How long are Shared Ownership leases? The short answer is - it depends! A Shared Ownership lease could start at 99 years, 999 years or anything in between. In this feature, we’ll look at the reasons Shared Ownership leases vary in length, and why lease length matters.
What is a lease?
In simple terms, a lease is a contractual agreement between two parties for one to rent an asset – in this case, property – from another. An ‘party’ can be an individual (e.g. a shared owner) or an organisation (e.g. a Housing Association).
In the case of Shared Ownership, leases are generally based on ‘model leases’ published by Homes England.
Lease vs rent – what’s the difference?
In some respects, leasing and renting are similar. The terms ‘landlord’ or ‘lessor’ and ‘tenant’ or ‘lessee’ are the same, whether you are renting a property or entering into a Shared Ownership arrangement.
The crucial difference between leasing a property - including Shared Ownership - and renting a property is the length of the arrangement. Short-term arrangements tend to be referred to as a tenancy and long-term arrangements as a lease.
Are all shared ownership leases the same?
No. The Shared Ownership model lease has been updated over time, so leases vary depending on the date they were issued. Also, housing providers have some discretion when it comes to model leases; they do not necessarily have to stick to the model lease in every detail.
‘We strongly recommend that providers developing Shared Ownership with Homes England grant should adopt the model lease though this is not a requirement.’
Homes England, Capital Funding Guide
Consequently, leases can vary in significant respects; including lease length.
So, why do Shared Ownership leases vary in length?
When the Shared Ownership scheme was launched, in the late 1970s, the model lease specified a 99-year lease term. However, in recent years, people have become much more aware of the pitfalls of a 99-year lease. For this reason, some – but by no means all - Housing Associations started to offer longer lease terms, perhaps 125 years or 250 years.
In 2021, the Greater London Authority (GLA) updated its guidance to state that partners: ‘must grant shared owners leases for a period not less than 125 years’. (The GLA has been responsible for the Shared Ownership scheme in London since 2012).
A few years later, the Government issued a new model lease, with a 990-year lease term.
‘All new leases must be issued with a minimum lease length term of 990 years. These longer leases will provide long term security for shared owners and save them from paying for multiple lease extensions.’
Statement by Lord Greenhalgh, former Minister of State for Building Safety and Communities
However, the changes are not retrospective. This is something to be aware of if you already bought a Shared Ownership home prior to the new model lease, or if you are considering purchasing a resale.
What’s the point of a 990-year lease?
A 990-year lease is considered ‘permanent’ as it is likely to outlive the building.
There are a number of benefits to a 990-year lease, assuming it comes with a peppercorn ground rent (effectively zero). Such properties are likely to be valued in a similar way to comparable freehold properties. This should make it easier to obtain a mortgage, and to sell on.
In the past, long leases were sometimes mis-sold as “good as freehold”. However, it is essential to understand the differences between a freehold home and a 990-year lease. You will have a lot more control over the costs relating to your home if it is freehold. But, under a 990-year lease, you will still be liable for service charges and, in some cases, estate rent charges.
Shared Ownership is only sold on a leasehold basis. You may be able to obtain the freehold of a Shared Ownership house on staircasing to 100%. But you can never obtain the freehold of a flat, or a property with staircasing caps, or a leasehold house.
What are the downsides of a 99-year lease?
Properties drop substantially in value once there are fewer than 80 years remaining on the lease. This is because the cost of extending a lease increases significantly at this point. Worse, the value of the property continues to decrease with each year that passes. This can cause problems with remortgaging, or selling on.
With shorter leases, the point at which the 80-year threshold kicks in happens sooner, obliging shared owners to undertake a costly lease extension purely to maintain the value of their home.
Shared owners do not have a statutory right to lease extension. Housing Associations will generally permit lease extension on a voluntary basis, but this offers fewer protections and rights than the statutory route.
What lease length is best?
We have already mentioned that a 990-year lease is valued in a similar way to a comparable freehold property. However, Richard Murphy, a RICS surveyor, says: “research shows that for leases above 130 years, any extra years will not add value”.
Of course, what lease length is best for you depends on your aspirations for your home. Say, you purchased a home with a 125-year lease at the age of 20. If you plan on selling within the next 40 years or so, the lease length may be perfectly adequate for your needs. But, if you intend to remain in this home forever, you may want to consider how – and when - you will pay the costs of lease extension. Assuming you want to avoid your home going down in value during your retirement.
Do your own research!
Leasehold reform is ongoing, including the new Leasehold and Freehold Reform Bill, introduced to Parliament on 27 November 2023. One of the aims of the Bill is to make it easier and cheaper for leaseholders to extend their leases.
But it could take a number of years for the content of the Bill to be finalised. In the meantime, it is essential to take expert, independent advice from a specialist solicitor if you are considering purchasing a Shared Ownership home, or extending your lease.
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