DLUHC introduce new shared ownership rent reforms

The government yesterday introduced a series of reforms to shared ownership rents. These reforms will apply to the leases of new shared owners who purchase homes delivered through the Affordable Homes Programme and through the planning system via Section 106 developer contributions, with certain exceptions. It will also apply to the leases of new shared owners who purchase a leasehold interest in their homes through the Right to Shared Ownership.

Shared ownership rents can currently be increased once a year by the Retail Prices Index (RPI) plus 0.5%. However, the Department for Levelling Up, Housing and Communities (DLUHC) says it recognises that RPI is now an outdated measure of inflation, that the government has committed to phasing out of usage by the end of the decade.

That is why rents for new shared owners can instead be increased once a year by no more than the Consumer Prices Index (CPI) plus 1%. This reform brings shared ownership rents into line with the limit that normally applies to annual rent increases in other forms of social housing.

Homes England is also amending the Rent Review schedule of its model shared ownership lease to make it clear that 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.

Finally, the DLUHC has reduced 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.

As a transitional measure to protect ongoing delivery, the government is exempting certain new shared ownership homes from these reforms. This includes new homes that are already in contract to deliver via the Affordable Homes Programme. This is to ensure that providers can continue to deliver these new homes, where the terms of their delivery have already been officially finalised with Homes England and the Greater London Authority.

Any new shared ownership homes that have funding agreed on an indicative basis, and are not part of a firm scheme, as well as homes included in new bids to the Continuous Market Engagement element of the Programme, are required to adopt the reforms.

For new shared ownership homes delivered through the planning system via Section 106 developer contributions, the DLUHC has set out guidance below that explains which homes should adopt the reforms and which homes are exempt.

Guidance for new shared ownership homes delivered through the planning system via Section 106 developer contributions
From 12 October 2023, any new Homes England model shared ownership lease that is granted to a buyer must include a Rent Review schedule that enables the ‘specified rent’ to be increased once a year by a permitted maximum of CPI plus 1%. Under the previous arrangement, the Rent Review schedule of Homes England’s model shared ownership lease enabled the specified rent to be increased once a year by a permitted maximum of RPI plus 0.5%.

It is expected that for any new planning permissions granted on or after this date, the Section 106 planning obligations must reflect this new Rent Review schedule, namely the ability to increase rents once a year by a permitted maximum of CPI plus 1%.

However, where the local planning authority considers that substantial work has already been undertaken (in advance of the above date) to reach agreement of the Section 106 planning obligations on the basis of the previous Rent Review schedule, that authority may allow the agreement to proceed on that basis, if this is pragmatic and necessary in order to secure the affordable homes which are the subject of the obligation.

Where a Section 106 planning obligation is already in place and agreed with the relevant parties on the basis of the previous Rent Review schedule, the parties to that agreement may modify the agreement to reflect the new Rent Review schedule, if they consider it reasonable and practicable to do so and if this would benefit new shared owners.

 

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