How does shared ownership work?Make Text Bigger
Could a private landlord put together a shared ownership scheme similar to those offered by Housing Associations?
This question was raised by one of our members who came up with the idea of selling 10% of his property every year to one of his tenants. I explained that it would be incredibly difficult to make it work but I thought I would start a thread to share my own thoughts and to canvass the opinion of others.
My initial thoughts were that unless a landlord owned the property outright then offering any form of shared ownership scheme would be a complete none starter because no mortgage lender would ever agree to it. Do you concur that’s a fair starting point? If not how could a deal be structured which didn’t affect the value of a mortgage lenders security but still gave the all parties some security?
If the landlord had no mortgage then I suppose he could sell the legal title and retain a share in the beneficial interests in some way. However, wouldn’t that make the scheme a “Home Reversion Plan” which is very highly regulated? I understand that on that basis no rent could be charged in respect of the beneficial interest either!
The only idea I came up with, which might be workable in theory, was for the property to be owned in a limited company and for the landlord and tenant to own shares in that company. However, I ran out of answers to my own questions and effectively gave up. Owning shares in a company would seem to offer both parties some form of equality; e.g. if the rent or values increased significantly then at least in theory all parties would benefit equally according to their shareholding. In theory, the property could still have a mortgage on it and some sort of share option contract could be agreed in respect of the sale of the remaining shares in the company, over a period of time and at an agreed price. It would be a very complicated contract though and what the arrangements would be if either side wanted/needed to get out of the deal would probably be an absolute nightmare.
I can still see problems with the financing based on the Limited Company route too. Would the lender have an issue with the landlord selling shares in a company to which they have loaned money? Given that the tenant would also become a part owner, would this become a regulated buy to let mortgage?
What if either party were to die or go bankrupt?
What if the shareholder with 51% of more decided to sell the property, increase/decrease the rent to a crazy or even to serve notice?
The bottom line for me was that shared ownership cannot work on any basis in the Private Rented Sector …. but maybe I’m missing something?
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