Flat owners with ‘long leases’ qualify to participate in the right to manage (RTM) by which they can collectively take over management of their building. A recent case has clarified whether a shared ownership lease counts as a ‘long lease’ if the leaseholder does not own a 100% share. Our leasehold specialist, Dona Awano, looks into the case and what it means for existing and future shared ownership leaseholders.
Leases that qualify for the Right to Manage
Leaseholders in buildings containing flats who qualify have a legal right to club together to take over management of their building. This is called the right to manage (RTM) and the requirement for the building and leaseholders to qualify is provided for under the Commonhold and Leasehold Reform Act 2002.
Section 76 of the 2002 Act sets out conditions for a leaseholder to qualify to participate in the RTM, including that the lease must be a ‘long lease’. The kinds of leases that count as long leases are listed. Paragraph (a) in the list is ‘a lease granted for a term of years certain exceeding 21 years…’ and paragraph (d) is ‘a shared ownership lease… where the tenant’s total share is 100 per cent.’
What is a Shared Ownership lease?
A shared ownership lease is a part-own, part-rent lease where a leaseholder purchases a share of the property, typically between 10% – 75% and rents the remaining share from a landlord, usually a housing association. Generally, more shares can be bought by ‘staircasing’ until the leaseholder owns 100% share in the property.
Such leases are typically granted for a term of more than 21 years but there has been uncertainty over the question of whether a shared ownership lease granted for more than 21 years but which hasn’t staircased to 100% is a ‘long lease’ for the purposes of qualifying to participate in the RTM.
Avon Ground Rents v Canary Gateway (Block A) RTM Company Ltd
The Court of Appeal considered the question of whether shared ownership leaseholders who were yet to staircase to 100% held ‘long leases’ and were qualifying tenants in the case of Avon Ground Rents v Canary Gateway (Block A) RTM Company Ltd.
In this case, the building contained 97 flats with 12 shared ownership leaseholders who had not yet staircased to 100%. The leaseholders sought to exercise their right to take over the management of the building, but the landlord argued that the 12 shared ownership leaseholders were not ‘long leases’ as they had not yet staircased to 100%.
The leaseholders said that shared ownership leases for over 21 years were long leases under paragraph (a) whether they were staircased to 100% or not. The landlord said that if the leaseholders were right then paragraph (d) which provided that a shared ownership lease was one where the tenant owned a 100% share, was pointless and that Parliament could not have intended that result when passing the Act.
The Court held that a shared ownership lease granted for a term of more than 21 years is a ‘long lease’ even if the leaseholder has not staircased to 100%. This means that shared ownership leaseholders hold ‘long leases’ and are entitled to participate in the RTM process.
The court thought it important that shared ownership leaseholders have an interest in the way the building is managed, whether they own 100% shares in their flats or not. This is more so as leaseholders who have not staircased to 100% still have to pay 100% of the service charge proportion for their flats.
This decision meant that the leaseholders won the case, acquiring the right to manage their building and the outcome will be welcomed by shared ownership leaseholders across the country.
What does this mean for Shared Ownership Leaseholders wanting to participate in the Right to Manage?
The wider implication of the decision touches on the qualifying requirements for leaseholders to obtain a statutory lease extension or collectively acquire the freehold under the provisions of the Leasehold Reform Housing and Urban Development Act 1993. The requirement to qualify under section 76 mirrors the requirements under the 1993 Act. It could therefore be argued that it follows that shared ownership leaseholders who have not yet staircased to 100% also qualify under the 1993 Act to obtain a statutory lease extension. However, this has not been tested yet.
This case brings much needed clarity for shared ownership leaseholders.
About the Author
Dona Awano is a solicitor at Amphlett Lissimore, specialising in the niche area of leasehold property law. Based in our Crystal Palace office, Dona’s work includes collective enfranchisement, lease extensions, right of first refusal, freehold acquisition of houses, right to manage, licence for alterations, and service charge and management disputes.