Last month Orbit Housing Association and the Chartered Institute of Housing (CIH) published a report titled: ‘Shared Ownership 2.0: Towards a fourth mainstream tenure.’ In the report, the writers discuss their belief in the ability of shared ownership to help mend the broken housing market. The report explores how shared ownership works and makes suggestions on what needs to be done to achieve shared ownership’s potential as an alternative mainstream tenure. The recommendations include making shared ownership simpler, more uniform and broadening its accessibility to a wider demographic. The need for greater certainty and flexibility for shared owners is also emphasised. The hope is that one day shared ownership will join the other main forms of property occupation: ownership, private sector renting and social housing to form a ‘fourth mainstream tenure.’ However, before this status can be achieved a number of practical and legal issues will need to be addressed.
What is shared ownership?
Those with shared ownership leases purchase a share in the property, typically between 25-75%, and pay rent on the remaining share retained by the landlord (usually a housing association). The provisions of a shared ownership lease allow the buyer to purchase further shares in the property with the potential to acquire 100% of the equity. When this happens the property ceases to be a shared ownership property. The idea is to make home ownership accessible to those who are renting and unable to afford to buy on the open market.
There are several important differences between a shared ownership lease and a usual long residential lease. Most importantly, a shared owner continues to pay rent to the landlord on the part of the property which the landlord retains. This has important implications if the shared owner falls into rent arrears. The landlord can bring proceedings in the county court to obtain a possession order using the same procedure that is used against assured tenants under Housing Act 1988. If this happens the landlord is not obligated to pay the shared owner any compensation for the loss of his or her share in the equity of the property.
The process by which a shared owner can purchase additional shares in the property is called ‘staircasing.’ The shared owner has the choice whether to exercise the staircasing provisions in the lease and can usually continue to buy shares until they own 100% of the property.
In England, today, 0.8% of homes are occupied using shared ownership. This contrasts with 19% in private rented accommodation, 17% renting social housing and 63% who are owner-occupiers (English Housing Survey, Headline Report 2013-2014).
Orbit and CIH’s report promotes the expansion of shared ownership and explores its contribution to mending the country’s broken housing market. However, the report also recognizes the barriers that need to be overcome before shared ownership can become a mainstream tenure. Some of the issues surrounding shared ownership are explored below.
Issues surrounding shared ownership
The report discusses how shared ownership offers purchasers the security of tenure that renting in the private sector does not provide. However, it also recognizes that one of the significant drawbacks to shared ownership, as compared to full ownership, is that the shared owner remains a tenant in law rather than an owner in the traditional sense. As already mentioned above, shared owners can have their homes possessed using the procedure that applies to assured tenants under the Housing Act 1988.
The 2007 case of Richardson v Midland Heart vividly reveals the riskier side to the shared ownership regime. In 1995 Mrs Richardson bought a 50% share of a property from Midland Heart housing association. She paid rent on the remaining 50%. When she fell into rent arrears, the housing association brought possession proceedings against her. They relied on Ground 8, Schedule 2 of the Housing Act 1988, which states that the court must make a possession order if a certain amount of rent arrears are proved. Once the housing association had produced the required evidence, the Court had no choice but to make the possession order. Mrs Richardson was not legally entitled to compensation for her share of the equity in the property. Shared owners are therefore not only at risk of losing their homes but also the money they put into the property. Orbit and CIH’s report highlights that this is a confusing area and the legal risks and uncertainty, to which shared owners are exposed, need addressing.
Shared ownership is also criticised for its inflexibility. Usually there are rules preventing shared owners from subletting their properties. It is also difficult to move or exchange properties in response to changes in personal circumstances such as household size. The report acknowledges that many shared owners can find themselves ‘trapped’ within shared ownership.
An issue, which is not discussed in detail in the report, and which can be a problem for shared owners, is the issue surrounding who is responsible for and who will carry out repairs to the building within which the shared ownership property is situated. The housing association landlord is often a leaseholder itself, having leased the flats from a private freeholder who owns the building. While tenants and ordinary leaseholders may have contractual claims against their landlords for failing to carry out repairs, the situation can be far more complicated for shared owners as their landlord, the housing association, may not own the freehold of the building and may therefore not be directly responsible for carrying out certain repairs. Shared owners may find that they are in a much weaker position than other tenants when it comes to forcing their landlords to carry out repairs. This is another legally complex area which should be clarified.
What needs to be done to make shared ownership work?
Orbit and CIH’s report focuses heavily on improvements that can be made to the shared ownership brand to increase its appeal among consumers. They recommend that shared ownership is simplified and a more consistent approach adopted among different schemes to improve the public’s understanding of how shared ownership works. They also advocate for more flexibility within shared ownership so that people can move or sublet their properties.
Interestingly, the report also highlights the need to overcome the perception that shared ownership leases are weighted in favour of the landlord. This seems particularly relevant to the problems already mentioned, such as responsibility for repairs and the implications of shared owners being tenants until they achieve full ownership. The authors promote a ‘more balanced approach’ with better communication at the outset about the landlord and shared owner’s respective responsibilities.
It remains to be seen whether shared ownership has the potential to help fix the country’s housing crisis on the scale that the authors of Orbit and CIH’s report suggest. It is clear that there are a number of legally complex areas that will need to be resolved before shared ownership can achieve its desired position as a ‘fourth mainstream tenure.’ It seems likely that this will require changes to the law. As it stands, shared owners are exposed to significant risks, which unfortunately do not always become clear until something goes wrong.