Shared Ownership Lease update

The Homes and Communities Agency have announced an update to the model form of Shared Ownership Lease.

The update is to correct an error in the formula used to calculate the rent review where there has been an increase in the Retail Price Index since the last review.

The error was purely mathematical in that the brackets were put in the wrong place in the formula for the model form lease from April 2010 onwards.

The result of this error was that rent would be increased by too much if there was an increase in the Retail Price Index (rent increases based on the old rent plus 0.5% are not affected).

By way of illustration the difference is set out below (where £2,000 represents the gross rent before the review and 2 represents the increase in RPI from last year to this year (assuming an RPI of 100 for last year and 200 for this year)):

Under the old formula the new gross rent would be £4,020 as it would have been calculated as follows:

(£2,000 x 2) x 1.005 = £4,020

Under the new formula the new gross rent would £4,010 as it would have been calculated as follows:

(£2,000 x (2 + 0.005) = £4,010

Although the difference in the increase is minor, it does represent an increase in the rent beyond the formula of RPI + 0.5% contained in the Capital Funding Guide.

The good news is that you don’t have to go back and refund shared owners or correct the leases, but the implication is that all shared owners should have their rents calculated the new way going forward.