Shared Ownership Leaseholders and the Leasehold and Freehold Reform Act 2024: An In-Depth Analysis

2025-12-23 Research Reports 0

The Leasehold and Freehold Reform Act 2024 and Shared Ownership: An Analysis of Exclusions and Their Implications

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

Abstract

The Leasehold and Freehold Reform Act 2024 (hereafter ‘the Act’) marks a watershed moment in the landscape of property law in England and Wales, introducing pivotal changes aimed at fundamentally restructuring the leasehold system. Key among these reforms is the statutory right for qualifying leaseholders to extend their leases to a substantial 990 years at a nominal peppercorn ground rent, alongside provisions to simplify freehold acquisition and eliminate onerous charges. However, a significant and contentious aspect of the Act is the explicit exclusion of shared ownership leaseholders from many of these transformative provisions. This comprehensive report undertakes an in-depth analysis of shared ownership schemes, meticulously detailing their structure, policy objectives, and the unique challenges inherent to this tenure. It then critically examines the specific exclusions enshrined within the Act, scrutinising the underlying policy rationale often cited by the government. The report further investigates the profound and far-reaching implications of these exclusions for shared ownership leaseholders, particularly concerning their ability to re-mortgage, the marketability of their properties during resale, and their long-term security of tenure and property rights. Ultimately, this analysis seeks to highlight the growing disparity created by the reforms and proposes actionable recommendations for a more equitable and inclusive legislative framework.

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

1. Introduction

The enduring leasehold system in England and Wales, a historical legacy with deep roots in feudal land tenure, has long been a focal point of intense scrutiny and public dissatisfaction. Characterised by limited lease terms, escalating ground rents that often bear no relation to property value, the complexities and costs associated with lease extension and enfranchisement, and opaque service charges, it has frequently been criticised as an anachronistic and inequitable form of homeownership. For decades, consumer advocacy groups, legal professionals, and individual leaseholders have campaigned for fundamental reform, citing instances of exploitation and the creation of a ‘feudal’ landlord-tenant dynamic that undermines genuine homeownership.

The Leasehold and Freehold Reform Act 2024 represents the culmination of years of legislative effort aimed at addressing these deeply entrenched issues. Its primary objective is to empower leaseholders by providing them with greater autonomy, enhanced security of tenure, and a fairer financial footing. The Act seeks to make leasehold ownership more akin to freehold, granting rights that fundamentally alter the power dynamic between freeholders and leaseholders. These include, most notably, the right to extend a lease to a generous 990 years with zero ground rent, the simplification of the freehold acquisition process, and the elimination of various burdensome costs such as marriage value.

However, amidst these significant advancements, a critical segment of the homeownership landscape has been notably, and controversially, overlooked: shared ownership leaseholders. While the Act heralds a new era for many, it simultaneously carves out explicit exclusions for those who have entered homeownership through the shared ownership model. Specifically, shared ownership leaseholders are largely denied access to the extended 990-year lease at a peppercorn ground rent and face significant hurdles, if not outright prohibitions, in exercising collective enfranchisement or acquiring their freehold, unless they have staircased to 100% ownership and their lease permits such action. This stark exclusion has ignited a vigorous debate about the fairness, inclusivity, and overarching consistency of the reforms, raising fundamental questions about whether the Act genuinely serves all leaseholders or inadvertently creates a two-tier system of property rights.

This report aims to comprehensively unpack this complex issue. It will begin by outlining the unique characteristics of shared ownership schemes, exploring their intended social purpose and operational mechanics. Following this, it will delineate the specific legislative provisions within the Act that exclude shared ownership leaseholders, contextualising these exclusions within the broader framework of the reforms. A critical examination of the policy justifications for these exclusions will then be undertaken, scrutinising arguments related to the preservation of affordable housing and the inherent structure of shared ownership. Finally, the report will delve into the tangible implications of these exclusions for shared ownership leaseholders, focusing on their financial stability, property liquidity, and long-term security of tenure. The ultimate goal is to provide a detailed, evidence-based analysis that contributes to a deeper understanding of the Act’s impact on a vulnerable cohort of homeowners.

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

2. Shared Ownership Schemes: Structure and Target Demographic

Shared ownership schemes represent a distinctive and increasingly prevalent model of affordable homeownership in England and Wales. Introduced as a means to bridge the affordability gap, particularly for those unable to access the conventional housing market, these schemes offer a hybrid tenure that blends elements of both ownership and tenancy. Understanding their intricate structure and the demographic they aim to serve is crucial for appreciating the context of their exclusion from certain leasehold reforms.

2.1 Structure of Shared Ownership Schemes

At its core, shared ownership enables individuals to purchase a percentage share of a property, typically ranging from a minimum of 25% up to a maximum of 75% of its full market value. The remaining percentage share of the property is retained by a Registered Provider (RP), most commonly a housing association, or in some instances, a private developer. The legal framework underpinning shared ownership is predominantly a long leasehold arrangement. While the leaseholder owns a tangible equity share, they are granted a long lease—historically ranging from 99 to 125 years, although modern shared ownership leases are often 990 years at inception—for the entire property, not just their purchased share. This means that despite owning a percentage, the shared owner is responsible for 100% of the property’s maintenance, repairs, and service charges, mirroring the obligations of a traditional leaseholder.

Financially, the model operates on a tripartite basis:

  1. Mortgage on the Purchased Share: The shared owner secures a mortgage to finance the acquisition of their initial equity share, much like a conventional homeowner.
  2. Rent on the Retained Share: Crucially, the shared owner pays rent to the housing association on the portion of the property that they do not own. This rent is typically set at a subsidised rate, often around 2.75% per annum of the market value of the unowned share, though this can vary. These rental payments are generally subject to annual or periodic increases, often linked to the Retail Price Index (RPI) plus an additional percentage, which can lead to escalating costs over time.
  3. Service Charges: As full occupiers and leaseholders, shared owners are also liable for 100% of the property’s service charges. These charges cover the cost of maintaining communal areas, building insurance, management fees, and contributions to sinking funds for future major repairs. The calculation and transparency of these charges frequently pose significant challenges for leaseholders, as will be discussed later.

A distinctive feature of shared ownership is the concept of ‘staircasing’. This mechanism allows shared owners to incrementally increase their equity stake in the property over time, by purchasing additional shares from the housing association. These additional shares can typically be bought in increments as small as 1% (for newer leases under the Affordable Homes Programme 2021-2026) or 10%, depending on the terms of the specific lease and the funding programme under which the property was originally delivered. Each staircasing transaction involves a fresh valuation of the property to determine the cost of the additional shares, incurring further legal and valuation fees for the leaseholder. The ultimate goal of many shared owners is to ‘staircase to 100%’, thereby acquiring full ownership of the property. At this point, for houses, it may be possible to acquire the freehold, converting the property to full outright ownership. For flats, even at 100% staircasing, the property remains leasehold, albeit without rental payments, and the leaseholder typically then becomes eligible for traditional lease extension rights.

Several variants of shared ownership exist to cater to specific demographics, such as Older Persons Shared Ownership (OPSO), which allows individuals over 55 to purchase shares up to 75% without paying rent on the remainder, and various HomeBuy schemes. Regardless of the specific variant, the fundamental leasehold structure and the shared financial obligations remain consistent.

2.2 Target Demographic and Policy Context

The primary target demographic for shared ownership schemes is individuals and families who aspire to homeownership but face significant affordability barriers in the open market. This typically includes:

  • First-time buyers: Those who have never owned a home before.
  • Former homeowners: Individuals who previously owned a home but can no longer afford to buy on the open market, for example, due to divorce or financial hardship.
  • Key workers: Often prioritised, these include essential public sector employees such as NHS staff, teachers, police officers, and firefighters.
  • Individuals and households with specific income thresholds: Eligibility criteria usually stipulate a maximum household income, designed to ensure the schemes benefit those genuinely in need of assistance. For example, the current threshold in England is typically £80,000 outside London and £90,000 within London.
  • Those unable to afford outright purchase: The scheme is explicitly designed for individuals whose income is sufficient to cover mortgage payments on a share and subsidised rent on the remainder, but insufficient to secure a mortgage for 100% of a similar property’s market value.

Shared ownership is particularly prevalent in high-value urban areas, such as London and the South East, where conventional property prices are prohibitively high for a substantial portion of the population. In these regions, shared ownership serves as a critical pathway onto the property ladder, enabling individuals to accumulate equity and establish a foothold in an otherwise inaccessible market.

From a government policy perspective, shared ownership schemes serve multiple strategic objectives:

  • Increasing Homeownership Rates: It contributes to broader government targets for increasing the proportion of homeowners.
  • Addressing Housing Affordability: It provides a crucial intermediate rung on the housing ladder, making homeownership accessible to a wider demographic.
  • Maximising Public Subsidy: By enabling individuals to purchase a share, public funds invested in affordable housing can stretch further, supporting more households than if properties were offered solely for social rent.
  • Supporting Economic Growth: Construction of shared ownership properties contributes to the housing supply and stimulates the construction sector.
  • Regeneration: Shared ownership schemes are often integral components of larger urban regeneration projects, diversifying housing tenure and fostering mixed communities.

In essence, shared ownership is a socially driven initiative, heavily reliant on public funding and managed by Registered Providers with a dual mandate: to provide affordable housing and to maintain the long-term affordability and availability of this housing stock. This social purpose and distinct operational model are central to the policy arguments underpinning their exclusion from the more extensive leasehold reforms.

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

3. Unique Challenges Faced by Shared Ownership Leaseholders

While shared ownership offers a crucial entry point into homeownership, it is not without its complexities and significant challenges. These issues often stem from the hybrid nature of the tenure, the specific terms of the leases, and the regulatory environment. The confluence of these factors places shared ownership leaseholders in a uniquely vulnerable position, which has only been exacerbated by their exclusion from the most beneficial aspects of the Leasehold and Freehold Reform Act 2024.

3.1 Staircasing: The Pathway Plagued by Obstacles

Staircasing, the process of purchasing additional shares to increase equity, is often presented as a straightforward path to full homeownership. In reality, it can be a labyrinthine and financially burdensome endeavour. The primary obstacles include:

  • Valuation Costs: Each time a shared owner wishes to staircase, they must commission an independent RICS-qualified valuation of the property to determine its current market value. These valuations are time-limited (typically three months) and incur fees, which can range from £250 to £800 or more, irrespective of whether the staircasing proceeds.
  • Legal Fees: Staircasing involves a legal transfer of equity, necessitating the engagement of solicitors for both the leaseholder and the housing association. Legal fees for the leaseholder can easily run into hundreds or thousands of pounds, covering conveyancing, drafting deeds of variation, and ensuring compliance with lease terms.
  • Mortgage Broker Fees and Lender Costs: Unless funded entirely from savings, staircasing usually requires re-mortgaging or obtaining further advances. This involves mortgage arrangement fees, valuation fees from lenders, and potentially early repayment charges on existing mortgages.
  • Stamp Duty Land Tax (SDLT): A significant and often overlooked cost is SDLT. While initial purchases of small shares may benefit from reliefs, staircasing can trigger further SDLT liabilities. Leaseholders might choose to pay SDLT in stages as they staircase or defer payment until they own 80% or more of the property. However, deferring means the SDLT is calculated on the full market value at the time of the final staircasing event, which could be substantially higher. Navigating these rules adds complexity and can result in unexpected costs.
  • Administrative Delays and Housing Association Restrictions: The process often involves significant administrative delays from housing associations, which must process valuations, approve applications, and instruct their own solicitors. Some leases may impose restrictions on the minimum share that can be purchased, or the frequency of staircasing, further limiting a leaseholder’s flexibility. Moreover, if property values fall, the cost of staircasing remains tied to a proportion of the current market value, potentially meaning the leaseholder pays more for a smaller share, or finds themselves in negative equity if the initial purchase price was high.
  • Lack of Control: The shared owner has little control over the pace or cost of the staircasing process, which is largely dictated by the housing association and external market conditions. This lack of agency can be frustrating and financially debilitating.

3.2 Ground Rents: A Persistent Financial Burden

While the Leasehold Reform (Ground Rent) Act 2022 abolished ground rents on most new long residential leases in England and Wales (to a peppercorn), this legislation did not apply retrospectively. Consequently, many existing shared ownership leases continue to be subject to ground rent provisions. These can present specific challenges for shared owners:

  • Escalating Clauses: Shared ownership leases frequently incorporate ground rent clauses that allow for regular increases, often linked to RPI or, in more egregious cases, doubling clauses. While the LFR Act 2024 seeks to ban new escalating ground rents, existing ones for shared owners persist, leading to unpredictable and potentially substantial annual increases.
  • Financial Uncertainty: The unpredictability of future ground rent liabilities can make financial planning difficult and negatively impact affordability, especially for households on fixed incomes. Over the life of a long lease, these payments can accumulate to a significant sum.
  • Impact on Mortgageability and Resale: High or escalating ground rents are increasingly viewed unfavourably by mortgage lenders, who may refuse to lend or impose stricter conditions on properties with onerous ground rent clauses. This directly affects the ability of shared owners to re-mortgage or sell their properties, creating a ‘trap’ where they are locked into an increasingly expensive asset.

3.3 Service Charges: The Unpredictable and Opaque Cost

Shared ownership leaseholders, as full occupiers, are responsible for 100% of the service charges related to their property and communal areas. These charges, which cover maintenance, repairs, management, and insurance, are a perennial source of concern due to their potential for unpredictability and lack of transparency:

  • Unpredictability: Service charges can fluctuate significantly year-on-year, particularly in properties with communal facilities or those undergoing major works. Shared owners, unlike traditional tenants, bear the full brunt of these increases without the protection of rental caps.
  • Lack of Control and Transparency: Housing associations, acting as landlords and managers, largely determine the scope and cost of works and services. Shared owners often have limited input or oversight regarding how their service charge money is spent. Detailed breakdowns can be difficult to obtain, and challenging charges can be a lengthy and expensive process through the First-tier Tribunal (Property Chamber).
  • Major Works Bills: Perhaps the most financially devastating aspect of service charges can be the demand for large sums to cover ‘major works’, such as roof replacements, external repairs, or cladding remediation. Shared owners are liable for their proportion of these costs, which can run into tens of thousands of pounds, placing immense financial strain on households that entered shared ownership precisely because they couldn’t afford full market prices.
  • Management Fees: A significant portion of service charges often comprises management fees charged by the housing association or their appointed agents. The justification and proportionality of these fees are frequently questioned by leaseholders.

3.4 Exclusion from Leasehold and Freehold Reform Act 2024

The most recent and significant challenge facing shared ownership leaseholders is their deliberate exclusion from the most impactful provisions of the Leasehold and Freehold Reform Act 2024. This exclusion pertains primarily to:

  • The Right to a 990-Year Lease Extension at a Peppercorn Ground Rent: The Act grants traditional leaseholders the right to extend their lease by an additional 990 years (meaning effectively 990 years added to their existing term) at a zero ground rent, with no marriage value payable. Shared ownership leaseholders, however, are explicitly excluded from this universal right. This means they cannot leverage the new, significantly more favourable terms for lease extension. Their only pathway to a longer lease or freehold is typically contingent on staircasing to 100% ownership.
  • Freehold Acquisition and Collective Enfranchisement: The Act also simplifies the process for traditional leaseholders to acquire their freehold (for houses) or to collectively enfranchise (for flats). Shared ownership leases are generally excluded from these rights unless specific conditions are met, such as the leaseholder having staircased to 100% ownership and the lease terms explicitly permitting freehold acquisition. For flats, even at 100% ownership, acquiring the freehold is often impossible due to the multi-occupancy nature of the building and the housing association’s retention of control over the entire block.

The Act, in Schedule 8, specifies that certain shared ownership leases are excluded from these freehold acquisition rights if they meet conditions such as allowing the leaseholder to staircase to 100% and acquire the freehold. This clause, intended to provide a pathway, is often criticised as insufficient because many older leases do not explicitly grant such a right, and for flats, collective enfranchisement is the more relevant right, from which shared owners are generally excluded. This legislative distinction fundamentally places shared owners in a separate, less advantageous category compared to other leaseholders, creating a growing disparity in rights and protections.

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

4. Policy Rationale Behind Exclusions: A Deeper Examination

The decision to exclude shared ownership leaseholders from certain provisions of the Leasehold and Freehold Reform Act 2024 is not arbitrary but rooted in specific policy considerations articulated by the government. These rationales primarily revolve around the unique nature and social purpose of shared ownership, distinguishing it from conventional leasehold tenure. However, these justifications have been subject to considerable scrutiny and debate.

4.1 Preventing Undermining of Policy Intent: Preservation of Affordable Housing Stock

The most frequently cited and arguably central pillar of the policy rationale is the imperative to protect and preserve the affordable housing stock created through shared ownership schemes. The argument posits that shared ownership properties are built, often with significant public subsidy, with the explicit aim of providing permanently affordable homes for future generations who would otherwise be locked out of the housing market. Housing associations, as Registered Providers, are tasked with a stewardship role, ensuring that these homes remain accessible to eligible individuals over the long term.

  • The ‘Recycling’ of Affordable Homes: The government’s perspective is that if shared owners were granted the same unfettered enfranchisement rights as traditional leaseholders, it could lead to these properties being removed from the affordable housing sector without adequate safeguards. If a shared owner could easily acquire the freehold and then sell the property on the open market at full value, the initial public subsidy and the social mission of the housing association could be effectively ‘lost’. This would reduce the stock of affordable housing available for subsequent buyers, thereby defeating the long-term purpose of the scheme.
  • Financial Model of Housing Associations: Housing associations often rely on the retained equity and rental income from the unowned shares to fund new affordable housing projects and maintain their existing stock. Allowing easy buyout of these retained shares without specific provisions for reinvestment or maintaining affordability could disrupt the financial viability of the affordable housing sector. The retained share represents an ongoing financial interest for the housing association, enabling it to continue its social mission.
  • Strategic Estate Management: Housing associations also retain the freehold or a significant interest to facilitate efficient estate management, particularly in multi-occupancy buildings and larger developments. This control allows them to manage communal areas, implement maintenance programmes, and ensure the long-term upkeep of the entire development, which is seen as crucial for preserving the quality and desirability of affordable housing communities.

From this perspective, shared ownership is viewed not simply as a leasehold property that happens to be co-owned, but as a distinct form of ‘social tenure’ with a specific societal objective. Applying the same leasehold reform provisions would, in this view, fundamentally alter its character and jeopardise its core function.

4.2 Staircasing to 100% Ownership as the Intended Pathway

A second key plank of the policy rationale rests on the assertion that shared ownership already provides a clear and viable pathway to full ownership and, by extension, full enfranchisement rights. The government’s position is that shared owners are intended to staircase to 100% ownership as their financial circumstances improve. Once they own 100% of the property, they effectively become conventional leaseholders (for flats) or potentially freeholders (for houses, where the lease permits). At this juncture, it is argued, they would then be able to access the standard leasehold rights for lease extension or freehold acquisition that apply to other 100% leaseholders.

  • Incremental Ownership: The staircasing model is designed to be a gradual journey towards full equity. The implication is that shared owners accept this incremental path and the associated conditions when they enter the scheme. Therefore, immediate access to accelerated full enfranchisement rights is seen as inconsistent with the scheme’s design.
  • Access to Existing Rights Post-100% Staircasing: For those who have staircased to 100%, the argument is that they are no longer ‘shared owners’ in the same sense and can therefore access the same rights as any other full leaseholder. For houses, where the lease allows, they can acquire the freehold. For flats, they become eligible for statutory lease extensions under the existing (and now reformed) legislation, albeit after paying the premium determined by the valuation methodology applicable to conventional leasehold.

This rationale, however, faces significant criticism regarding its practicality and accessibility. As detailed in section 3.1, the process of staircasing is often prohibitively expensive, complex, and slow, effectively trapping many shared owners at lower equity percentages. If the intended pathway to full rights is fraught with such barriers, the policy’s effectiveness and fairness become questionable.

4.3 Practical and Legal Complexities of Applying Reforms to Hybrid Tenure

Beyond the primary policy objectives, there are also arguments pertaining to the inherent practical and legal complexities of extending standard leasehold reforms to shared ownership’s hybrid tenure:

  • Valuation Challenges: Determining the premium for a lease extension or freehold acquisition becomes significantly more complicated when the leaseholder owns only a percentage of the property and the freeholder also retains a percentage share and an ongoing rental income stream. Standard valuation methodologies, such as those involving marriage value or unexpired lease terms, do not neatly translate to a shared ownership model where the freeholder is also a part-owner and landlord.
  • Conflicting Interests: Introducing standard enfranchisement rights could create direct conflicts between the shared owner’s desire for full market value and the housing association’s need to maintain affordability and reinvest in its social mission. The housing association is not merely a freeholder but also a partner in the homeownership journey, with distinct regulatory responsibilities.
  • Distinct Legislative Treatment: The government maintains that shared ownership is a unique tenure that requires its own tailored legislative framework. It is often regulated under separate housing legislation and policy guidelines (e.g., the Affordable Homes Programme), distinguishing it from conventional private leasehold. Therefore, it is argued, a separate approach to its reform is warranted, rather than simply shoehorning it into broader leasehold reforms.

In summary, the policy rationale for excluding shared ownership leaseholders from key provisions of the LFR Act 2024 is multifaceted, combining arguments about preserving affordable housing, leveraging the intended staircasing mechanism, and acknowledging the unique complexities of the tenure. However, as the implications section will explore, these rationales are often seen as failing to adequately address the real-world challenges faced by this specific group of homeowners.

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

5. Implications of Exclusion for Shared Ownership Leaseholders

The exclusion of shared ownership leaseholders from the most significant provisions of the Leasehold and Freehold Reform Act 2024 carries profound and detrimental implications for their financial stability, property value, and long-term security of tenure. These implications effectively create a separate and disadvantaged class of homeowners, contradicting the stated aim of the Act to empower leaseholders.

5.1 Re-mortgaging Challenges: The ‘Mortgageability Cliff-Edge’

One of the most immediate and severe consequences of the exclusion is the exacerbation of re-mortgaging difficulties. Mortgage lenders are inherently risk-averse, and the length of a lease is a critical factor in their lending decisions. As a general rule:

  • Minimum Lease Term Requirements: Most mainstream lenders have strict minimum lease term requirements, typically preferring leases with 80 years or more remaining, and often refusing to lend on properties with fewer than 70 or 60 years left. This threshold is often referred to as the ‘mortgageability cliff-edge’, as properties falling below it become significantly harder, if not impossible, to finance with a standard mortgage.
  • Impact on Loan-to-Value (LTV) and Interest Rates: Even for leases above the critical threshold but with a diminishing term, lenders may offer less favourable Loan-to-Value (LTV) ratios, requiring larger deposits, or levy higher interest rates due to the perceived increased risk. This directly impacts the affordability for shared owners.
  • The Double Burden for Shared Owners: Unlike traditional leaseholders who can now readily extend their lease by 990 years at a peppercorn ground rent, shared owners do not have this statutory right. This means that as their lease term dwindles, they face an increasingly urgent need to extend it. However, because they are excluded from the Act’s beneficial terms, their options are limited to either attempting a voluntary extension through their housing association (which can be costly and on less favourable terms than the new statutory rights) or, more commonly, undertaking a costly staircasing process to 100% first, before they become eligible for traditional lease extension rights. This creates a ‘double burden’, where a shared owner may have to incur substantial costs for both staircasing and a lease extension, often simultaneously, to satisfy a lender’s requirements. This financial outlay can be prohibitive for individuals who chose shared ownership precisely due to affordability constraints.
  • Trapped Homeowners: This situation often results in shared owners becoming ‘mortgage prisoners’, unable to switch to more competitive interest rates or refinance their property, leading to higher monthly housing costs. It can also prevent them from releasing equity for other life events, such as home improvements or unexpected expenses, thereby restricting their financial flexibility.

5.2 Selling Difficulties and Market Value Depreciation

The challenges posed by dwindling lease terms directly translate into significant difficulties when a shared owner attempts to sell their property. This issue is compounded by the pre-emption rights often held by housing associations:

  • Reduced Market Appeal: Properties with a short or diminishing lease term are inherently less attractive to potential buyers. The prospect of having to immediately undertake a costly and complex lease extension process deters many buyers, especially those reliant on mortgage finance. This is particularly true now that traditional leasehold properties can offer a 990-year lease, making shared ownership properties with shorter leases appear comparatively undesirable.
  • Depreciated Market Value: The inability to extend a lease on favourable terms directly impacts the market value of a shared ownership property. Buyers will factor in the future cost and hassle of lease extension into their offer, leading to a ‘short lease discount’. This can result in shared owners selling their property for significantly less than its potential market value, eroding the equity they have painstakingly built.
  • Housing Association Pre-emption Rights: Many shared ownership leases include clauses granting the housing association a pre-emption right (or nomination period) when the shared owner wishes to sell. This means the HA has the first right to find a buyer or, in some cases, buy back the share. While intended to keep properties within the affordable housing sector, this process can be slow and may result in the HA accepting an offer that reflects the reduced value of a short-lease property, further disadvantaging the seller.
  • The ‘Double Discount’ Problem: Shared owners already sell a ‘share’ of a property, which can sometimes be perceived as less valuable than a full freehold. When this is combined with a diminishing lease term and the inability to easily extend it, they face a ‘double discount’, significantly diminishing their return on investment and hindering their ability to move up the housing ladder.

5.3 Long-Term Property Rights and Equity Erosion

At a more fundamental level, the exclusions impact shared owners’ long-term property rights, security of tenure, and the potential for intergenerational wealth transfer:

  • Security of Tenure: Without the right to a 990-year lease, shared owners face the eventual expiration of their lease. While this is a distant prospect for properties with a long initial term, the inability to extend creates an inherent long-term uncertainty that traditional leaseholders no longer face. This undermines the very concept of ‘homeownership’ for shared owners.
  • Ongoing Ground Rent Burden: For existing shared ownership leases, the ground rent ban introduced by the LFR Act 2024 does not apply. This means shared owners will continue to face potentially escalating ground rents for the lifetime of their lease, a burden that conventional leaseholders are now largely exempt from, or can easily remove through the new lease extension rights. This represents a significant and ongoing financial disadvantage.
  • Equity Erosion and Intergenerational Wealth: The combination of difficult re-mortgaging, selling challenges, and depreciating lease value can lead to significant erosion of a shared owner’s equity over time. This not only impacts their financial well-being during their lifetime but also their ability to leave a valuable asset to their heirs. The property, instead of appreciating and forming a part of a family’s wealth, becomes a source of ongoing costs and declining value as the lease diminishes.
  • Feelings of Disparity and Inequity: Perhaps less tangible but equally significant are the psychological implications. Shared owners, who often view themselves as homeowners and contribute significantly to their properties, are left feeling like ‘second-class leaseholders’. They bear many of the responsibilities of full ownership (mortgage, service charges, maintenance) but are denied the fundamental rights and protections now afforded to other leaseholders. This creates a deep sense of injustice and contradicts the spirit of reforms aimed at fairness and empowering homeowners.

In essence, the exclusions within the LFR Act 2024 leave shared ownership leaseholders in a precarious position. They are denied the benefits extended to their traditional counterparts, exacerbating existing challenges and creating new ones. This risks undermining the very goal of shared ownership as a viable and sustainable pathway to homeownership, transforming it instead into a tenure fraught with insecurity and financial vulnerability.

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

6. Recommendations for Policy Reform

The current exclusions within the Leasehold and Freehold Reform Act 2024 create an undeniable disparity for shared ownership leaseholders, leaving them vulnerable to the very issues the Act seeks to eradicate for others. To ensure fairness, equity, and the long-term sustainability of the shared ownership model as a genuine pathway to homeownership, comprehensive policy reforms are urgently needed. These reforms must balance the legitimate concerns surrounding affordable housing stock with the fundamental rights and protections afforded to all homeowners.

6.1 Targeted Inclusion of Shared Ownership Leaseholders in Lease Extension Rights

The most pressing reform is to grant shared ownership leaseholders access to the same beneficial lease extension rights as other leaseholders. This can be achieved through several potential models, carefully designed to address the unique aspects of shared ownership:

  • Full Inclusion with Adapted Valuation: Shared ownership leaseholders should be granted the statutory right to extend their leases to 990 years at a peppercorn ground rent, irrespective of their current equity share. The valuation methodology for the premium, however, would need to be specifically adapted. Instead of valuing the freehold interest of a traditional lease, it would need to account for the housing association’s retained equity share and its ongoing rental income stream. This would involve valuing the HA’s lost rental income over the extended period on its unowned share and potentially a percentage of the marriage value (if retained for shared ownership extensions) attributable to the HA’s interest, rather than the entire property’s marriage value. This ensures the HA is compensated fairly for its retained interest without penalising the shared owner excessively.
  • Phased Inclusion with a Staircasing Trigger: An alternative approach could involve triggering the full lease extension rights after a shared owner reaches a significant staircasing threshold (e.g., 75% or 80% ownership). This would incentivise staircasing while providing a clear pathway to enhanced security of tenure before 100% ownership, mitigating the immediate ‘cliff-edge’ effect of short leases on re-mortgaging and resale.
  • Automatic Lease Extension on Resale: A mechanism could be introduced whereby, upon resale, the housing association is mandated to extend the lease to 990 years at a peppercorn ground rent, with the cost (if any) being absorbed by the housing association or subsidised, thereby removing the burden from both seller and buyer. This would maintain property values and liquidity within the shared ownership market.
  • Retention of Affordable Housing Covenants: To address concerns about losing affordable housing stock, any lease extension for shared owners could be contingent on the inclusion of specific covenants in the extended lease that preserve the affordable nature of the property upon future resale (e.g., requiring resale to another eligible shared owner for a set period, or a mechanism for the HA to recoup a proportion of the original subsidy). This ensures the social purpose is maintained even with enhanced leaseholder rights.

6.2 Streamlining and Cost Reduction of Staircasing and Freehold Acquisition Processes

Recognising that staircasing remains a key intended pathway for shared owners, the process must be made genuinely accessible and affordable:

  • Mandatory Transparency and Efficiency: Housing associations should be legally mandated to provide clear, timely, and transparent information regarding the staircasing process, including all associated costs and timelines. Statutory deadlines for HA responses and approvals should be introduced.
  • Regulation or Capping of Fees: Valuation and legal fees associated with staircasing should be regulated or capped to prevent excessive charges. Consideration should be given to requiring housing associations to cover a proportion of their own legal costs, rather than passing 100% of these onto the shared owner.
  • SDLT Review: The Stamp Duty Land Tax regime for staircasing needs review to remove disincentives. Options could include providing a full exemption for all staircasing transactions up to 100% ownership, or at least simplifying the calculation and payment process to reduce complexity and unexpected liabilities.
  • Simplified Freehold Acquisition for 100% Staircased Houses: For shared owners of houses who have staircased to 100% ownership, the process of acquiring the freehold must be made as straightforward and cost-effective as for conventional leaseholders under the new Act. Any restrictive clauses in existing shared ownership leases that prevent freehold acquisition should be deemed unenforceable where 100% ownership has been achieved.
  • Collective Enfranchisement for 100% Staircased Flats: For shared owners of flats who have staircased to 100%, mechanisms should be explored to allow them to participate in collective enfranchisement with other full leaseholders in their building, or to acquire a share of the freehold, thereby granting them greater control over the management of their building.

6.3 Enhanced Protection Regarding Ground Rents and Service Charges

Given that many shared owners will continue to be subject to existing lease terms, robust protections against onerous ground rents and service charges are essential:

  • Retrospective Ground Rent Cap/Ban: The government should consider retrospectively capping or effectively banning ground rents for existing shared ownership leases, mirroring the provisions for new leases. At minimum, ground rents should be capped at a peppercorn or a truly nominal figure, removing escalation clauses and ensuring they are genuinely nominal rather than a significant annual cost.
  • Strengthened Service Charge Regulation: Regulatory oversight of housing associations concerning service charges must be significantly strengthened. This includes mandating greater transparency in expenditure, clearer breakdowns of costs, and requiring housing associations to provide clear justification for all charges. Independent audits of service charge accounts should be more readily available.
  • Empowered Dispute Resolution: The powers of the First-tier Tribunal (Property Chamber) should be enhanced, specifically for shared ownership cases, making it easier and less costly for shared owners to challenge unreasonable service charges or management fees. There should also be a clearer pathway for shared owners to claim compensation for poor management or services.
  • Right to Manage for Shared Ownership Blocks: Explore extending the Right to Manage (RTM) for blocks of flats to include shared ownership properties, even if they have not all staircased to 100%. This would give shared owners greater control over the management of their buildings and the expenditure of service charges.

6.4 Review of the Overall Shared Ownership Model

Finally, the government should undertake a fundamental review of the shared ownership model itself, in light of the ongoing leasehold reforms and the unique challenges identified:

  • Clarity and Honesty in Initial Information: Prospective shared owners must be provided with clearer, more comprehensive, and honest information from the outset about the unique aspects of the tenure, including the limitations on leasehold reform rights, the full costs of staircasing, and the nature of service charges and ground rents. This should be a legally mandated requirement for all sales.
  • Independent Advice: Mandate access to independent financial and legal advice for all shared ownership buyers before they commit to a purchase, ensuring they fully understand the implications of the hybrid tenure.
  • Exploration of Alternative Affordable Homeownership Models: Consider whether the leasehold shared ownership model is truly the most equitable and sustainable form of affordable homeownership in the long term. Research into alternative models, such as community land trusts with different equity retention mechanisms or genuinely commonhold structures for affordable flats, should be undertaken.

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

7. Conclusion

The Leasehold and Freehold Reform Act 2024 represents a landmark legislative achievement, promising to liberate millions of leaseholders from the antiquated and often oppressive elements of the existing leasehold system. By granting rights such as the 990-year lease extension at a peppercorn ground rent and simplifying freehold acquisition, the Act aims to transform leasehold into a form of homeownership that offers genuine security and control. However, the profound and explicit exclusion of shared ownership leaseholders from these pivotal reforms casts a significant shadow over its claims of universal empowerment and fairness.

Shared ownership, conceived as a vital ladder to homeownership for those otherwise excluded from the market, has evolved into a complex hybrid tenure fraught with unique challenges. The costs and complexities of staircasing, the burden of escalating ground rents, and opaque service charges already place significant financial and administrative strain on shared owners. The LFR Act 2024, by failing to extend its most beneficial provisions to this cohort, not only neglects to alleviate these pre-existing difficulties but actively entrenches a two-tier system of property rights. Shared ownership leaseholders are left without the statutory protection now afforded to traditional leaseholders, leading to increased difficulties in re-mortgaging, depreciated property values upon resale, and a fundamental erosion of their long-term security of tenure and potential equity.

The policy rationale behind these exclusions, primarily the preservation of affordable housing stock and the assertion that staircasing serves as a sufficient pathway to full rights, while understandable in principle, proves insufficient in addressing the real-world inequities. The current staircasing process is too often prohibitively expensive and cumbersome, effectively trapping many shared owners in a state of partial ownership with limited control and diminishing property value.

To uphold the principles of fairness and equity that underpin the broader leasehold reforms, it is imperative that the government undertakes comprehensive, tailored legislative action. This must include granting shared ownership leaseholders access to lease extension rights on terms commensurate with those enjoyed by other leaseholders, whilst devising bespoke valuation mechanisms that account for the unique shared ownership structure. Furthermore, streamlining the staircasing process, implementing robust protections against onerous ground rents and service charges, and critically reviewing the fundamental structure of shared ownership are essential steps. Only through such inclusive reforms can the government ensure that all homeowners, irrespective of their initial entry point onto the property ladder, benefit from the protections and security intended by the Leasehold and Freehold Reform Act 2024, thereby fostering a truly equitable housing market for England and Wales.

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

References

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