Shared ownership rents reform

The Shared Ownership Rents Reform Policy paper was published by the Department for Levelling Up, Housing and Communities on the 12 October 2023, throwing a spotlight on shared ownership leases. 

The reforms contained within the policy paper will apply to new shared ownership leases purchased via the Affordable Homes Programme or the planning system. We will take a quick look at the main reforms made within the policy paper and provide guidance for new shared ownership leased homes.

Essentially, the reforms that apply from 12 October 2023 include:

• rents for new shared owners can be increased once a year by no more than the Consumer Prices Index (CPI) plus 1%;
• registered providers of social housing have discretion to increase rents by less than CPI plus 1%. This ensures that providers have greater flexibility to protect new shared owners from particularly high rent increases during periods of high inflation;
• reducing the floor for shared ownership rent increases from 0.5% to 0%. This means that rents cannot be increased if CPI is minus 1% or lower.

One measure that has been put in place to protect the ongoing delivery of affordable housing, is that Shared Ownership Homes are exempt from the new reforms if they are already in contract and have been allocated funding as part of the 16/21 program. This allows those progressed schemes to continue without delay. 

Also, it is worth bearing in mind that if the new CPI rent review clause is used, there is a change to the Key Information Document (KID) prescribed by Homes England in relation to shared ownership leases.

Guidance for new shared ownership homes delivered through the planning system via Section 106 developer contributions

For new shared ownership homes delivered through the planning system via section 106 agreements, the guidance below explains which homes should adopt the reforms and which homes are exempt.

Since the 12 October 2023, a Homes England Model Shared Ownership Lease must include:

• a rent review clause that facilitates the rent to be increased by a maximum of CPI plus 1% per annum, this is a 0.5% increase from the previous regime.  

The policy paper does include practical considerations for those schemes underway. For example, where the Local Planning Authority (LPA) considers that substantial work has already been undertaken to agree the section 106 planning obligations prior to 12 October 2023, the LPA may allow the section 106 agreement to proceed on the previous rent review basis. This applies if it is pragmatic and necessary in order to secure the continued immediate delivery of affordable homes.

In addition to this, where a section 106 planning obligation is in place and agreed on the basis of the previous rent review schedule (0.5%), the agreement may be modified to reflect the new rent review schedule. A s106 agreement may be modified if it is reasonable and practicable, and would benefit new shared owners.

Ashfords’ social housing team regularly advises social housing providers on shared ownership matters from  negotiations with developers and LPAs, through to completion of the development, lease negotiations and on-going obligations. 

If you have any queries or would like further information on shared ownership, please feel free to contact Paul Butterworth, Derek Moore or Daniel Ball within our real estate (social housing & regeneration) team.