Do Shared-Ownership Leaseholders Qualify for a Lease Extension?

posted by daniel@lease-advice-bureau.co.uk
Date:  08/09/2023
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A shared-ownership lease is a particular type of ownership whereby the Tenant has bought a share of the property (house or flat) and pay rent on the part of the property that is still retained by their Landlord (typically a Housing Association).

The Tenant has a right to purchase additional shares from their Landlord which is a process known as “staircasing” which they can do until they own 100% of the equity and the property is no longer considered shared-ownership, but a regular leasehold.

Although long leaseholders can qualify for a lease extension under the Leasehold Reform Housing and Urban Development Act 1993 (“the 1993 Act”), traditionally it was assumed that these shared-ownership Tenants who have not staircased to 100% do not qualify for a lease due to the contents of the qualification provision in the lease extension law, which defines what type of leases the right to extend applies to. Which under Section 7(1)(d) of the 1993 Act states the following:-

a shared ownership lease, whether granted in pursuance of that Part of that Act or otherwise, where the tenant’s total share is 100 per cent

As such, it was widely considered that a shared-ownership Tenant could only extend once they had staircased to 100%.

This understanding has been questioned in recent times due to a court case that concerns the Right to Manage (RTM), which is a different leasehold entitlement, but shares some commonality with lease extension legislation.

This RTM case was entitled Avon Ground Rents Ltd v Canary Gateway (Block A) RTM Company Ltd concerned the question of whether shared ownership tenants who had not staircased to 100% could be regarded as Qualifying Tenants who are able to exercise the Right to Manage.

It was held at the Upper Tribunal that they did qualify as those Tenants fell within a separate sub-heading which stated that their lease merely needed to be “granted for a term of years certain exceeding 21 years, whether or not it is (or may become) terminable before the end of that term by notice given by or to the tenant, by re-entry or forfeiture or otherwise” (s. 76(2)(a) of the Leasehold Reform and Commonhold Act 2002 “the 2002 Act”).

This case was appealed earlier this year, and the Court of Appeal upheld the decision. That decision can be read here: https://caselaw.nationalarchives.gov.uk/ewca/civ/2023/616

The section which concerns which leases qualify for Lease extensions (Section 7(1) of the 1993 Act) mirrors that within RTM law (Section 76(2) of the 2002 Act) and for this reason it has been speculated that the findings in the RTM case should also apply to Lease Extension (and Enfranchisement) law.  Indeed, the judgment itself refers to the 1993 Act cases within much of the decision.

It has been speculated that the Court of Appeal decision will itself be appealed in the Supreme Court.  If so, there remains a chance that the decision could be overturned. Moreoever it is worth mentioning that the decision concerning RTM law does not categorically mean that the qualification applies to Lease Extensions; although it is a more than reasonable supposition.

As for the big question: Should shared-ownership leaseholders (who have not staircased to 100%) seek to extend under the 1993 Act?

In true lawyer fashion, this must be a “perhaps”. In doing so, one must be prepared for the potential resistance. They much weigh up their financial considerations of a diminishing lease against the potential consequences should the Landlord wish to challenge on this point.

Futhermore, in the event that the aforementioned decision is overturned, we should consider what impact this may have over a completed lease extension.

The legal effect of such Court decisions impact retrospectively; in other words, a Court’s decision on interpretation of statute merely clarifies what should been the legal understanding all along.  An interesting question is therefore would such new interpretation give rise to a right of rescission (ending the agreement) for a lease granted under a disqualifying circumstances. We would have to turn to remedies that apply to Contract Law for breaches of condition and warranty; the former giving rise to such a remedy.

Although this goes beyond the scope of this article, I would hazard a speculation that as per our understanding of conveyancing terms the difference may only give rise to a breach of warranty and would therefore not give risk to rescission (termination of the lease extension deed), however that perhaps a question for another time. Ultimately the Court of Appeal decision does for the time does provide relatively strong support in favour of claiming entitlement to a statutory lease extension.

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