Extending a Lease on a Shared Ownership Property

Extending a lease on a shared ownership property can be challenging to navigate, especially as your lease term edges closer to the 80-year mark. Once your lease drops below 80 years, remortgaging or selling your share becomes incredibly difficult. While the formal statutory route for a lease extension requires you to own 100% of the property, the informal route allows you to extend your lease without staircasing.

This comprehensive guide covers everything you need to know about a lease extension for shared ownership, including the legal frameworks, the pros and cons of staircasing first, and how housing associations handle informal extensions.

Why has extending lease on shared ownership become an issue?

Shared ownership leasehold contracts are a comparatively recent invention, and the original terms were usually set for either 99 years or 125 years.

Many original shared ownership lease terms have now reduced to 80 years or below. This is the critical threshold where most high-street lenders will refuse to approve a remortgage or loan funds to a prospective buyer. If you fall below this mark, your property becomes incredibly difficult to sell.

There are a number of solutions regarding getting a lease extension for your shared ownership property, but you must take your individual financial situation and future plans into account when choosing the right path.

What is the legal basis for a shared ownership lease extension?

As the holder of a shared ownership lease, you are specifically excluded from the statutory right to a lease extension under the Leasehold Reform, Housing and Urban Development Act 1993—unless you have "staircased" your ownership to 100%.

If you own 100%, you qualify for a formal statutory lease extension, which legally guarantees you an extra 90 years added to your lease term at a peppercorn (zero) ground rent.

If you own less than 100%, your only option is an informal extension. Most housing associations now offer an informal route for their shared ownership clients, but you must examine the terms carefully. Because it is an informal agreement, you have no legal right to apply to the First-tier Tribunal (Property Chamber) to resolve disputes over the premium or terms.

What are the pros and cons of staircasing for a formal lease extension?

Essentially, the less you have to pay out to get to 100% ownership, the easier the formal path to a lease extension will be. There are pros and cons to weighing staircasing against an informal extension.

The Pros of staircasing for a formal extension:

• Legal certainty: There are strict statutory timeframes that the freeholder must obey.
• Guaranteed terms: You are legally guaranteed an additional 90 years on your lease and your ground rent will be reduced to a peppercorn.
• Tribunal access: You can involve the First-tier Tribunal to independently set the premium if the freeholder demands an unreasonable price.
• Easier to budget: The statutory valuation formula makes it easier for a RICS surveyor to calculate your total costs.

The Cons of staircasing for a formal extension:

• High upfront cost: Staircasing to 100% requires a significant amount of capital or mortgage borrowing, which may be unaffordable if you currently only own a 25% share.
• Tax liabilities: You may have to pay Stamp Duty Land Tax (SDLT - England) or Land Transaction Tax (LTT - Wales) when you staircase to 100%.
• Time and complexity: You have to complete the staircasing transaction before you can even begin the formal lease extension process.

How do housing associations structure their informal lease extensions?

To avoid the difficulties regarding the reselling of shared ownership leases with terms of 80 years or less, housing associations generally offer their own bespoke informal lease extension policies.

While each housing association operates slightly differently, a standard informal lease extension shared ownership process will generally look like this:

• You must have owned your property for at least 6 months to apply.
• You must not have any rent or service charge arrears on your account.
• You will be encouraged (or required) to use the housing association's appointed valuer to set the premium, which typically costs around £500.
• You will have to pay the housing association an administration fee (normally £100 - £300).
• You must cover the solicitor's costs for their legal representation, alongside your own legal fees.
• You will be paying a premium based on extending the lease for the whole property (100%), rather than just your owned percentage share.
• If you withdraw from the process at any point, your valuation and administration fees are strictly non-refundable.

What are the pros and cons of an informal lease extension?

Please note that even if you have staircased to 100%, you still have the option to pursue the informal path. Therefore, some points made below may not be relevant if you are already a 100% owner.

Pros of the informal route:

• No staircasing required: You can secure a lease extension while maintaining your current shared ownership percentage.
• Potentially cheaper upfront: The process is generally simpler, and you may save money by not having to pay for two opposing sets of valuation fees (as is common in the formal route).
• Flexible terms: You may be able to negotiate a lease extension of up to 125 or even 999 years, rather than being locked into the statutory 90-year limit.

Cons of the informal route:

• Paying for the whole property: Your premium is calculated on 100% of the property value. If you eventually sell your share without staircasing, you will not recoup this disproportionate outlay.
• Ground rent remains: You will generally still have to pay your existing ground rent until the original lease term expires; the peppercorn rent usually only applies to the newly extended years.
• Future staircasing costs increase: Extending the lease increases the overall market value of the flat. Because staircasing prices are based on current market value, buying further shares in the future will become more expensive.
• No tribunal protection: In the event of a dispute over the premium or the contract, you cannot appeal to the First-tier Tribunal. You must either accept the housing association's terms or walk away.
• Eviction risks remain: Even after paying a hefty premium to extend the lease, as a shared owner paying rent on the unowned portion, you can still face eviction if you default on your rent, with no compensation for the extension premium you paid.

Should you staircase or extend your lease?

Because extending your lease immediately increases the market value of the property, staircasing afterwards becomes more expensive. Therefore, you need a clear strategy based on your future intentions.

Staying put? Consider staircasing first

If you plan to stay in the property for the foreseeable future, staircasing before extending the lease has distinct financial advantages. The staircasing premium itself will be cheaper (because the short lease suppresses the property's value). Crucially, staircasing immediately reduces the monthly rent you pay to the housing association, providing a direct return on your investment.

Want to sell or remortgage? Extend your lease now

If your intention is to sell or remortgage in the near future, getting a shared ownership lease extension should be your absolute priority—especially if the term is approaching 80 years. A prospective buyer will struggle to secure a mortgage on a short lease, meaning your property will sit on the market. Extending the lease solves the mortgageability issue immediately. You always have the option to staircase later if your plans change, though it will cost more.

Staying put but funds are scarce? Staircase alone

Both lease extensions and staircasing cost tens of thousands of pounds. If you can only afford to fund one process and you are not planning to move, staircasing is often the most practical choice. It increases your saleable equity in the property while simultaneously lowering your monthly outgoings by reducing your rent payments.