Local Government - February 2009

 

Richardson v Midland Heart Ltd – The perils of shared ownership leases

The case of Richardson v. Midland Heart Ltd, which was decided in January 2008, confirmed the position that in a shared ownership lease, a landlord is entitled to possession for rent arrears as the leaseholder is an assured tenant. The leaseholder is not able to then recover the capital sum which had historically been paid. The leaseholder is not in reality a shared owner at all but and if the lease goes as a result of a possession order being made then the leaseholder also loses any capital paid.

Facts
Ms Richardson had acquired a shared ownership lease of the 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 due to threats from her husband’s associates.  Although in the past she had received payment of 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 meant that if there are two months arrears of rent outstanding at the time of service of the notice of seeking possession and at the final hearing that 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 had brought proceedings and argued on the basis that although the lease had been terminated that 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.

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
This case has been appealed and the Court of Appeal will consider the issues in March.  Unless it is overturned, 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 and also 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 i.e. before the hearing then risk losing everything invested. The position as it stands at the moment 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. This is an issue which will need to be addressed.

Sian Evans
Weightmans LLP