Shared Ownership leases of flats and Right to Manage: Is it possible?

July 2018

By Ibraheem Dulmeer, Legal Advisor at LEASE and Rachel Coyle, barrister with 36 Bedford Row Chambers 

Shared ownership leases are often the first step into home ownership. They are a distinct type of ownership, where a share (a portion of the equity in the property, rather than 100% outright ownership) of a lease is held by the leaseholder. For example, you can have a 50% share in the lease’s equity, and this can be on a house or a flat. The ‘unowned equity’ is retained by the landlord, so turning to our example the landlord would retain the other 50%.

The Right to Manage (RTM) – the generalities

Notably, in contrast to remedies such as the appointment of a manager by the First-tier Tribunal (Property Chamber), RTM does not require a leaseholder to prove mismanagement by the landlord and/or managing agent or pay compensation to the landlord. In brief, the  RTM process includes leaseholders in a building acting collectively and creating a ‘RTM Company’ as part of the procedure for the transition of management functions from the landlord to the company.

In order to establish RTM the relevant building must qualify for the right. To do so requires the following:

1. There must be at least two flats in the building;
2. At least two-thirds of the flats are let to ‘qualifying leaseholders’.
   To be a qualifying leaseholder requires a ‘long lease’ ie a lease whose original duration was more than 21 years. The present unexpired length is irrelevant since qualification is governed by the duration of the lease when it was first granted;
3. No more than 25% of the building is used or intended to be used for non-residential purposes (excluding its common parts);
4. At least 50% of the flats participate.
5. RTM does not apply where the immediate landlord of any qualifying tenant is a local housing authority.

Can the Right to Manage extend to shared ownership leases?

This question has centred on the issue of whether a shared ownership lease is a ‘long lease’. The doubt arose originally because, before 2005, the law [1] meant that a shared ownership lease only qualified for a lease extension when the leaseholder’s share reached 100%. In 2005, the High Court held [2] that interpreting the law to that effect was too stringent. This was followed subsequently in 2013 in the Upper Tribunal (Lands Chamber) [3]. The Upper Tribunal (Lands Chamber) held that a shared ownership lease granted for a term of more than 21 years was a ‘long lease’ for the purposes of exercising RTM irrespective of whether the lessee’s share is less than 100%.

Conclusion:

Shared ownership leaseholders hold long leases and are thus qualifying leaseholders for the purposes of RTM and for extending their leases.

[1] Section 7(1)(d) of The Leasehold Reform, Housing and Urban Development Act 1993

[2] Brick Farm Management Limited v Richmond Housing Partnership Limited [2005] 1 W.L.R 3934

[3] Corscombe Close Block 8 RTM Company Ltd v Roseleb Limited [2013] UKUT 081 (LC) [2013] L. & T.R. 16

Further reading:

Right to manage – Advice Guide

Right to manage – a brief overview 

Shared Ownership leases – Advice Guide