Shared Ownership Lease Extensions
Leaseholders who own a flat under a shared ownership scheme need to be aware that their options for extending a lease are more restrictive compared to owning the flat outright.
Firstly, what is shared ownership?
Shared ownership, also known as part buy-part rent, allows individuals to purchase a share of a property (typically between 25% and 75%) and pay rent on the remaining portion. These shared ownership properties come with lease agreements that typically last for 99 or 125 years. Over time, leaseholders may wish to extend their lease for various reasons, such as increasing their share of ownership, securing a long-term investment, or making the property easier to mortgage or sell.
Why Are Shared Ownership Lease Extensions Different?
If you own a lease under a shared ownership scheme, the statutory route for a lease extension is not available to you. Instead, you must follow the informal route.
The process is fundamentally different, primarily because a leaseholder does not legally have the right to extend a lease under shared ownership. Most freeholders will allow a leaseholder to extend informally, but you are at their mercy regarding timescales and costs.
For example, if time is critical due to the lease term dropping below 80 years, you cannot "freeze the clock" by serving a Section 42 notice as you would with the formal statutory route.
If you are buying a shared ownership lease that requires an extension during your ownership, it's essential to keep these limitations in mind.
How Is the Premium on a Shared Ownership Lease Extension Worked Out?
Simply put, if you own 30% of the flat, you will pay 30% of the premium that you would typically pay if you owned 100%. The downside is that you are still expected to pay 100% of the freeholder's legal fees. Additionally, the freeholder is unlikely to negotiate on the offered premium, which means you may end up paying more than you would through a statutory extension.