Solicitor Blog; Pre-emption Provisions in Shared Ownership Leases: The New Rules
The Pre-emption Right
Until very recently the right to pre-emption held by the Housing Association landlord in a Shared Ownership lease has acted as a burden to sellers of Shared Ownership properties. Put simply, the right compelled those who had staircased to100%, and wished to sell, to offer the Housing Association the opportunity to buy back the property or nominate a purchaser. The idea was to preserve the supply of affordable housing by selling the property at the prevailing market value. In practice however it had become clear that Housing Associations seldom took up this opportunity, and therefore the provision often acted as an unnecessary administrative hurdle, rather than a heralded social mobility tool.
The Homes and Communities Agency (HCA) and the Greater London Authority (GLA) removed the pre-emption provision in respect of leases created after 30 April 2015 from their Shared Ownership properties following final staircasing to 100%. This has had a significant effect on parties involved in Shared Ownership properties, particularly for those who have or intend to staircase the whole way.
The New Rules
Following the decision by the HCA and GLA to remove the requirement for pre-emption rights as a fundamental clause in leases, a new set of rules exist. Housing Associations must either use the new model leases, or the revised fundamental clauses from 30 April 2015. They are also required to allow a variation to existing Shared Ownership properties to remove pre-emption rights on final staircasing at the owner’s request. A precedent deed of variation has been issued to accommodate these changes. The cost for any such variation falls to the owner of the property in question.
What does this mean in practical terms?
For Housing Associations – Housing Associations will need to be aware of these changes and seek to adjust their internal re-sales procedures accordingly. The new rules will not take effect in the case of re-sale of properties where staircasing has not reached 100%, although it is possible for shared owners to sell on the open market by completing final staircasing simultaneously with the sale of a property.
For selling owners – The decision by the HCA and GLA is a welcome adjustment and should be viewed in a positive light by owners of Shared Ownership properties. The administrative fees and time frames associated with the sale of their property once they have staircased to 100% are likely to reduce, and there is greater freedom to sell the property on the open market for a higher value than the property would have reached under the old regime. If there is a disadvantage to selling owners it is relatively slight in that they are now responsible for paying the costs of the Housing Association to produce the deed of variation unless they can negotiate for a buyer to bear that cost.
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– Humphreys & Co.