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First and foremost , Housing Associations providing shared ownership have to ensure that the leases prepared by their conveyancing lawyers are acceptable to lenders so the buyer can in turn obtain finance to buy a share. To assist Housing Associations a variety of precedent shared ownership leases have been made available which cover leases for residential flats, houses and schemes for the elderly.
Sample precedent leases for both flats and houses are currently available on line
It is not compulsory for Housing Associations and their conveyancing lawyers to adopt the sample leases. However, where a Housing Association chooses not to use them, they must endeavour to ensure that the leases contain the mandatory clauses specified by the Agency.
The following clauses are mandatory, and so therefore needs to be incorporated in shared ownership leases:
Maintenance and Service charge Clauses : As with non shared ownership leases , a service charge will inevitably be levied. The shared owner ( leaseholder ) will have to pay a percentage of the total maintenance charge, and the Housing Associations like most landlords will provide for service charge to collected in advance so that they are not hindered by cash flow problems.
Staircasing Clauses : The lease must allow for the shared owner to staircase' ( purchase further shares of equity in the property) until outright ownership is achieved. This can be done incrementally . Additional shares are to be purchased at the realistic market value at the time of purchase. Housing Associations can also alter the size of the equity shares to be acquired, although the initial share must be a minimum 25% of the equity of the property. As stated above the lease must provide that the shared owner can staircase to 100%, and the final staircase to full ownership must be at least 10%. In a situation of a house in which the freehold is owned by the Housing Association it is implicit that the freehold TR1 ( Transfer Deed ) will be executed three months after the final staircasing. Generally the Housing Association conveyancing lawyer and the leaseholder’s conveyancing solicitor will reach and amicable arrangement here.
The reality is that Lenders ( in a house situation ) dictate that the freehold transfer is simultaneous with the final staircase in order to safeguard their security. Very few conveyancing lawyers have encountered problems arisen with this approach.
Provision for Lender protection : This is generally known by some shared ownership conveyancing lawyers as the mortgagee protection clause (MPC). The logic of the clause is to cover the mortgagees potential loss (including, where appropriate, the Housing Associations share ) should the mortgagee need to repossess. The MPC only operates where the sale proceeds are insufficient to cover:
• the reasonable legal cost of recovering sums due under the mortgage, as well as taking possession and selling the freehold (this includes HIPs conveyancing rates, valuation and estate agency work);
• The principal sum under the mortgage plus a maximum of one years unpaid interest due in accordance with the signed mortgage deed.
• any insurance protection or endowment policy premiums due to the lender payable by or recoverable from the leaseholder and secured in accordance with the mortgage deed
The lender is also able to claw back capitalised rent through the MPC.
Rent review: All shared ownership leases offered by Housing Associations must include rent review provisions. These provisions allow the HA to repay its outstanding loan debt via the income stream from the rent payments received. Housing Associations need to set affordable rents for their tenants.
The initial rent for New Build HomeBuy developments must not exceed 3% of the capital value of the unsold equity and annual rent increases are limited to RPI (based on the September figure) plus 0.5% Please note that this applies to leases from April 2006 and does not overturn provisions in earlier lease agreements.
Right of First Refusal: A standard clause or covenant be inserted into all conveyances so that, during the period of 21 years from the date of staircasing to full ownership, the purchaser or any successor in title must make an offer of first refusal to the former landlord on resale. The covenant must be a local land charge and entered into the property’s register of title by the Chief Land Registrar to avoid the covenant being overlooked at the point of resale. The originating landlord can choose to exercise the option to buy back, at the prevailing market value, or nominate another HA to do so, to secure the property for further affordable housing use. The originating landlord will have six weeks to make the decision as to whether the option will be exercised. Housing Associations are expected to have a published policy as to the circumstances and locations in which they would anticipate exercising this option, so that the vendor can have a speedy indication of the HA’s intentions. If the HA does decide to exercise this option, they will be required to complete the transaction within a reasonable time scale, the duration of which should be specified in the lease.