Rent reforms for new shared ownership homes

Georgina Coyle sets out the key points in the Government’s proposed changes to shared ownership rents in England.

On 12 October 2023, the Department for Levelling Up, Housing and Communities (DLUHC) announced reforms to shared ownership rents in England. The reforms apply to:

• New shared ownership leases of homes purchased through the Affordable Homes Programme and through the planning system via Section 106 developer contributions, subject to some exceptions; and
• New shared ownership leases purchasing a leasehold interest in their home though the Right to Shared Ownership.

The reforms come in response to the government's announcement in 2020 that the Retail Prices Index ('RPI') will be phased out by 2030. Previously, shared ownership rents could be increased annually up to a maximum of the RPI plus 0.5%. From 12 October 2023, rents for new shared owners can be increased annually by a maximum of the Consumer Prices Index ('CPI') plus 1%, bringing shared ownership rent reviews in line with the limit on annual rent increases for other forms of social housing. The relevant CPI figure for each month is published by the Office for National Statistics.

The floor for shared ownership rent increases has also been decreased from 0.5% to 0%. This means that rents cannot be increased where CPI is minus 1% or lower.

Homes England has amended its model shared ownership lease to reflect these changes. Where the CPI-based model lease is being used, the following will apply:

• Where CPI for the relevant month is nil, the maximum rent increase will be 1%.
• Where CPI is between 0% and minus 1%, the cap of CPI plus 1% will apply.
• Where CPI is minus 1% or below, a maximum of 0% rent increase will apply.

The reforms have also given registered providers the discretion to increase rents by less than this new maximum of CPI plus 1%. This is to ensure that, during times of high inflation, registered providers are able to protect new shared owners from high rent increases. Therefore, a rent review can mean that a rent increase is not applied or a rent reduction is applied, if considered appropriate. As was the case previously, Homes England's consent is not required should a landlord wish to charge a lower annual rent increase than is set out in the lease for a given year, or make a rent reduction.

New homes that are already in contract to be delivered via the Affordable Homes Programme are exempt from these reforms. This is to ensure that providers can continue to deliver these new homes where the terms of delivery have already been finalised with Homes England and the Greater London Authority. However, any new homes where funding has been agreed on an indicative basis and are not part of a firm scheme and homes included in new bids to the Continuous Market Engagement element of the Programme are required to comply with the new requirements.

DLUHC has also published guidance for any new shared ownership homes delivered through the planning system via section 106 developer contributions. From 12 October 2023, any new shared ownership lease that is granted to a buyer must include a rent review schedule that enables the specified rent to be increased by a maximum of CPI plus 1%, annually. Previously, the permitted maximum annual increase was RPI plus 0.5%.

Further, the section 106 planning obligations contained in any new planning permissions granted on or after 12 October 2023 must reflect the ability to increase rents annually by this new maximum.

There is an exception to this, however. Where a local planning authority considers that substantial work has already been undertaken to agree s106 planning obligations based on the previous rent review provisions (i.e. an annual maximum of RPI plus 0.5%), it may allow the agreement to proceed on that basis. To do so, the local planning authority must consider it to be pragmatic and necessary to secure the affordable homes that are to be subject to the planning obligation.

If parties have already agreed section 106 planning obligations based on the previous rent review provisions, they can agree to amend them to reflect the rent review reforms. To do so, the parties must consider it reasonable and practicable to do so and it must benefit new shared owners.

Georgina Coyle is a Trainee Solicitor at Forbes Solicitors.

For more information contact Lauren Fisher in Forbes Solicitors’ Housing & Regeneration department via email or phone on 01254 222345.