Section 504 | Diminishing shared ownership arrangements : initial acquisition

(1)This section applies to arrangements if under them—

(a)a person (“the financier”) acquires a beneficial interest in an asset,^F1F2

(aa)either—^F3

(i)the financier is a financial institution or a regulated home purchase plan provider, or^F3F2

(ii)the arrangements are regulated electronic system facilitated arrangements,^F3

(b)another person (“the customer”) also acquires a beneficial interest in it,^F4

(c)the customer is to make payments to the financier amounting in aggregate to the consideration paid for the acquisition of the financier’s beneficial interest (but subject to any adjustment required for such a reduction as is mentioned in subsection (5)),^F4F2F5

(d)the customer is to acquire the financier’s beneficial interest (whether or not in stages) as a result of those payments,^F4F5

(e)the customer is to make other payments to the financier (whether under a lease forming part of the arrangements, or otherwise),^F4F2

(f)the customer has the exclusive right to occupy or otherwise to use the asset, and^F4

(g)the customer is exclusively entitled to any income, profit or gain arising from or attributable to the asset (including, in particular, an increase in its value).^F4

(1A)Arrangements are regulated electronic system facilitated arrangements if—^F6

(a)the arrangements substantially consist of an article 36H agreement in relation to the enjoyment by the customer of the rights referred to in subsection (1)(f) and (g) before the customer’s acquisition of the financier’s beneficial interest,^F6F4F7F5

(b)the customer would be regarded, for the purposes of that agreement, as the borrower under it,^F6F4

(c)the financier would be regarded, for the purposes of that agreement, as the lender under it, and^F6F2

(d)the customer and the financier becoming parties to the agreement was facilitated by an electronic system operated by a person who has permission under Part 4A of FISMA 2000 to carry on, in relation to that system, the regulated activity specified in article 36H(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544) (operating an electronic system in relation to lending).^F6F8

(2)For the purposes of subsection (1)(a) it does not matter if—

(a)the financier acquires its beneficial interest from the customer,^F2F4

(b)the customer, or another person who is not the financier, also has a beneficial interest in the asset, or^F4F2

(c)the financier also has a legal interest in it.^F2

(3)Subsection (1)(f) does not prevent the customer from granting an interest or right in relation to the asset if the conditions in subsection (4) are met.^F4

(4)The conditions are that—

(a)the grant is not to—

(i)the financier,^F2

(ii)a person controlled by the financier, or^F2

(iii)a person controlled by a person who also controls the financier, and^F2

(b)the grant is not required by the financier or arrangements to which the financier is a party.^F2

(5)Subsection (1)(g) does not prevent the financier from—^F2

(a)having responsibility for any reduction in the asset's value, or

(b)having a share in a loss arising out of any such reduction.

(6)This section is subject to section 508 (provision not at arm's length: exclusion of arrangements from section 503, this section and sections 504A to 507).^F9

(7)In this section—^F10

“article 36H agreement” has the meaning given by article 36H(4) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;

“borrower” and “lender” are to be construed in accordance with article 36H(9) of that Order;

“regulated home purchase plan provider” means a person who—

is carrying on the regulated activity specified in article 63F(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (entering into regulated home purchase plans as home purchase provider), and

has permission under Part 4A of FISMA 2000 to do so.