Your Lease explained
How does shared ownership work?
Key Information for Shared Owners
This section is intended as a brief guide for Leaseholders (shared owners) of the key provisions of the Shared Ownership Lease.
Under a shared ownership lease the Leaseholder buys a ‘share’ of the property and pays rent on the remaining share of the property (which remains in the ownership of the Landlord - Sentinel)
The Leaseholder can buy further shares in the property at the market value of those shares at the time of purchase. Buying further shares is referred to as ‘staircasing’ When the Leaseholder owns 100% he or she can acquire the freehold in the property for no charge.
As the Leaseholder buys further shares the rent will be reduced proportionately to reflect the fact that the Landlord’s interest in the property has reduced.
Although initially the property is not owned outright the Leaseholder does have the normal responsibilities of a full owner. This means for example that the Leaseholder will be obliged to pay 100% of the outgoings relating to the property and to keep the property in good and substantial repair and condition.
The lease also contains other ‘standard’ obligations on the Leaseholder. For example the Leaseholder will:
- if applicable, need to contribute towards the costs incurred by the Landlord in providing services;
- need to seek the Landlord’s consent before making certain alterations; and
- if applicable, comply with regulations relating to the management of the estate of which the property forms part
- The rent will be reviewed periodically at the times set out in the lease. Typically the rent will be reviewed every year The reviewed rent will be increased in line with any proportionate increases in the retail prices index (RPI)
The rent will be reviewed on an ‘upwards only’ basis This means that the level of rent will not go down when it is reviewed. However any increase in the rent will be capped at a figure representing the RPI increase plus 0.5% This means that where the RPI is zero or negative the most the rent can increase by is 0.5%.
Assignment or Transfer
If the Leaseholder assigns or transfers the lease before he or she staircases to 100% ownership of the property the Landlord can require the Leaseholder’s purchaser to buy (at market value) all remaining shares in the property This is often referred to as ‘back to back’ staircasing.
However back to back staircasing will not be required by the Landlord:
- if the lease is transferred or assigned as a result of the divorce or death of the Leaseholder;
- if the Leaseholder gives the Landlord notice that he or she wishes to sell its interest in the lease and either the lease is assigned to a person nominated by the Landlord or the Leaseholder surrenders (or returns) the Lease to the Landlord (in both cases for a price that is no more that the market value of the Leaseholder’s share of the property);
- if the Landlord fails to nominate a purchaser, the nominated purchaser fails to purchase the Leaseholder’s share or completion of the surrender of the Lease does not take place
Subletting
The Leaseholder is not permitted to sub-let or part with possession of the property in any other way until the Leaseholder staircases to 100% ownership of the property.
With a view to ensuring that the property remains in the ownership of people in need of shared ownership units there are restrictions on the transfer, assignment and subletting of the property after the Leaseholder staircases to 100% ownership.
If during the period of 21 years from the date that the Leaseholder staircases to 100% ownership of the property and acquires the freehold the Leaseholder gives the Landlord notice that he or she wishes to sell the freehold the Landlord can require the Leaseholder either to transfer the freehold back to the Landlord or to a person nominated by the Landlord. In both cases the price will be no more that the market value of the freehold of the property with vacant possession
The Landlord’s right of first refusal does not apply if the freehold is transferred or assigned as a result of the divorce or death of the Leaseholder.
Loans from banks and building societies to Leaseholders would often require Leaseholders to take out mortgage indemnity insurance or other forms of additional security which would increase the expense to the Leaseholder of acquiring a shared ownership interest in the property. So with the aim of cutting down or avoiding such expense arising (so that mortgage indemnity insurance is not required and encouraging banks and building societies to lend to shared owners) the Landlord agrees that if the Leaseholder defaults the Landlord will compensate the Lender for some part of any loss incurred if the proceeds from the sale of the Leaseholder’s share of the property are insufficient. For this reason the Leaseholder’s lender will need to obtain the consent of the Landlord to the terms of the Leaseholder’s mortgage.
If the Landlord has to cover some of the mortgage debt in this way the Leaseholder will become liable to pay the Landlord back In such cases the Landlord will be able to pursue the Leaseholder to recover its loss and may also enforce any other security guarantees or insurance that were originally granted to the Lender.
To assist the Landlord and the Lender in operating these compensation provisions by signing the lease the Leaseholder authorises the Landlord and the Lender to exchange personal information relating to the Leaseholder in relation to various matters including the terms of the lease details of any arrears and any loan secured against the property.
You need to be aware that if the Leaseholder fails to pay the rent reserved by the Lease and/or fails to observe and perform his or her obligations in the Lease the Landlord may be entitled to terminate the lease (subject to the Landlord obtaining any necessary court order If the lease is terminated the Leaseholder will lose (and will not be entitled to any compensation for) any shares in the property which he or she had acquired.
The paragraphs above summarise the key terms of the standard form Shared Ownership Lease issued by the Homes and Communities Agency.
Your responsibilities
Your lease / contract will outline all your responsibilities.
These usually include:
- Paying rent (for Newbuild Homebuy & Social Homebuy sales) service charges and ground rent on time;
- Maintaining and repairing all internal parts of your property including fixtures and fittings;
- Maintaining and repairing all external parts of your property if you own a house
- Requesting permission from Sentinel before carrying out any structural changes or improvements;
- Not keeping a pet in your property if your lease prohibits it and obtaining written permission to keep a pet or fit a satellite dish
- Being considerate of neighbours and not disturbing them or causing a nuisance;
- Not to use communal areas of your home as a storage area e.g for prams, bikes, rubbish etc.
- To use only your own parking bay or allocated space if you have one.
- Repaying the share / discount / equity loan on the price of your property when you sell;
If you live in a house you are responsible for all repairs and maintenance to the house
When you arrange work we suggest that:
- You give clear instructions to your contractor and get them to give you a written quote
- Get two or more quotes for expensive work
- Use contractors that are recommended by friends and/or are recognised by an appropriate trade body
- For extensive work consider employing a surveyor to specify the work and to select and supervise the contractor
Preventative maintenance can save money. For example repainting windows usually works out cheaper than replacing windows that are rotting due to lack of paint.
Sentinel’s responsibilities
We are usually responsible for:
- Maintaining and repairing the communal and external areas of apartments, this also includes providing services such as cleaning and grounds maintenance.
- Insuring the building - this does not include your belongings and we strongly recommend you take out your own ‘home contents’ insurance.
- Keeping individual accounts for service charges which go to pay for repairs, maintenance and buildings insurance and providing you with an annual statement of these accounts.
- Consulting you about any service contract that will last for more than 12 months, which will be reflected in your service charge as a charge of more than £100 per year.
- Not to unjustly refuse permission for any improvements or alterations you want to make to your home, save for those prohibited by the lease.
These vary according to the property and the details of your purchase.
Subletting
We define ’subletting’ to mean granting a tenancy of the whole or part of a property for an indefinite period of time. Your lease does not allow subletting as it can cause is management difficulties if the conditions of the lease need to be enforced.
Once you own 100% of your property Sentinel will grant your permission to sublet, providing you supply us with your forwarding information and consent from your lender to sublet.
In exceptional circumstances the Association may consider requests to sublet from owners who do not own 100%. These will be assessed on a case by case basis by the Leasehold Manager.
Rent and Service Charge review
Rent
If you are a Shared Owner you pay rent on the share of the property Sentinel Housing Association retains. The lease requires you to pay in monthly instalments on the first day of each month or the first working day.
The lease sets our how we can increase rents. Most lease leases allow for an annual increase linked to the increase in the retail price index (RPI) + 0.5%. The RPI is the government measure of inflation. We can not increase your rent by more than the lease allows. This is generally reviewed every January and we will let you know in November what the increase will be.
Service Charges
We collect service charges from you to pay for the services we provide. For most houses (as opposed to flats) our charge is likely to cover just the buildings insurance and a management fee/rent administration fee.
Before the start of the financial year we will set a service charge budget, we look at how much has been spent on providing services and estimate how much will be needed in the next financial year. This estimate is based on actual costs, inflation and quotations from contractors.
The budget will include:
- Our estimate of the cost of day to day services for your block or estate
- Our management fee
- A provision for long term maintenance and repair or reserve fund (but only if we are responsible for long-term maintenance and repair)
We will inform you of the new service charge before the start of each financial year. At the end of each financial year we will check the estimates against the actual expenditure for the year and let you what the difference is in September. This charge can be a credit or deficit which will be added to your rent account.
