Capital Funding Guide – Government Update in relation to Shared Ownership

Section 5.3.4 further states that there are to be “no exceptions to this policy”.

With a number of units being acquired under long term forward purchase arrangements there is a risk that head lease terms currently committed to are less than 990 years now required.

We would strongly recommend that clients review current contractual arrangements in relation to units still to be acquired under a leasehold arrangement. It may be possible to address the position through a pro-active process of agreed variations with developer partners.

The drafting notes comment that if for the practice of good estate management a standard commencement date is required (as per market standard practice) “that no lease is granted with an unexpired term of less than 989 years”.

The safest route would be to ensure that an RPs head lease position is for at least 999 years to provide RPs with the flexibility to ensure the obligation is met.

We suspect that this point may be discussed further with Homes England.

There are new fundamental clauses referred to under section 5.2 of the CFG as follows:

1. Landlord’s right to nominate a purchaser or take a surrender being reduced from eight to four weeks;
2. The new 1% staircasing;
3. The Initial Repair Period (of ten years);
4. The new mortgagee forfeiture notification proviso;
5. Any transfer completed on final staircasing that creates an estate rent charge must exclude S.121 LPA 1925.

The aim of the provision looks to provide clarity on the value to be applied for the 1% tranches. The lease does allow further ability for the valuation to be updated and considered and the application of the HPI.

It is essential that RPs procedures are updated and that teams are aware of the mechanics and practical application of the process. Further that the correct Initial Additional Percentage Value is agreed with the tenant and valuers upon entry into the lease and that the definition of the HPI Index is correctly updated to reflect the correct comparable.

We anticipate that the application of HPI and its various data sets will form the basis of many a discussion over the coming months.

Further, the actual process for the practical recording and management of noting the potential 1% increases in reality is left to the RPs to manage. In line with previous comments we would recommend that a clear process for recording such events is maintained.

The “Initial Repair Period” is defined as a period of ten years from the date of the lease. This means that RPs will need to manage varying repair periods across schemes as suspected. The date is to be calculated upon entry into the lease and inserted within the lease.

Schedule 9 in the model flat lease and Schedule 6 in the model house lease set out the procedures in relation to the repair approach.

These include:

1. The right for a tenant to roll over any unspent provision up to £500 to the next year;
2. Confirmation that a tenant can elect to use a TrustMark approved tradesperson;
3. The scope of work responsibility including the new definition of “Qualifying General Repairs and Maintenance Works” looking to clarify the works to be covered in relation to a potential claim by a tenant;
4. That a tenant is not limited on the number of claims in one year save for the cap of £500 is to apply.

The introduction of this new process will require that RPs have to consider further training requirements for their teams and consider their positions in relation to their process. We would also recommend that the terms of any applicable third party service and maintenance contracts are considered to ensure that there are no potential hurdles in relation to the provision of services or potential breach of their terms.

The CFG does state that any 2016-2021 units that complete after the 1st April 2021 have the option of offering either a 25% or 10% initial equity tranche.