Shared-ownership leases offer tenants an opportunity to buy a stake in their home and to pay rent on the share of the property that they do not own. Tenants can then make further capital payments to the landlord, to increase their stake in their home, until they own the property outright.
The decision in
The tenant issued proceedings against the landlord, claiming 50% of the current market value of the house. She argued that the freehold was held on trust for herself and the housing association or, alternatively, that she held two different, but concurrent, leasehold interests in the property. She claimed that the housing association had forfeited her assured tenancy of the share of the property that she did not own, but not her long leasehold interest in the remainder. The High Court rejected both her claims.
The judge decided that the relationship between the housing association and its tenant was that of landlord and tenant and not that of trustee and beneficiary. The judge also ruled that there was only one tenancy, which had been duly determined. Consequently, the tenant had no right to be compensated for the loss of her share in the property.
The judge ruled that the tenant’s lease was an assured tenancy, which was governed by the Housing Act 1988. This was because the tenant had a long lease of a house that was let as a separate dwelling and the rent payable to the housing association was well above the threshold for exclusion from the Act. The rent was 16 months in arrears and the order for possession of the property had been properly made.
The consequences for the tenant were disastrous. The housing association had offered to refund the tenant the premium paid on the grant of the lease, after deducting an amount to cover the arrears of rent, costs and an amount for dilapidations, and was prepared to stand by that offer, even though it was not legally obliged to do so. However, the tenant did lose the benefit of her share of the capital appreciation in the property, and could have lost her entire investment in the house.
The rules that apply when a tenant seeks relief from forfeiture of a long lease for arrears of rent are generally more favourable to tenants than the rules that apply in the case of possession proceedings brought in respect of an assured tenancy under the Act. Consequently, shared-ownership leaseholders who fail to pay rent face serious problems as a result of this decision.
Allyson Colby is a property law consultant
