Shared ownership is an alternative home ownership scheme. It allows prospective buyers to purchase a share of a property (this will usually be between 25% and 75%) and pay rent on the remaining share. The remaining share of the property is owned by a housing association. It can be beneficial in assisting prospective buyers on the housing ladder, by reducing the upfront costs (i.e. a lesser deposit is required at the outset) for the purchase of a property, and overall monthly expenses.
There are two options when selling your shared ownership property. The first is that you can resell your share in the property to another shared ownership buyer. Alternatively, you may consider back-to-back staircasing to sell your property on the open market. In this article, we consider these two options with reference to the key provisions in your shared ownership lease that govern the selling process.
Homes England oversee the government’s affordable housing schemes. The most recent scheme is the Shared Ownership and Affordable Homes Programmes (AHP) 2021 to 2026. As part of their funding requirements, they recommend that housing associations adopt the shared ownership model lease. Whilst the model lease is not mandatory, it is recommended and there are fundamental clauses that must be included in every shared ownership lease as part of the capital funding requirements by Homes England. One of the fundamental clauses relates to a Pre-emption right. This is relevant if you decide to sell your shared ownership property.
What is a Pre-emption right?
This is an obligation to first offer the property back to the housing association. It is also known as a right of first refusal or first option to buy. If you do not own a 100% of your property, you are first obliged to notify your landlord (the housing association) when you wish to sell your property. You can do so at any time during the term of your lease. They must usually be notified in writing. It would be recommended to contact the resales team at your relevant housing association in the first instance.
The pre-emption right is usually included in the Tenant/Leaseholder Covenants section in your shared ownership lease. In the new model leases, they will be included at clause 3.19 and Schedules 7 and 8 of the model flat lease, and clause 3.20 of the model house lease.
The housing association will then have a limited time (usually eight weeks) to nominate a purchaser, or alternatively, they can agree to surrender the lease. The time for which the housing association can find a new purchaser is commonly referred to as a nomination period. In the latest model leases (under the 2021-2026 affordable housing programme), the nomination period has been reduced from eight weeks to four weeks.
If the housing association does not find a buyer during this nomination period, then you may have the opportunity to sell the property on the open market. If you decide to sell your share only, then the potential pool of purchasers will be restricted to buyers that meet the eligibility requirements for shared ownership housing.
Notably, you should check your shared ownership lease to see if it includes a ‘Designated Protected Area’ fundamental clause. If included, you may be unable to sell your home on the open market, and in such a case the housing association will either purchase the property or arrange for the property to be sold to another local person in housing need.
There are also exceptions to when the nomination period may not apply. These will be stipulated in your shared ownership lease and include circumstances whereby a court order has been granted for the transfer of the property, or where the property is being sold due to the death of a co-owner under the lease.
Process for a Share Resell
If the housing association finds a buyer during the nomination period, the agreed sale price should represent the current market value of your share in the property. A RICS (Royal Institution of Chartered Surveyors) valuation will be required to determine the share value. You should check with the resales team whether you or the housing association will be responsible for arranging the RICS valuation, as housing associations differ in their requirements. You will be responsible for paying the for the valuation. It is usually valid for three months.
The housing association may charge a fee for selling the property, and this will further be stipulated in the lease.
Following agreement of the sale, all parties (the seller, the buyer and the housing association) should instruct solicitors and the conveyancing process would be carried out. Each party will be responsible for paying their own legal fees for the sale.
The buyer should enter into a binding contract to purchase the property within 12 weeks. This timeframe should be set out in your shared ownership lease. This time period would need to account for any related transactions and your solicitor would need to keep all parties updated as to timescales.
What is back-to-back staircasing or simultaneous sale and staircase?
Where a shared ownership leaseholder has gone through the above process and they have been unable to find a new buyer, they can consider back-to-back staircasing to sell their shared ownership property. This option can also be considered where a high percentage in the property is owned, and the property is perhaps too expensive for other potential shared ownership buyers. It can also be option where the initial valuation obtained is considered to be too low.
Back-to-back staircasing (or simultaneous sale) is where a new buyer acquires the leaseholder’s share in the property, and the housing association’s share in the property at the same time. For example, you sell a 25% share in the property. The new buyer acquires the 25% share together with the 75% share from the housing association. The leasehold interest is merged into the freehold interest, and on completion the buyer acquires a freehold property that is no longer governed by the shared ownership lease and regulations.
Sometimes the landlord or the lease will require that the seller (rather than the buyer) will be noted on the staircasing paperwork. This means the seller effectively staircases to 100% in the property. The seller then simultaneously transfers their interest to the buyer. There would be two transfer deeds, one from the housing association to the seller, and a further transfer from the seller to the buyer. Practically, the transfers happen on the same day (i.e. the date of completion). The seller would also need to sign a memorandum of sale. This evidences the final staircasing and current market value of the property. The documents would then be provided to the buyer’s solicitors following completion.
It is important to be aware of the potential SDLT (Stamp Duty Land Tax) implications where you are the seller in a back-to-back staircasing transaction. In such a case, you should be able to claim SDLT sub-sale relief, and this should be noted on the SDLT Return submitted to HMRC. Your shared ownership solicitor should be able to advise you further in relation to this.
We recommend the following if you are considering to sell your shared ownership property:
- Check your shared ownership lease carefully.
- Speak with your housing association resales team at an early stage in the process.
- Instruct solicitors with shared ownership experience to be able to guide you through the legal process from the sale being agreed through to completion.
How we can help
Danielle Julyan is a solicitor at Wollens. We have committed teams in each of our offices who will work closely with you and guide you through the property process step by step. While it may seem a streamlined process to us, we know how daunting it can be and are on hand to help, each step of the way.
For further information, please contact our Danielle or our conveyancing team. Call us on 01803 396675
Email us : [email protected]
call one of our offices:
South Devon 01803 213251
Exeter 01392 274006
North Devon 01271 342268
You can also complete an online enquiry form. One of the Wollens team will contact you as soon as they are available.
