Shared Ownership Lease Update

Under the updated lease the annual rent increase is made by reference to the Consumer Price Index (CPI) + 1.0% instead of the Retail Price Index (RPI) plus 0.5% (bringing it into line with the maximum annual rent increase on social and affordable rented homes).

The change is only relevant to new grant funded Shared Ownership leases provided through either the AHP 2021 to 2026 or SOAHP 2016 to 2021 programmes.  It will also apply to Shared Ownership homes funded from a RP’s Recycled Capital Grant Fund (RCGF) without any new grant from 12 October 2023.

There are also some other changes to Schedule 5 (Rent Review), some of which are administrative but also:

• To add provisions for a revised index if the CPI is no longer available (which involves taking any guidance issued by Homes England into consideration)
• At para 3.1 and 8 of Schedule 5 to allow the RP to charge a lesser rent at its discretion (rather than it being an upwards only CPI review), but to make it clear there is no obligation to do so

Which model lease to use

New Shared Ownership leases granted after 12th October should use the CPI-based model leases. However, there is an exemption for homes where funding has been agreed prior to this date. These homes may continue to use the RPI-based model leases. This exemption covers homes as set out below.

1. Shared Ownership homes provided through a Strategic Partnership
   • the scheme in question is an ‘active site’
   • the scheme is in a strategic partner’s pipeline and the partner is able to evidence that they are in a legally binding contract to acquire and / or develop the site / properties; this legally binding contract needs to have been entered into prior to the 12th October 2023 and commits them to incur Development Expenditure as defined in their Strategic Partnership Grant Agreement
2. Shared Ownership homes provided through Continuous Market Engagement (CME)
   • the scheme has been accepted as a firm scheme and has been allocated funding on IMS as at 12th October 2023
   • the scheme has been submitted in IMS as a bid prior to 12th October 2023 but is awaiting a decision from Homes England and is subsequently allocated
   • the scheme is either a substitute or an indicative scheme in IMS and the provider is able to evidence that they are in a legally binding contract to acquire and / or develop the site / properties; this legally binding contract needs to have been entered into prior to the 12th October 2023 and commits them to incur Development Costs as defined in the relevant Grant Agreement.

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Homes England also state:

• Where a Shared Ownership scheme meets the above criteria and is therefore able to use one of the RPI-based rent review model leases,  RPs should consider offering the CPI-based rent review model lease where it is viable to do so.  This can be done without the need to seek Homes England’s consent. This is not drafted to be an obligation.
• RPs are able to amend the rent review basis within older, existing Shared Ownership leases from RPI-based to CPI-based where they think this appropriate or prudent.  Where this is agreed then Homes England’s permission to do so is not required and it will be for the parties involved to determine the mechanism for achieving this.

Key information documents

Homes England have also amended and re-issued the KIDS today. This is primarily to reflect the change from the RPI to CPI rent review for homes funded after this date. However they have also included a more medium term projection of the rents over a 5-year period that a customer may expect based on an assumed level of RPI or CPI.  These projections are only intended to be indicative as the future level of these indices cannot be predicted with any degree of certainty.  The 5-year rent projections can be found in the ‘Rent review’ section of the relevant ‘Summary of costs of the Shared Ownership home’ Key Information Document.

This could have an effect on the viability of grant funded schemes which include shared ownership units where funding is not yet confirmed (for non SPs) or RPs are not under contract.

RPs also need to consider any other implications, e.g. whether there is an implication for shared ownership units secured by S106 obligations which require a RPI rent review (eg. on a 100% affordable site where there is grant funding). However we think it more likely that a S106 would set a maximum percentage increase.

For further information please contact one of our specialists social housing lawyers.