was if a “long lease” fell under any one definition it qualified. Here all the leases were granted for a term exceeding 21 years, qualified under (a) and so the shared ownership leaseholders did hold long leases for the purposes of the notice of participation not withstanding that they were for less than 100%.