A revised model shared ownership lease has been created by the Homes and Communities Agency (HCA) to provide clarity to buyers and lenders alike. The lease has been developed in conjunction with the Communities and Local Government, the Council for Mortgage Lenders, the National Housing Federation and a number of lenders. The revised new build Home Buy lease will be adopted by all lenders & housing providers and will come into force on 6 April 2010.

The lease contains the fundamental clauses along with one additional obligation that the landlord must provide to the prospective buyer a cover sheet entitled Key Information for Shared Owners. The cover sheet provides a brief plain English guide for shared owners.
The Mortgagee Protection Clause will now be known as the Mortgagee Protection Claim ("MPC"). The MPC is only applicable where the leaseholder's interest is less than 100%. There are four areas which make up the cap of the aggregate sum to be claimed by the lender as follows:

  1. All loans advanced by the first lender, provided that the terms of each loan are approved by the landlord.
  2. The lender is now entitled to 18 months of interest; calculated on the standard variable rate at the time of default.
  3. Amounts advanced by the lender in protecting its security for example discharge of rent arrears.
  4. Fees and costs incurred in enforcing the lender's security capped at 3% of the market value for final staircasing.

Please note within this overall cap the lender will be able to claim any sums due under the Loan Agreement including administrative fees and early redemption fees.
The revised MPC gives the landlord greater financial exposure than at present. The lease does explicitly state where the landlord has made a payment under the MPC or deduction by the lender of monies due to the landlord, the landlord is entitled to pursue the leaseholder to recover its loss.

To aid clarity and to make the lease more user friendly words such as hereof, hereinbeforementioned are deleted. There are now more definitions in the particulars of lease and a definitions schedule.

The alienation clause (the transfer of property) and pre-emption clause (the right of landlord to re-purchase the property or nominate a buyer) have been revised so that in a flat lease the present clause 3.16 will be deleted and replaced to extend the existing right of pre-emption. It is the hope that this measure will help to keep shared ownership properties available to those most in need of affordable housing. In respect of house leases these remain mainly unchanged to ensure that the house lease is exempt from the Right to Enfranchise.

The rent review provisions are now in schedule 5. The review will expressly state upwards only and would be the greater of (1) rent payable immediately before the rent review date and (2) rent payable immediately prior to reviewing increase in line with RPI plus 0.5%.

There are also revised clauses in respect of service charge, making good damage to common parts and frustration in the event of damage or destruction.

It is envisaged that the revised leases will be user friendly and promote more certainly for lenders and certainty for buyers. The HCA believes it will simplify and speed up the home buy process but also assure existing lenders that there is sufficient security for shared ownership mortgages and encourage new lenders into the shared ownership market.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.