Shared ownership-lease issue

carlyfluck

hi everyone,
well we were accepted for a 35% share on a 3 bedroom house, we appointed solicitor and have paid for searches, mortgage is approved. However I have since come to realise the lease is only 85 years and have seen this can be very costly. We haven’t exchanged, I haven’t even had any paper work from solicitor except for the initial forms.
can I ask the current sellers to extend the lease? And if not can I pull out? It’s a cost we had not factored in and I know it will be a struggle in 2 years when we are allowed to extend the lease. I feel very foolish that I didn’t look into this sooner.😞 any advice would be great. Thank you 

AdrianC

Shared ownership leases aren't quite the same setup as full-ownership ones.

princeofpounds

You did well to spot this. I hope your solicitor would have explained all the implications to you.

The danger however probably isn't quite what you think it is. In a normal leasehold, it wouldn't be a problem as long as you raise the money to extend the lease sometime in the next 5 years. After 2 years, you get a right to do so through the statutory process, and so you have three years to get it done. It can be expensive, but depending on the current property value and ground rent it may not be that bad. As long as you know it's coming and incorporate it into your offer and you plans, no problem. 

Even if the lease drops below 80 years, it's not instant doom. It does step up the cost to incorporate 'marriage value', and it does prevent you selling it on to a buyer with a mortgage. But after that initial step-up the rise in cost is still fairly gradual, but it accelerates as the lease gets yet shorter. So if something goes wrong and you extend after 10 years rather than 5, it's a hit to the wallet but can be dealt with.

What we are starting to see with shared ownership is a situation where part-leaseholders get to a point where they want to extend the lease, then finding out that they cannot do so until they staircase to 100% ownership, as their equity partner refuses to allow them. There is no right to the statutory extension process. That's often unaffordable and so the lease continues to tick down whilst the part-leaseholder continues to be stuck.

That's the situation I would discuss with your solicitor. It also may mean that the vendors are not able to fix the situation for you.

Yes, you can pull out, if you don't get the answers you want. You'll owe your solicitor a bit of money for work done, but hopefully not much. They may also credit some of this cost if you use them again when looking at another place. 

eddddy

With 'non-shared-ownership' leases, you have the legal right to extend your lease.

You don't have that right with 'shared ownership leases. To a great extent, you're at the mercy of the Housing Association (i.e. the freeholder).  They can decide whether or not they'll extend your lease, and how much it will cost.

On one hand, a Housing Association probably shouldn't aim to rip you off with a lease extension, but based on posts on this forum, some seem to be incompetent, have illogical rules, or just flatly refuse to extend leases.

TBH, in your position I'd want some kind of contractual agreement on the lease extension before exchanging contracts to buy the house. Either the seller arranges a lease extension, or there's a legally binding agreement for a lease extension from the Housing Association. (A letter or policy document isn't good enough - it needs to be a formal contract.)

If the deal is that you have to pay for the lease extension (the price of the extension plus maybe a few thousand in fees), you might want to adjust your offer price.

carlyfluck

Thank you for your help. I’m still none the wiser, solicitor hasn’t got back to me about asking the current owners to extend the lease. It’s causing all sorts of stress on our side and as first time buyers it’s really putting me off the whole house buying process. 

princeofpounds

carlyfluck said:

Thank you for your help. I’m still none the wiser, solicitor hasn’t got back to me about asking the current owners to extend the lease. It’s causing all sorts of stress on our side and as first time buyers it’s really putting me off the whole house buying process. 

I don't know when you asked them, but this is not something that will be solved in a day. The vendors may not know what the actual situation is and may have to correspond with their shared ownership freeholder/equity partner.

This is not something for you to stress about - it's the vendor's problem. Yes, you may decide you can't get the property you thought you wanted if the answers aren't good, but you must realise that the 'ideal' property never existed because it always had this problem. Believe me, there are plenty more flats in the sea.

This is an issue specific to shared ownership leaseholds in particular, you shouldn't think property buying is always like this. And frankly, once you've been through a few moves in your life, you'll be a bit less sensitive about things like this.

happysellerbuyer

Don't spend any more money unless you get some answers on this.

Puddings

If it's through a housing association, see if they have any information on their website about lease extension for shared ownership. Mine does and it confirms they will follow the statutory process albeit voluntarily. I'm looking to extend my lease next year after owning for 2 years, the lease will be down to around 83 years by then and costs seem comparable to online calculators. 

annetheman

Because it is Shared Ownership, I think people before me have already said it depends entirely on who the Housing Association is. It wouldn't be a straight-forward lease extension i.e. you wouldn't have the statutory right to do so after 2 years unless you own 100%. This is assuming there isn't a clause in the lease about extending it as long as you pay fees to the HA?

It's good you saw this now at least, rather than after exchange or even completion. I personally would swallow the loss and not proceed if the HA refuses to extend before 100% and the current share owners can't do anything about it on your behalf (e.g. start the process as leaseholders).

eddddy

carlyfluck said:

Thank you for your help. I’m still none the wiser, solicitor hasn’t got back to me about asking the current owners to extend the lease. It’s causing all sorts of stress on our side and as first time buyers it’s really putting me off the whole house buying process. 

You might get some more background info by looking at the Housing Association's website - some of them publish their shared ownership lease extension policies.

Here's a few random examples:
https://englishrural.org.uk/wp-content/uploads/2018/08/Shared-Ownership-Lease-Extension-Policy.pdf
https://www.shgroup.org.uk/media/165949/a_guide_to_extending_your_lease_vf.pdf
https://www.gatewayhousing.org.uk/download.cfm?doc=docm93jijm4n2195.pdf
https://www.peabodysales.co.uk/leaseholders/lease-and-lease-extensions/


Notice, for example, that Southern Housing Group don't allow you to extend a shared ownership lease:

Shared Ownership Houses
If you own a shared ownership house, you cannot apply tor extend your lease. You could,
however, staircase to 100%, and acquire the freehold of the property You would then own the
property outright and your lease would no longer exist. .
 
Link: https://www.shgroup.org.uk/media/165949/a_guide_to_extending_your_lease_vf.pdf

But just use any documents you find as background info, don't rely on them.  Housing Association policies can change, and/or the docs on the web might simply be wrong.

carlyfluck

Thank you for everyone’s replies. Well I’ve just found out that the lease is actually 82 years. It was advertised as 86 and the mortgage was offered on that but Leeds only allow 85 so surely will invalidate our offer now. I have told the solicitor to ask the sellers to extend the lease or we will have to stop buying the property