Housing associations furious at government’s 10-year repair-free offer to new shared owners

But will they find work-arounds to make it ineffectual, like Florrie’s Law?

By Harry Scoffin

The government is facing furious opposition from housing associations over proposals to spare shared owners from repair bills for 10 years in new blocks of flats.

Shared owners, who may only own 25 per cent of a lease, have to pay 100 per cent of service charges including major works.

But the government move has upset social landlords with Peabody CEO Brendan Sarsfield saying it “feels as if it’s been plucked out of thin air”, and deprecated the government’s lack of consultation with the sector before coming up with the proposal.

Optivo chief executive Paul Hackett suggested the government’s 180,000-home affordable housing programme could be jeopardised by making social landlords pick up the tab for repairs and maintenance.

He claimed taxpayers would need to subsidise shared ownership by at least another £25,000 per unit to ensure feasibility.

But ministers believe the proposal will help future shared owners save the money required to staircase to 100% “ownership” or increase their purchasing power when they move out to a larger home.

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Buyers who acquire 25% of a shared ownership lease to a brand new one-bed flat at Wardian London, a Ballymore scheme on the Isle of Dogs where Notting Hill Genesis are selling the affordable units, commit to initial monthly mortgage, rent and service charge payments of £1,548.

But shared ownership tenants also face the full horrors of the cladding scandal, with the likelihood of significant bills. At City Wharf Hoxton, in north-east London, tenants with 25% equity have been told to expect 100% re-cladding bills by their housing association A2Dominion should government funding not materialise.

A2 Dominion to dump 100% cladding costs on to 25% shared owners at City Wharf Hoxton

In shifting the financial liability for building upkeep from shared owners to housing associations – which often own a head lease to a section of a private complex of flats – the government is backing a consumer-friendly measure not dissimilar to Florrie’s Law.

This was an attempt by the coalition government’s communities secretary Eric Pickles to limit local authority leaseholders’ exposure to section 20, major works bills: capping costs at £15,000 within London and £10,000 outside the capital.

Florrie’s Law means new £15,000 cap on repair bills for council leasehold owners

But the measure only applies where central government funds were deployed, and it has been of very limited use. Indeed, LKP is unaware of a single local authority site where the cost capping to leaseholders envisaged by Florrie’s Law actually has been applied.

There may be similar wriggle room for housing associations in the new proposal, the details of which have yet to be finalised.

One must hope that housing associations will not attempt to dump section 20, major works bills on shared owners in a new block – and question why they would be necessary given the warranties that supposedly exist.

But the new definition of “maintenance and repairs” could leave a multitude of issues that, arguably, could be shoved into the shared owners’ service charges.

On the other hand, it is quite difficult for shared ownership leaseholders who only own 25% of their flat to argue that, for example, they should not pay to maintain the block’s sewage pump (given that 100% of its efforts can be laid at the … er, door of the leaseholders, whether shared ownership or not). It would be quite difficult to understand why this should not be a service charge cost.

The 10-year repair-free offer to future purchasers has been unveiled alongside a proposed reduction in the minimal initial share that can be bought, from 25% to 10%, which is expected to cut the cost of the deposit.

Under the shared ownership shake-up, housing associations will also be banned from levying administration charges as part of the staircasing process, with tenants free to boost their equity in 1% increments.

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Another dubious administration charge applies where housing associations pass on service charge bills from a private freeholder’s managing agent and applies a 15-20 per cent handling charge.

This means shared owners can sometimes end up paying proportionally more in service charges than a private owner of a penthouse at the top of the building.

The issue was addressed by veteran leasehold activist Shula Rich at the Westminster Forum last week, in a speech which lamented the worsening state of leasehold over the past 20 years.

Those looking to sell will also be able to override their housing association to put their shared ownership lease on the open market after a month. Currently they have to wait until the landlord’s 8-week exclusivity period ends.

Taken together, the package of shared ownership reforms represent a “reckless move” on the part of the government, according to Matthew Bailes, the chief executive of Paradigm. Writing in Inside Housing magazine, the housing association chief, protested the commercial implications:

“Obliging providers to pay for repair costs for 10 years, accept sales on tranches as low as 10% and, presumably, bind themselves to agreed prices on future staircasing will erode any margin still further – almost certainly to a point where without significantly more subsidy, shared ownership won’t stack up. And the final details won’t be available for months, which risks more delays.”

While the changes may seem advantageous to the consumer, it seems as if housing associations will retain their ability to make money from selling 99 year and 125 year short leases. LKP has called for these to be 999 years – and the London Assembly backs 250 years.

LKP has been contacted by shared owners who have staircased up to full ownership over 20-30 years only to find that they need to raise another £30,000 or so to extend the lease.

In March, the London Assembly Housing Committee told London mayor Sadiq Khan that it had found shared ownership tenants were being stung by high and unexpected fees to renew their leases as they came close to, or slipped below, the 80 year mark.

“Shared owners need greater information and support to manage the lease extension process. They would also benefit from longer leases from the outset, thereby reducing the frequency with which shared owners are required to extend their leases. For example, if offered a lease of 250 years a shared owner should not need to extend the lease during their period of ownership. During our investigation, a representative from one of the large housing associations indicated they would be willing to work you to implement a process for shared owners to be offered longer leases,” wrote Unmesh Desai, committee chair and Labour member for City and East.

On discontent surrounding service charges, Mr Desai and his colleagues recommended that housing associations be required “to report on service charges for each block of shared ownership homes under its management”, with the data published online for all to see, including prospective buyers.

Housing associations should be compelled to disclose annually how many shared ownership tenants manage to staircase to 100% and who was moving on to freehold property, they also advised the mayor.

Analysts say the unofficial figures on staircasing suggest only 5% to 8% of shared owners ever get to 100%.