After-sale shared equity procedures: guidance

10. Expiry of 19 years/Application of the 20 year security rule

OMSE and NSSE transactions

In all OMSE and NSSE shared equity agreements, special provisions have been inserted to address the so-called "20 year security rule", the effect of which would be to entitle shared equity owners to repay Scottish Ministers' equity stake following the twentieth anniversary of the owner's purchase of their property, at its original value.

Accordingly, the shared equity agreements have previously provided that, after 19 years, a "payment event" is triggered, as a result of which the owner would require to pay to Scottish Ministers the full value of their equity stake at that time unless the owner granted a new second-ranking standard security in favour of Scottish Ministers. Provided the owner did grant a new standard security, that would defer the owner's entitlement to redeem the equity stake under the 20 year security rule for a further 20 years.

As detailed below, Scottish Ministers have included provisions in the Housing (Scotland) Act 2014 to provide Scottish Ministers with power to exempt by way of an Order shared equity standard securities from the effect of the 20 year security rule. Provided these statutory powers are exercised and approved by the Scottish Parliament, then affected owners will not have the right to redeem under the 20 year security rule, so no action will be required by RSLs in the nineteenth year after completion of relevant shared equity transactions, as no replacement standard security will be required.

From April 2014, changes were introduced to the template shared agreements for the OMSE and NSSE schemes removing the 19 year payment event provisions. All owners from this point on have been informed of Scottish Ministers' proposed changes to the 20 year security rule. Further guidance will be issued to RSLs in due course to clarify which shared equity transactions may be exempt from the 20 year security rule and which may still be subject to it, and what action RSLs will be required to take.

HtB(S) transactions

All HtB(S) transactions have been completed with no 19 year payment event provisions in the shared equity documentation. Purchasers have been given notice of the Scottish Government's intention to amend the legislation around the 20 year security rule. Accordingly, RSLs need do nothing in relation to the 20 year security rule and Help to Buy transactions.