May Ozga

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Can you afford to escape to the country

Property / 14 February 2020

Dreaming of wellies, log fires, walks in the countryside and all things bright and beautiful about living in rural England? Regrettably, not all villages and parishes are created equal and dreams of escape to the idyllic countryside might not be possible in all villages, in so far as affordable housing is concerned anyway.

The escape to the countryside is not so straight forward for an affordable housing provider. If you are an affordable housing provider you would firstly establish whether the development site is in a designated protected area. The Housing (Right to End Franchise) (Designed Protected Areas) (England) Order 2009 sets out the areas which are designated protected areas.

Next the Housing (Shared Ownership Leases (Exclusion from Leasehold Reform Act 1967)(England) Regulation 2009) comes into play. It sets out criteria that a shared ownership lease must fulfil, such as where a tenant cannot acquire 100% of the property, they cannot exercise their right to enfranchise under the Leasehold Reform Act 1967. The Regulations set out requirements landlords must include in the shared ownership lease. For houses within a “Protected Area” conditions must either restrict the leaseholder’s equity to a maximum of 80% or ensure that once a leaseholder has acquired the full 100% share of the house, it is sold back to the landlord upon any sale by the tenant.

Accordingly if an affordable housing property is built in a protected area, it is not possible for a shared ownership buyer of such a property to staircase beyond 80%.

Homes England’s Designated Protected Area policy is designed to maintain the availability of grant funded shared ownership properties or affordable housing within these areas.

Regrettably for leaseholders of shared ownership houses in protected areas, even if the scheme allows staircasing beyond 80%, they can only own 100% of the leasehold and they will not acquire the freehold. As and when the shared ownership leaseholder wants to sell their property it is subject to the mandatory buy back provisions in favour of the affordable housing provider.

The government’s “Help to Buy: Shared Ownership – Capital Funding Guide” sets out helpful guidance on this topic.

Appendix 3 of Homes England’s template Shared Ownership Lease for Protected Areas makes it clear to leaseholders that “normally when a leaseholder of a house staircases up to 100%, he or she can acquire the freehold in the property for no charge, but that this does not apply to properties in protected areas”.

Accordingly potential buyers who do not like the fact that they can only ever own 100% leasehold for a house in a protected area will need to look to buy a house which is not in a protected area.

If a buyer’s desire is to be able to own a freehold then a property in a designated protected area is not for them and they will need to look for one which is not in a designated protected area. To prevent misunderstandings and avoid a buyer being disappointed it should be made clear at the outset that a house in a protected area is not for them if they ultimately want to own a freehold house.

If an affordable homes provider does not wish to have to comply with the designated protected areas provisions of the legislation so that leaseholders can acquire the freehold, then in accordance with paras 1.4.26-1.4.27 of Homes England’s Capital Funding Guide the registered provider could look to (in conjunction with the local authority for the area) apply for a waiver of Designated Protected Areas grant condition on a site specific basis if the local authority concurs that a development situated within a protected area does not need to be protected in order to retain properties for shared ownership

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