The Right to Shared Ownership – are you ready?

Posted: 16/11/2023

The Right to Shared Ownership (RTSO) was announced at the same time as the new shared ownership lease, but as the funding for this came from the 2021-26 Affordable Homes Programme, and with sales not being seen immediately for many, it has flown somewhat under the radar. However, with registered providers being required to proactively notify tenants of their RTSO, being ready is essential.   

This article looks at the detail of the RTSO and what registered providers need to do.

What is the Right to Shared Ownership?

The RTSO gives tenants who rent under an affordable or social rent the right to purchase the property on shared ownership terms, provided both the tenant and the property meet the criteria. Tenants can buy a share in the home they rent between 10% and 75% and pay rent on the remaining equity, and can buy further shares up to 100% (unless the property is affected by restricted staircasing).

It only applies to properties that are grant funded from the Affordable Homes Programme 2021-2026, and therefore historical stock and non-grant funded stock will not be affected. 

What properties are eligible for the Right to Shared Ownership?

The RTSO applies to property built with grant funding from the Affordable Homes Programme 2021-2026, and which are let at a social rent or an affordable rent. 

Certain properties are exempt including:

• homes where the landlord is a local authority;
• specialist homes for older, disabled or vulnerable people;
• homes built in remote rural areas;
• almshouses;
• homes where the landlord is a co-operative housing association or community land trust.

But other exemptions apply, including the ability for providers to block a RTSO sale (such as where the cost floor is breached) – it is essential that providers have assessed and understand to which properties the exemptions apply.

Who has the Right to Shared Ownership?

The criteria for tenants to be eligible for the RTSO is as follows:

• over 18 years old;
• living in a home where the RTSO applies;
• holding an un-demoted secure tenancy, an assured tenancy (including an assured shorthold tenancy), or a Localism Act fixed-term tenancy (either an assured shorthold tenancy or a flexible secure tenancy with a fixed-term of a minimum of two years);
• living in the home for at least 12 months;
• a tenant of a home with social rent or affordable rent for at least three years (this need not have been with the same landlord, or for three years in a row);
• not in rent arrears;
• not subject to legal proceedings (eg a notice of seeking possession has been served);
• not subject to a court order for possession of their home;
• not subject to legal proceedings on the grounds of anti-social behaviour;
• not subject to bankruptcy proceedings or unfulfilled credit arrangements;
• meeting the shared ownership eligibility requirements, including the income requirement (currently an annual gross household income of £80,000 or less outside of London, or £90,000 or less in London), and not already owning a property;
• unable otherwise to purchase a home suitable to meet their housing need on the open market; and
• satisfying immigration requirements.

Can tenants make a joint application?

Yes, up to three family members can jointly buy the property with the tenant provided they have lived in the property with the tenant for the past 12 months. 

What lease should be used for Right to Shared Ownership sales? 

All RTSO sales must use the new form of shared ownership lease without exception. This lease allows buyers to buy a share as small as 10%, buy additional 1% shares annually, benefit from a 10-year repair period and increase rent based on CPI plus 1% (not RPI plus 0.5%, as under the old lease).

The 10-year repair period commences from when the property was build complete. With providers having a duty to act reasonably to ensure the 10-year period is not artificially reduced, understanding how this will be assessed is vital. 

What is the process?

The RTSO process is broadly as follows:

More details on the process can be found in the Capital Funding Guide, and registered providers should review this accordingly.

What steps do registered providers need to take to be ready for the Right to Shared Ownership?

There is much registered providers need to do to be ready for the RTSO including (but not limited to):

• set and agree internal processes for dealing with applications;
• train staff to understand and undertake the process;
• liaise with IFAs to make arrangements for affordability checks;
• ensure staff are familiar with and understand the new shared ownership lease;
• liaise with legal representatives to ensure a ready to use precedent RTSO lease is in place; and
• liaise with internal stakeholders who may be affected by the RTSO (eg a tenant exercising the RTSO could result in a leasehold property being created where no leasehold properties previously existed, and therefore service charge budgets being required).

Summary

As can be seen above, the RTSO will require a reasonable amount of training and preparation for registered providers. Whilst it is likely that there will not be a high number of applications in the short term (since only 2021-2026 grant funded properties are eligible), in the medium and long term it could become a popular product with tenants.

Registered providers should be considering now whether they and their teams are ready to accept and deal with RTSO applications sooner rather than later.

This note is intended as a summary only and is not to be considered legal advice. If you would like to discuss the RTSO, arrange training or require a precedent lease to be prepared, please contact Adam Crawford or Linda Storey.  

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