Recommendation 2

HM Government Rejected

1. The Government launched its new model of shared ownership in April 2021, alongside the start of our £11.5bn 2021-26 Affordable Homes Programme (AHP). As noted by the Committee, the new model contains a ten-year ‘initial repair period’, during which registered providers of social housing (registered providers) are responsible for supporting shared owners with the cost of repairs and maintenance to new build homes. The ten-year timeframe acts as a bridging period, allowing shared owners scope to adjust to their obligations as leasehold homeowners. It is also designed to enable them to put additional money aside for staircasing, if this is something they wish to engage in. 2. Following the launch of the new model of shared ownership, we have continued to look for ways to improve the scheme. The Government recognises concerns about service charges and is delivering improvements through the Leasehold and Freehold Reform Bill that will benefit shared owners and other leaseholders. These include: introducing a standardised service charge demand form; mandating the provision of an annual report, setting out key information of importance to leaseholders; requiring freeholders to disclose proactively to leaseholders details of the building insurance policy that was purchased; and ensuring service charge accounts are provided within six months of the end of the previous accounting period that it covers, regardless of the lease terms. This will increase transparency and make it easier for shared owners to challenge poor practice regarding service charges. 3. The Bill also improves shared owners’ access to redress where they consider that a service charge has been wrongly incurred or is excessively high. For example, variable service charges are subject to specific legal requirements. These are that variable service charges must be reasonable and that, where costs relate to work or services, the work or services must be completed to a reasonable standard. Where necessary, shared owners may make an application to the First-tier Tribunal (Property Chamber) for a determination on the reasonableness of their variable service charges. 4. We know that shared owners may be liable currently to cover their landlord’s legal costs as part of any application to the First-tier Tribunal, and that this may act as a deterrent to some applications. The Bill will address this imbalance by scrapping the presumption that leaseholders, including shared owners, pay their landlord’s legal costs when taking disputes to the First-tier Tribunal. 5. The Committee’s specific recommendation comes with some considerable trade-offs, that would affect the delivery of all forms of affordable housing. Currently, shared ownership is designed to allow households to purchase a leasehold interest in a home at less than its full market value. That leasehold interest involves the usual legal obligations, including full liability for the costs of maintaining the home, and the need to pay service charges for any communal works and services that benefit the shared owner. 6. We recognise that there are valid arguments for designing shared ownership in such a way as to make liability for service charges proportionate to the share owned by the leaseholder at any given time. Whilst this would reduce costs for shared owners, it is highly likely that increased subsidy per home (whether from grant or Section 106) would be required to make such an arrangement financially sustainable. This would mean that fewer shared ownership homes could be delivered for a given amount of subsidy or require funding to be diverted from delivering other types of affordable housing, including homes for Social Rent. 7. In addition, the 2021-26 AHP is premised on delivery of the new model of shared ownership, including the implementation of the initial repair period, with grant funding allocated on this basis. At this stage in the Programme’s administration, almost all available grant funding has been allocated. If implemented, the Committee’s recommendation would overturn this arrangement, causing significant disruption not only to the delivery of new shared ownership homes, but also to the delivery of other much needed forms of rented social housing, with registered providers often bidding for grant funding to deliver mixed tenure schemes. To protect its viability, the Government will not consider major changes to the makeup of the affordable housing delivered through the AHP, prior to the conclusion of the current Programme in April 2026. 8. The Government believes that the Committee’s recommendation could only be applied to existing shared ownership leases through primary legislation. In the time remaining in the current Parliament, the Government’s focus is on delivering two major pieces of legislation that will be of significant benefit to shared owners: the Leasehold and Freehold Reform Bill and the Renters (Reform) Bill.