Does the beneficiary of a shared ownership lease find themselves in breach if by acquiring the lease by will they inadvertently sublet the whole of the property in order to comply with the will?
Shared ownership is part renting and part ownership of property with a registered provider, usually a housing association. The purchaser is able to acquire between 25% and 75% and must pay rent on the remaining share.
In order to purchase a shared ownership lease the following criteria must be met:
- household earns £60,000 a year or less
- first time buyer
- rent council or housing association property
Subletting is prohibited in shared ownership and is expressed in every shared ownership lease. The reason for the restriction on subletting is to protect public funds and to ensure that the owners of shared ownership properties are not benefiting from a commercial gain.
In our example, assignment of the shared ownership lease takes place by inheritance further to the express wishes contained in the will of the deceased. The shared ownership lease has been left to a son/daughter who does not reside at the property, may own a property elsewhere and may even earn above the threshold of £60,000. Furthermore the will dictates that the spouse of the deceased should remain in occupation of the property until death or abandonment, and pay all monies associated with the property including rent and service charges.
To execute the wishes of the deceased will breach the terms of the shared ownership lease in that the new owner - son/daughter benefactor - will be subletting by parting with the whole of the property and receiving rent from the spouse of the deceased.
In circumstances such as this the housing association can rightly take steps to forfeit the lease. Alternatively guidance should be sought from the HCA www.homesandcommunities.co.uk. The HCA states that it is ultimately the housing provider's decision to consider requests to sublet on a case by case basis, taking the following factors into account when making the decision:
- do the reasons for subletting genuinely stem from an unavoidable need, and not primarily for speculation or gain?
- does the person to whom the leaseholder sublets also satisfy the housing provider's criteria for shared ownership?
- are the terms of the sublet for a fixed period, during which the shared owner will retain ownership of the lease?
- does the leaseholder have the permission of the mortgage lender (if required)?
An alternative option should the owner's situation fall outside the above would be to buy the remaining shares through staircasing and then sell the property or sell only the part owned. All conditions attached to the sale will be contained in the lease. On sale of the property the housing association has the right to find a suitable buyer and also has first refusal to buy back the property.
If a housing association is unsuccessful in its attempts to sell the property, the owner can try to sell it on the open market to those who fall within the eligibility criteria. Benefactors to a will would also have the option to live in the property or to sell it in the same manner explained above, therefore avoiding breach of the lease and the consequences that follow.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.