A shared ownership lease is an assured shorthold tenancy? Is this just another form of renting?

An assured tenancy lease or a shared ownership lease is a long lease which is a form of home ownership in the UK. A shared ownership lease provides similar rights to an ordinary long residential lease but there are some differences.  

Legal view: Trowers & Hamlins 

Due to a quirk in current leasehold law, shared ownership leases - together with all long leases with an annual rent of above £250 per year (or £1000 in Greater London) are classed as Assured Shorthold Tenancies with an initial fixed term equal to the term of the lease (usually 125 years for a shared ownership lease) for the purpose of possession proceedings (in the case of default),. This does not mean that the leaseholder under a shared ownership lease is in the same positon as a short term rental tenant but it does mean that the statutory rights the Landlord has to allow him to take action in the case of a breach of the lease (including failure to pay rent) are the same as those used by a landlord under a fixed term shorter rental tenancy.

These grounds are contained within Schedule 2 to the 1988 Housing Act. It is worth saying that the right for a landlord to serve 2 months notice to bring a assured shorthold tenancy to an end pursuant to Section 21 of the Housing Act 1988 only arises following the expiry of any initial fixed term for an Assured Shorthold Tenancy so this right does not apply during the agreed term of a shared ownership lease.

The most significant ground for possession a shared ownership buyer should be aware of is Ground 8 contained in Schedule 2 to the Housing Act 1988. This ground provides that the Landlord can apply to recover possession of the property in the event at least two months rent is unpaid at the date when an initial notice of possession proceedings is served (Notice seeking Possession) and two months arrears remain outstanding at the date of the hearing for possession at Court . If this ground can be established by the Landlord then the Court has no choice but to grant a possession order and the lease will come to an end. In these circumstances the leaseholder would lose their interest in the property and any mortgage lender would lose the security for their loan.

It is increasingly common for shared ownership leases to contain clauses confirming that the Landlord will not seek possession of the property using Ground 8. You may wish to ask your legal advisor if this is contained in any lease you are proposing to buy. Lenders who provide shared ownership mortgages also require shared ownership Landlord to confirm that they will notify them prior to taking any steps using Ground 8 - this is to allow the mortgage lender the opportunity to step in and protect the security of their chargewhere arrears have arisen.

There are other grounds which the Landlord can rely on set out in Schedule 2 – for the majority of these the court has the ability to consider the surrounding circumstances and the leaseholder would have an opportunity to challenge any application for possession by the Landlord. Again you may wish to ask your legal advisor to explain these grounds to you if you are considering purchasing a shared ownership property.

Who to speak to

Ella Cheney, Shared Ownership Programme Manager