Shared ownership is said to be the easier way to get onto the housing
ladder, but is currently presents some legal flaws for the buyer as
revealed on this recent article by Giles Peaker of TheGuardian on
September 3rd, 2013.
It's touted as an easier way onto the housing ladder, but shared ownership is mired in worrying legal flaws for buyers.
Shared ownership is being positioned by housing charity Shelter
and others as the future of home ownership for low- and middle-income
households, and as a means to encourage investment in home building.
However, shared ownership currently presents some significant legal
flaws for the purchaser – not the least being that there is actually no
'shared ownership' at all.
As a solicitor who works in leasehold litigation, I am concerned that
the significance of a case called Richardson v Midland Heart, from
2007, is not more widely known. Rebecca Richardson had purchased a 50%
share of a property with housing
association Midland Heart for £29,950 in 1995. The arrangement, a
typical one, was that she paid rent on the other 50%. There was the
usual staircasing option, by which Richardson could opt to pay more for a
greater share, up to owning outright with 100%, but, again not
uncommonly, she had not exercised this.
Unfortunately, Richardson
got into arrears on the rent. Despite agreeing to allow the property to
be sold, Midland Heart quickly brought possession proceedings under
Housing Act 1988. Midland Heart used a ground where if there are eight
weeks of rent arrears when a notice is served and also at the date of
the court hearing, the court must order possession, with no discretion
to do otherwise.
The court found, reluctantly, that what
Richardson had was an assured tenancy for 99 years (the length of the
lease). She did not have a lease that could be protected, as it was not
for the whole of the property. What is more, she had no right to the
return of the £29,950 she had paid. The court made a possession order
and Richardson lost the property.
In practice, this means that
shared ownership is just a tenancy, with an expensive downpayment for an
option to buy the whole property at a later date. The landlord or
housing association remains the owner of the property up to the point of
the 100% buyout and the tenant can be evicted for rent arrears
regardless of how much of the property they supposedly own – and without
being recompensed for that payment. A case this year suggested there
may be a human rights claim for the return of that money, but this is
untested.
Richardson paid for her 50% share up front, but if it
were a mortgage the lender would almost certainly step in to pay off the
rent arrears, adding the arrears and additional charges to the mortgage
loan, to preserve its security and avoid the shared-ownership tenant
being evicted. But the legal position remains the same.
There are
other problems that, though not unique to shared ownership properties,
occur more often with them. For example, frequently the housing
association will itself only lease a number of flats in a block built by
a developer, which it then sub-leases to people on a shared ownership
basis. In this situation, the shared ownership leaseholder will often
find that they have no way to enforce repairs to the building, as the
housing association will have no responsibility for its condition. The
shared ownership leaseholder may well face leaks, heating problems, or
defective windows but be unable to make the landlord or freeholder carry
out repairs, or be compensated, where a social tenant would at least be
able to get compensation from their landlord.
These are major
problems for the shared ownership model. The Richardson v Midland Heart
problem will almost certainly need legislation to change. While shared
ownership may well be the most promising route into home ownership for
many, there are substantial risks for those taking that route.
Article Source: http://www.theguardian.com/housing-network/2013/sep/03/hidden-dangers-shared-ownership
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