Red alert

The case
Ms Richardson had acquired a shared ownership lease of a house in 1995 and paid half its then market value. Eight years later, her husband was sent to prison and she had to leave the property because of threats from her husband’s associates. Although in the past she had received housing benefit to pay the rental element of the lease, she no longer lived at her property as her only or principal home. Midland Heart eventually issued possession proceedings on the basis of rent arrears relying on ground 8. This means that if there are two months worth of rent arrears outstanding at the time of service of the notice of seeking possession and at the final hearing, a final possession order has to be made if sought by the landlord. The court has no discretion to adjourn the hearing or give the leaseholder time to pay. The leaseholder has no ability to pay off the rent and stop any enforcement process the landlord may take once an order has been made. A possession order was therefore made. Ms Richardson brought proceedings and argued that, although the lease had been terminated, she was entitled to the return of her capital payment as she was still entitled to the half beneficial share in the freehold. This argument was dismissed at the court hearing on the basis that the payment she had made at the time of entering into the shared ownership lease had not bought Ms Richardson a half share of the property.

The consequences
Midland Heart voluntarily offered to pay Ms Richardson back her capital investment although not any increase in the value of that investment over the intervening period. This was entirely voluntary and a landlord would be entitled to take all the capital as a windfall payment.

The future
The way that shared ownership leases are currently drafted means that if a leaseholder falls into arrears it could turn out to be very costly. Given the credit crunch and downturn in the economy, as well as the growth in shared ownership leases, this could prove to be a serious problem for leaseholders if they fall into debt. If they don’t sort out payment of their arrears within a relatively short time — that is before the hearing — they then risk losing everything invested. The position as it stands at is not consistent with how the Housing Corporation describes shared ownership in its literature and it gives the impression that the leaseholder buys a share of the property.

Sian Evans, partner, housing litigation, Weightmans
Sian.evans@weightmans.com