Do I need to staircase my shared ownership lease to 100% before I qualify for a claim in collective enfranchisement / lease extension / the right to manage?

What are the statutory rights of a tenant under a long lease?

Chapter 1 of Part I of the Leasehold Reform, Housing and Urban Development Act 1993 (the 1993 Act) gives a tenant of a residential flat the right to collectively purchase the freehold of the building in which his or her flat forms part, with the other tenants in the building.

Chapter 2 of Part I of the 1993 Act gives a tenant of a residential flat the right to extend his or her lease by an addition of 90 years at a peppercorn rent.

Sections 71-113 of the Commonhold and Leasehold Reform Act 2002 (the CLRA 2002) provide the mechanism by which tenants of residential flats can make a collective claim to take over management of their building from their landlord.

What is a ‘long lease’?

Central to the statutory rights listed above is the requirement that the tenant must be a qualifying tenant, ie if he is tenant of the flat under a long lease.

A ‘long lease’ is defined in section 7 of the 1993 Act (in respect to collective enfranchisement and lease extensions of flats) and sections 76 and 77 of the CLRA 2002 (in respect of the right to manage). It can be, amongst other things, one of the following:

  • a lease granted for a term of years certain not exceeding 21 years (section 7(1)(a) of the 1993 Act / section 76(2)(a) of CLRA 2002); or
  • a shared ownership lease, where the tenant’s total share is 100% (section 7(1)(d) of the 1993 Act) (section 7(1)(d) of 1993 Act / section 76(2)(e) of CLRA 2002).

What is a shared ownership lease?

A shared ownership lease is a long lease, usually of 99 years or 125 years, where the tenant buys a share of a property (house or flat) and pays rent on that part of the property retained by the landlord. The lease will provide the tenant with a right to buy additional shares up to 100% of the equity (a process known as ‘staircasing’). A shared ownership lease is treated in the same way as an assured shorthold tenancy, in respect of the landlord’s right to recover possession of the property if the tenant defaults on payment of rent.

When is a shared ownership lease a ‘long lease’?

The relevant statutory provisions have been commonly interpreted by landlords and legal advisers alike to mean that if a tenant of a shared ownership lease does not own 100% share of the property, he or she is disqualified from exercising the statutory rights to collectively enfranchise/ extend the lease/ join in a claim for the right to claim.

Notwithstanding published guidance, this view is unlikely to be upheld on the grounds that the sub-section dealing with the issue of shared owners does not need to be considered as a gateway provision following two judicial decisions:

In Brick Farm Management Limited v Richmond Housing Partnership Limited 2005 EWHC 1650 (QB), Mr Justice Stanley Burton, sitting at the High Court, said that any lease granted for an original term of more than 21 years is a long lease, including a shared ownership lease where the tenant does not own 100% of the share:

'Indeed,the restriction ...to a shared ownership lease where the tenant’s share is 100 percent suggests that a tenant under such a lease with a share of 90 per cent of the value of the premises is not a qualifying tenant. It was for this reason that Mr Arden submitted that paragraph (a) [reference a long lease being a lease originally granted for more than 21 years] has to be read as referring to leases other than a shared ownership lease. …Despite the curious result that paragraph (d) [reference to ownership of 100% share] appears to have no practice effect, I cannot accept this submission, which does violence to the words of section 7. Parliament cannot be taken to have intended to restrict the unqualified ambit of paragraph (a) of section 7(1) by adding a paragraph purporting to widen rather than to narrow the definition of “long lease”’ (at paragraph 15).

Mr Justice Burton explained that the reference to shared ownership leases in the statutory definition of a ‘long lease’ should no longer have any effect because:

  • it was only necessary as the 1993 Act originally excluded leases otherwise let at a low rent from the scope of the statutory rights;
  • shared ownership leases would have been excluded by the low rent requirement because a shared ownership lease is almost always let at a rent other than low rent;
  • in 2002, the 1993 Act was amended and the low rent requirement was removed, hence the specific inclusion of shared ownership leases within the definition of a ‘long lease’ is no longer necessary. Parliament had omitted to remove it; and
  • given the spirit of the legislation is to widen the rights given to the tenants of long leases, a tenant of a shared ownership lease whether or not he or she owns 100% share, should be treated in the same way as a tenant of a standard long lease.

Although Mr Justice Burton’s comments were only made in passing, ie they do not provide binding authority on this point, his reasoning was applied by the Upper Tribunal in Corscombe Close Block B RTM Ltd v Roseleb Ltd 2013 UKU (LC), where it was held that tenants of shared ownership leases where the ownership of share was less than 100%, had long leases and were qualifying tenants for purposes of the statutory claim for the right to manage.

Conclusion

Housing associations or other landlords, who would only grant a lease extension or agree to transfer the freehold of a building on the informal basis (ie without invoking the statutory rights above) when faced with a claim by a tenant of a less than 100% shared ownership lease, must review their policy and practice. If such a tenant’s statutory rights are denied, it will be open to him or her to challenge such denial. In light of the most recent interpretation of the law, such challenge will likely succeed against the landlord.

In the case of the right to manage, the position is clearer: such tenants are qualifying tenants for the purposes of a claim for the right to manage.