The idea, of course, is simple. The householder pays the registered social L a capital sum equal to half of what it would have cost to buy the property outright; L then grants the householder a long lease (usually 99 years), with the rent being half of what it would have been in the open market. But, the problems arise if T falls into arrears of rent and L then brings possession proceedings:

1) If there are two months of rent arrears at the date of the hearing, the court cannot refuse a possession order. Once a possession order has been made, T has no right to pay off the debt so as to salvage the situation.

2) L can then retain 100% of the property (ie L takes over T’s 50%, or more, investment).

As a note in the NLJ puts it, the householder was not, it seems, the owner of a half-share in the property; indeed, in that situation there will have been no shared ownership at all. What the householder owns is the lease and nothing else – and once the lease has gone (when possession is given to L) then that is the end of the householder’s stake in the property. Thus, once rent arrears have accrued, T only has a short window of opportunity to pay off the debt or otherwise lose the whole investment.

That is what happened in a case where a 50% householder paid the rent for ten years; then, however, her husband was sent to prison and she received threats from gangsters. She left the home and went to live elsewhere, and ended up losing housing benefits. The rent arrears grew and eventually L started possession proceedings. The county court judge had no choice but to make a possession order; he could not give her time to pay because he had no power to do so. In response, she sought an order for sale, arguing that she had a half share; the court disagreed saying that the relationship she had with L was not that of trustee and beneficiary (it was solely one of L and T). The 50% capital payment made on purchase had not bought her a half share in the property, it had merely bought her the lease – and nothing else.

This decision goes to the root of shared ownership – and, frankly, drives a coach and horses through it. It is of profound significance for all shared ownership householders. But, surprisingly, it has received little publicity.

What can be done? A long-term solution is to allow T the same right through relief from forfeiture as other long lessees have (but is not available to assured Ts – which is what shared ownership Ts are). In the short term, the best hope is to rely on arguments of there being a trust of the reversion and one suspects it would not be difficult for the courts to come up with such an interpretation. In addition, it is always worth looking at the express wording of the shared ownership lease; some early model leases from the Housing Corporation recite that T pays a capital sum to acquire a half share in ‘the premises’ (ie the freehold), so in some cases it may be possible to argue that there is an express declaration of trust. But, as it stands, the situation for many shared ownership Ts is potentially bleak. From a practical point of view, if you are acting for T on a shared ownership purchase then make this flaw in the law crystal clear to your client. In an ideal world, one would also contact clients who have previously bought shared ownership leases, to warn them of this potential problem (and advise them of the dangers of accruing two months’ arrears of rent). See excellent commentary on Richardson v Midland Heart (unreported, Jonathan Gaunt QC, 12 January 2007) in [2008] NLJ 327.  © Practical Lawyer