On 4 November 2024, recent updates made to the Homes England (HE) Capital Funding Guide (CFG) were made, with the aim to add clarity in respect of two key provisions in the HE model shared ownership leases.
The two key provisions are:
1) Underletting
The HE model Shared Ownership (SO) leases do not permit underletting. However, shared owners can request their Landlord’s consent to sublet a room/take on a lodger. Registered Providers of Affordable Housing (RPs) must consider each request on an individual basis, and not use a one size fits all policy. Sublettings should not all be permitted for the same term or rent for example. Additionally, the subletting must be based on the personal circumstances of the tenant, to avoid hardship for example, not simply for the tenant’s monetary gain. The CFG specifically states that subletting requests, received from serving members of the Armed Forces, who are required to locate away from the area in which they live, should be supported.
2) Resale valuation requirements
The 2021-2026 model lease reduced the nomination period from 8 weeks to just 4 weeks, giving RPs less time to nominate a suitable purchaser of the Tenant’s share before the Tenant is able to sell their lease on the open market.
A RICs valuation is needed to establish the purchase price where the Landlord nominates a purchaser within the specified nomination period. This has been the case for some time and is as provided by the lease.
However, where a purchaser is found outside of the nomination period or not by the RP, meaning the property is sold on the open market, a RICs valuation is not necessarily needed to establish the sale price. The Tenant may sell above or below a RICs valuation price. This lack of certainty may cause concern for RPs given many are bound by Charity Act obligations. The CFG recommends RPs use mortgage valuations to assist with affordability calculations etc and that RPs should only seek a RICS valuation where they have significant concerns based on recent sales evidence that a mortgage amount will not be covered by the shared owner’s equity. Desktop valuations are also encouraged, and 3 monthly updated valuations are deemed unnecessary. If a valuation expires before a buyer is found, a new one only needs to be obtained once a sale is almost certain to proceed, all to save shared owner pennies.
If a buyer nominated outside of the nomination period/found on the open market wants to simultaneously staircase (aka a “back-to-back resale”), a RICs valuation will still be needed to establish the value for that element, even if one was not needed for their existing share purchase.
Where an open market buyer purchases existing shares above the RICs valuation price, the RP must still collect the correct RICs value of any additional shares simultaneously purchased. Where such a purchaser acquires the existing shares at a price below the RICs valuation, the RP may still collect the RICs accurate price for any additional shares but RPs are encouraged to consider the reason for the lower price and where appropriate use the lower price to establish a reduced value of any additional shares.
Whilst the above strictly only applies to leases on grant funded sites, the CFG strongly encourages RPs to implement the updates across all sites, for consistency and fairness for shared owners.
If you have any queries regarding this article, please contact our specialist Social Housing team.