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Tonkers

Shared Ownership And Leasehold

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Practical Conveyancing

Shared ownership - major problem Print

Apparently, nearly 1 in 100 households in England has a shared ownership lease. It therefore follows that 1 in 100 households are in for a very nasty shock, when they discover that they do not necessarily own a share of the property!

The idea, of course, is simple. The householder pays the registered social L a capital sum equal to half of what it would have cost to buy the property outright; L then grants the householder a long lease (usually 99 years), with the rent being half of what it would have been in the open market. But, the problems arise if T falls into arrears of rent and L then brings possession proceedings:

1) If there are two months of rent arrears at the date of the hearing, the court cannot refuse a possession order. Once a possession order has been made, T has no right to pay off the debt so as to salvage the situation.

2) L can then retain 100% of the property (ie L takes over T’s 50%, or more, investment).

As a note in the NLJ puts it, the householder was not, it seems, the owner of a half-share in the property; indeed, in that situation there will have been no shared ownership at all. What the householder owns is the lease and nothing else – and once the lease has gone (when possession is given to L) then that is the end of the householder’s stake in the property. Thus, once rent arrears have accrued, T only has a short window of opportunity to pay off the debt or otherwise lose the whole investment.

That is what happened in a case where a 50% householder paid the rent for ten years; then, however, her husband was sent to prison and she received threats from gangsters. She left the home and went to live elsewhere, and ended up losing housing benefits. The rent arrears grew and eventually L started possession proceedings. The county court judge had no choice but to make a possession order; he could not give her time to pay because he had no power to do so. In response, she sought an order for sale, arguing that she had a half share; the court disagreed saying that the relationship she had with L was not that of trustee and beneficiary (it was solely one of L and T). The 50% capital payment made on purchase had not bought her a half share in the property, it had merely bought her the lease – and nothing else.

This decision goes to the root of shared ownership – and, frankly, drives a coach and horses through it. It is of profound significance for all shared ownership householders. But, surprisingly, it has received little publicity.

What can be done? A long-term solution is to allow T the same right through relief from forfeiture as other long lessees have (but is not available to assured Ts – which is what shared ownership Ts are). In the short term, the best hope is to rely on arguments of there being a trust of the reversion and one suspects it would not be difficult for the courts to come up with such an interpretation. In addition, it is always worth looking at the express wording of the shared ownership lease; some early model leases from the Housing Corporation recite that T pays a capital sum to acquire a half share in ‘the premises’ (ie the freehold), so in some cases it may be possible to argue that there is an express declaration of trust. But, as it stands, the situation for many shared ownership Ts is potentially bleak. From a practical point of view, if you are acting for T on a shared ownership purchase then make this flaw in the law crystal clear to your client. In an ideal world, one would also contact clients who have previously bought shared ownership leases, to warn them of this potential problem (and advise them of the dangers of accruing two months’ arrears of rent). See excellent commentary on Richardson v Midland Heart (unreported, Jonathan Gaunt QC, 12 January 2007) in [2008] NLJ 327. © Practical Lawyer

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That's shared ownership finsihed as well.

One by one all of the exotic and idiot morgage deals / terms / arrangements concocted during the bubble are going.

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We all knew shared ownership was a bad idea, but it sounds worse than we all thought.

It sounds to me like if the "Owner" (tennant/whatever) misses 2 rent payments, they get repod and get nothing back for their payment of 50% of the value of the property.... but will still have the mortgage to pay? It's now a mortgage with no asset? If so, how did this slip past the banks checks?

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We all knew shared ownership was a bad idea, but it sounds worse than we all thought.

It sounds to me like if the "Owner" (tennant/whatever) misses 2 rent payments, they get repod and get nothing back for their payment of 50% of the value of the property.... but will still have the mortgage to pay? It's now a mortgage with no asset? If so, how did this slip past the banks checks?

If true then these half shares must become un-mortageable.

How did it slip past the bank? The same way as all the 125% 6x self certs did.

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Talk about being stuck, how do you resell that? I feel sorry for anyone sucked into this situation. I also wondered, if you lose your job, do you get rent paid, mortgage paid, or both?

So your best bet is not to pay your mortgage, but then if the bank eventually reposseses, what on earth do they then do with there 'share'?

Edited by Tonkers

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We all knew shared ownership was a bad idea, but it sounds worse than we all thought.

It sounds to me like if the "Owner" (tennant/whatever) misses 2 rent payments, they get repod and get nothing back for their payment of 50% of the value of the property.... but will still have the mortgage to pay? It's now a mortgage with no asset? If so, how did this slip past the banks checks?

That's what would happen in theory. In practice, the mortgagee will never let it get that far.

The mortgagee will pay the arrears immediately when they found out about them; and they will as soon as the freeholder takes the case to court (just as they do for any leasehold, where the freeholder has the power to terminate a lease where the ground rent or maintenance charges are in arrears). They will add the arrears to the mortgage, along with a very large admin fee.

Additionally, as the 'owner' will be in breach of the mortgage T&Cs (by negligently putting the mortgagee's security at risk), the mortgagee would be within their rights to terminate the mortgage agreement and repossess (or force a sale).

Edited by ChumpusRex

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I am not sure it is as grim as the article suggests if there is a mortgagee involved. Freehold ground rents is an area I invest in and have reasonable knowledge of so I trust I am not talking out of my @rse

The danger here is that if the lease is forfeited by the landlord serving a forfeiture Notice (Section 146 Notice) and once a landlord enters with a court bailiff then there is no right for the lessee or their mortgagee to seek relief from forfeiture. The mortgagee will have lost all their security as will of course the lessee who will lose their equity.

However a landlord making an application to the court for forfeiture has to serve a notice on the mortgagee so the mortgagee wishing to protect their security will pay the arrears on behalf of their borrower and add it to the mortgage. The county court rules are clear on this point and any application to the LVT for a determination of a breach requires the landlord to show evidence that the mortgagee has been made aware of the breach.

So assuming a mortgagee will wish to protect their security I fail to see a problem for a property subject to a mortgage

However if there is no mortgagee then, I agree their could be a problem, and in the gangsters wife tale it appears that may have been the case.

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Possession orders? time to pay?

what planet do these people live on?

possession orders are granted on breach of contract. Courts have guidance to ensure everything is done to obtain payment BEFORE the possession order is sought in earnest.

of course the possession leads to the property being lost.....its the HALF THE PERSON OWNS that is possessed..

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I am not sure it is as grim as the article suggests if there is a mortgagee involved. Freehold ground rents is an area I invest in and have reasonable knowledge of so I trust I am not talking out of my @rse

The danger here is that if the lease is forfeited by the landlord serving a forfeiture Notice (Section 146 Notice) and once a landlord enters with a court bailiff then there is no right for the lessee or their mortgagee to seek relief from forfeiture. The mortgagee will have lost all their security as will of course the lessee who will lose their equity.

However a landlord making an application to the court for forfeiture has to serve a notice on the mortgagee so the mortgagee wishing to protect their security will pay the arrears on behalf of their borrower and add it to the mortgage. The county court rules are clear on this point and any application to the LVT for a determination of a breach requires the landlord to show evidence that the mortgagee has been made aware of the breach.

So assuming a mortgagee will wish to protect their security I fail to see a problem for a property subject to a mortgage

However if there is no mortgagee then, I agree their could be a problem, and in the gangsters wife tale it appears that may have been the case.

This ties in with a few posts that have been on HPC about when banks have added payments on to peoples mortgages because somewhere down the line, the ground rent or service charges haven't been paid, often because there's a dispute or something. They go direct to the mortgagee and the bank then passes the cost on to the mortgagor.

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This ties in with a few posts that have been on HPC about when banks have added payments on to peoples mortgages because somewhere down the line, the ground rent or service charges haven't been paid, often because there's a dispute or something. They go direct to the mortgagee and the bank then passes the cost on to the mortgagor.

But shared ownership is a different kettle of fish isn't it? You are paying rental on 50% of the property you do not own...

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  • 150 Brexit, House prices and Summer 2020

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      • down 5% +
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      • up 5%



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