The form of shared ownership lease for the 2021-2026 Affordable Homes Programme is now with us, and there are a number of points to consider in relation to the form for a flat/apartment and a house.
In line with our previous comments, RPs are going to have to look at a number of their existing policies in relation to the management of shared ownership properties.
In particular will organisations look to apply the new policies to the now old form of shared ownership lease or will they be looking to potentially incur additional costs in relation to the adoption of multiple track processes for the treatment of different tenures.
|Matter||Capital Funding Guide comment (CFG)||Model lease position|
|Term||The CFG confirms that the lease period is to be 990 years.
Section 5.3.4 further states that there are to be “no exceptions to this policy”.
With a number of units being acquired under long term forward purchase arrangements there is a risk that head lease terms currently committed to are less than 990 years now required.
We would strongly recommend that clients review current contractual arrangements in relation to units still to be acquired under a leasehold arrangement. It may be possible to address the position through a pro-active process of agreed variations with developer partners.
|The lease reinforces the requirement for 990 years.
The drafting notes comment that if for the practice of good estate management a standard commencement date is required (as per market standard practice) “that no lease is granted with an unexpired term of less than 989 years”.
The safest route would be to ensure that an RPs head lease position is for at least 999 years to provide RPs with the flexibility to ensure the obligation is met.
We suspect that this point may be discussed further with Homes England.
|Fundamental clauses||The original fundamental clauses remain in relation to which special considerations will need to apply for Homes England to consider variations. Section 5.2 sets out the position on the Fundamental Clauses.
There are new fundamental clauses referred to under section 5.2 of the CFG as follows:
|The model form leases include the new definition of “Initial Additional Percentage Value” (for 1% Staircasing at the date of this lease)”. The relevant provisions for 1% staircasing are contained within Schedule 10 in the model flat lease and Schedule 7 in the model house lease.
The aim of the provision looks to provide clarity on the value to be applied for the 1% tranches. The lease does allow further ability for the valuation to be updated and considered and the application of the HPI.
It is essential that RPs procedures are updated and that teams are aware of the mechanics and practical application of the process. Further that the correct Initial Additional Percentage Value is agreed with the tenant and valuers upon entry into the lease and that the definition of the HPI Index is correctly updated to reflect the correct comparable.
We anticipate that the application of HPI and its various data sets will form the basis of many a discussion over the coming months.
Further, the actual process for the practical recording and management of noting the potential 1% increases in reality is left to the RPs to manage. In line with previous comments we would recommend that a clear process for recording such events is maintained.
The “Initial Repair Period” is defined as a period of ten years from the date of the lease. This means that RPs will need to manage varying repair periods across schemes as suspected. The date is to be calculated upon entry into the lease and inserted within the lease.
Schedule 9 in the model flat lease and Schedule 6 in the model house lease set out the procedures in relation to the repair approach.
The introduction of this new process will require that RPs have to consider further training requirements for their teams and consider their positions in relation to their process. We would also recommend that the terms of any applicable third party service and maintenance contracts are considered to ensure that there are no potential hurdles in relation to the provision of services or potential breach of their terms.
|Initial Share||Section 5.3.5 confirms the new range of 10% to 75% on the first tranche.
The CFG does state that any 2016-2021 units that complete after the 1st April 2021 have the option of offering either a 25% or 10% initial equity tranche.
We will be running a series of webinars and issuing further comments in relation to the changes and indications from the CFG and leases in relation to other considerations, for example the CFGs comments in relation to leasehold enfranchisement and the Governments indication that shared ownership leases are to be part of potential future rights to extend.
Please do not hesitate to contact a member of our team with any queries in relation to the above and the next steps in relation to the shared ownership sales process.