Jonathan Jennings looks at what is involved where a shared ownership leaseholder wants to reduce their ownership share.
Staircasing pursuant to shared ownership leases is long established and well understood. To recap, staircasing is the process by which shared ownership leaseholders can acquire additional equity shares in their dwelling with the unpurchased proportion, and therefore rent payable on it, reducing correspondingly. The current form Homes England model shared ownership leases contain staircasing provisions, as did previous model form shared ownership leases issued by Homes England’s predecessors. In most cases, shared ownership leaseholders will have the ability to “staircase out” to outright ownership.
In contrast, reverse staircasing (or staircasing down) allows a shared ownership leaseholder to reduce their ownership share by selling an agreed share back to the Registered Provider, with the rented share (and therefore the rent payable) increasing correspondingly. It can be partial (ie. buy back of an agreed share) or full (ie. buy back of the shared ownership lease and grant of a tenancy of the same dwelling to the former leaseholder).
There are no provisions in Homes England’s model form shared ownership leases as to reverse staircasing. Whether a shared ownership leaseholder is able to reverse staircase is down to the policies and discretion of their Registered Provider landlord and that discretion is only likely to be exercised in exceptional cases.
Extreme financial hardship resulting from loss of employment, debt, relationship breakdown or health related issues might be circumstances in which Registered Providers agree to reverse staircasing. It can be deployed as a means of avoiding repossessions by mortgage lenders. The primary objective will, in most cases, be to allow shared ownership leaseholders and their families to continue living in their homes and remaining in their communities.
Each case will need to be considered individually by reference to its own circumstances and, where relevant, with the involvement and agreement of the shared ownership leaseholder’s mortgage lender.
Some Registered Providers already have formal reverse staircasing policies and presumably other Registered Providers will from time to time have agreed reverse staircasing on an “ad hoc” basis in exceptional cases.
Registered Providers considering adopting a formal reverse staircasing policy will need to consider the level of priority to be given to reverse staircasing having regard to their other objectives and programmes and will need to identify funding for such arrangements.
Inevitably reverse staircasing will mean costs being incurred by both the Registered Provider and the shared ownership leaseholder. These are likely to include legal, valuations and mortgagee costs (where applicable) and, in the case of the Registered Provider, its own internal administration costs.
The most recent Homes England model form leases allow shared ownership leaseholders increased flexibility as to staircasing up. It will be interesting to see whether, in the light of such provisions and, against a backdrop of financial uncertainty resulting from the Covid pandemic, more Registered Providers consider adopting a formal policy based approach to reverse staircasing.