Shared Ownership Property

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Shared Ownership Property

by Mark Cummins on 31.08.2010 12:38 2 comments 5278 views

I have a charity client who recently constructed some dwellings for severely disabled adults.

These were then going to be sold on a shared ownership basis with my client retaining 33% of each flat.

Following the sale of the flats we are in discussion about accounting for the profit or loss on sale of each flat.

In calculating the base cost of each flat my client has included a proportion of the shared facilities such as the communal lounge, activities room etc, even though the contract for purchase of the flats is clear that they are buying a share of the flats only but will have access to the other areas.

Is anyone aware of any specific accounting rules on this area. To me it seems a simple profit or loss on the sale of each flat, the other areas remain owned by the charity and hence should not come into the calculations.

Any comments appreciated.

Mark

Comments

# | by Thomas Espley on 05 October 2010, 17:56

Does the sale contract oblige the charity to grant the flat owners ongoing access and use of the communal areas? It might be argued that such an obligation would reduce the value of the residual interest beyond a simple square foot (or similar) calculation.

If the ration was 3:1 Flats:Communal, then selling the flats might cost more than 3/4's the cost of the whole. But there's clearly a lot of room for judgment.

# | by Christopher Smail on 07 October 2010, 18:08

I would expect the communal areas to remain under the control of the landlord and presumably be funded by some sort of annual charge, thus title not passed.

I would further expect a QS or some sort of valuer to do the apportioning of value for you.

Are they in fact selling 2/3 of freehold/long leasehold or some sort of shorter lease? In which case is there then also a reversionary interest?

Are fees payable on transfer of lease, they would have a value?

With the right combination of facts you could end up holding all the costs on the balance sheet and releasing monies recieved from deferred income to p&l!

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