Notice fees and Deed of Covenant Fees

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    Notice fees and Deed of Covenant Fees

    Hi, I am new to these forums and have been doing a lot of digging on an issue that I am not sure has been answered before.

    I am buying a leasehold house on an estate built in 1963. The ground rent is £5 p/a and the service charge is £33 p/m. These charges seemed reasonable enough prior to starting the process to purchase, however our solicitor has unearthed notice to assign and charge fees, which seem unreasonable and extortionate.

    The freeholder is collecting the ground rent through Simarc, who require a notice to assign and charge of £174 which seems to be their fixed rate. Having read through the lease the actual terms are to pay them 10 shillings and sixpence to register a notice to assign, there is no mention of mentioning a notice to charge.

    The lease mentions a need to enter the Deed of Covenant but does not state any cost to this other than for taking a share in the limited management company for £1.

    Furthermore, the management company directors (made up of the leaseholders) have hired an external management company in 2019 to manage the accounts in and collect the service charge. They are also requesting £150 + £138 as a notice to assign and charge, respectively, as well as a £150 fee for the Deed of Covenant. The overall cost of these fees totals to £748.

    I have spoken to my conveyancer about this and they seemed very uninterested, ultimately advising that Simarc don't negotiate and nor would the management company. I asked them to request the seller's solicitor to contact Simarc and the management company to explain why these costs are so high. The sellers solicitors replied that they do not think Simarc or the management company would negotiate and then explained that if we did not pay we would face forfeiture or potentially the freeholder complaining to the mortgage lender, who would pay and add it to the mortgage.

    I am now in touch with the management company directors (the leaseholders association) and they have told me they were not aware of these costs associated with buying a property on the estate, but will ask the residents if they have had any experience in challenging these costs.

    I am unsure as to how to proceed with this, we have 2 companies strong-arming us into paying them £748 just to give them notice that we're buying the lease, one of which is a management company hired by the residents who I can't tell if they have any mandate to request such a fee. Furthermore, having done some digging I am aware that when I come to re-mortgage and when I sell the property that this issue will come up again and cause friction. We are seriously considering not buying the house even though it is perfect for us and we love the area and estate.

    #2
    Strictly speaking you are only obliged to pay what is in the lease - and there is also legislation that says that charges should be reasonable.

    Ten shillings and sixpence is about £10 in modern money, I believe, sothat should be all that you are required to pay for a notice to assign if that is what it says in the lease and there are no clauses allowing the amount to increase.

    In addition, a reasonable fee for a notice to assign is probably no more than about £30 at most because it shouldn't require more than a few minutes work to enter your details into whatever system they use to keep track of who the leaseholders are.

    The problem that you have is that many freeholders and managing agents won't back down on unreasonable fees because it generally isn't worth the time and expense of challenging these fees in a court or tribunal.
    There is a very good chance that you would win if you did challenge these (if the lease doesn't allow for the amounts) but it would take up quite a lot of your time and you may not get back any court fees or costs.

    If you don't challenge the fees it is unlikely that you would face forfeiture (again, assuming that the fees aren't payable under the terms of the lease), but the freeholder and managing agent will likely keep the non-payment on file and use it against you when you want to sell, extent the lease, etc.

    Additionally, you need to consider what else they are going to try to charge you for...

    I can't say that I'm impressed by the attitude you imply is shown by either solicitor. Rather than telling you whether the lease actually allows these charges, their attitude seems to be "that's what happens so you just need to pay" - which, in my opinikn, makes them complicit in helping freeholders and managing agents to charge whatever they like.


    For future information, forum rules say that you should not name freeholders or managing agents (to protect the forum from any risk of legal action).
    You won't be able to edit the post now, but Moderator2 might do this for you.

    Comment


      #3
      Thank you for the reply and apologies for breaking the rules.

      I am undecided what to do going forward. On the one hand the terms of the leasehold and the presence of a residents management company are protective against the freeholder and the management company.

      I have absolutely no plans to make alterations to the property and do not plan to rent it out, so the only time I expect to deal with the freeholder again will be when I re-mortgage or sell on.

      At the risk of falling for sunk-cost fallacy, we have already paid a reasonable amount of money toward the purchase and whilst the £748 fee is extortionate, it isn't going to make us bankrupt. I think what's more worrying is the flagrant disregard for the terms. on the lease and what that may mean for the future.

      The residents management company directors have replied to me and informed me that they were not aware of the management company's high notice fees and they are asking within the estate to see if anyone else has been requested these fees.

      If you have any further advice I am all ears, because this is a very difficult decision to make.

      Comment


        #4
        Just pay or walk away, I know what I'd do

        Comment


          #5
          If the lease for the house is £5 p.a for 999 years lease, buying the freehold title of the house should be about 18 x GR = £90 plus legal expenses and should be the way forward.

          The Housing Minister had announced on 7 Jan 2021 that future government policy is to terminate the sale of houses under leasehold title and payment of ground rent.

          Make a complaint to your local MP against the Freeholder and managing agent and get the MP to make a written the Housing Minister .

          Don't pay charges which are not stated in your lease. Its fraud.

          Comment


            #6
            What does the lease say about giving notice of assignment and entering into a deed of covenant? Are fees mentioned? If you are not sure, send me a copy of the lease: see private message.

            Comment


              #7
              The lease mentions a fee of ten shillings and sixpence when giving a notice to assignment. It mentions no fees for a deed of covenant other than the leaseholder must enter it. The only fees the leasehold mentions is the £5 for ground rent and the ten shillings and sixpence.

              I will forward you the leasehold, but I have read it many times and I cannot see any other fees.

              I am unsure as to how to proceed as the solicitors on our side and the sellers side seem unwilling to challenge the breach of the terms of the lease.

              Comment


                #8
                I have been off line, but now restored. The lease has not yet arrived, but I will assume it is as you say.

                Fees demanded: £748.

                Fees actually payable: £0.53

                Coming to this forum has saved you £747.47!

                If the lease says the fee for registration is 10s6d that is what it is. If it says to register notice of assignment but not of a charge there is no need to register notice of any charge. Notice only needs to be served on whomever the lease says it has to be served. As the lease was made in 1963 it probably only requires the notice to be served on either the landlord or his solicitor. It is extremely unlikely that it requires multiple service of notices.

                If the lease says no fee is payable in connection with the deed of covenant then no fee is payable.

                It is totally unacceptable that your solicitor is taking such a supine attitude and is prepared to let you part with such a large sum which there is no obligation to pay. You have to wonder if he has read the lease and if there is anything he has missed. You need to go into his office spitting feathers and ask what he is playing at. Make it abundantly clear that you are paying no more than 53p and that you expect him (at no extra cost to you) to argue vigorously that that is all that is payable.

                Comment


                  #9
                  I have now read the lease and there is nothing in it which necessitates a change to post 8.

                  There is a requirement to serve notice on a change of ownership or on the grant of an underlease. The notice is to be given to the landlord and the fee of 10s 6d paid to the landlord, his solicitor or agent.

                  There is a clause requiring the tenant to enter into a deed of covenant on execution of the lease, but no requirement to procure the execution of a further deed by any future owner. However, there may be such a requirement in the deed of covenant.

                  Comment


                    #10
                    Thank you for the feedback.

                    Going forwards what do you suggest we do?

                    The response we received from the seller's solicitors was the following:

                    "Whilst we agree that the notice fees are rather high, as you will be well aware from your previous dealings with [freehold agent] and [management company] they will not entertain any negotiation in this respect.

                    If you feel it is appropriate to simply pay the notice fees set out in the lease then this is a matter for you and your client to decide. Our experience however is that the freeholder/managing agent would simply fail to acknowledge your notice and continue sending demands to the previous owner rather than your client resulting in arrears and potentially forfeiture proceedings being commenced. Additionally, we have also known freeholders to simply write to lenders when notice fees are not paid. Lenders then tend to pay the fee directly resulting in the additional fee being added to your clients mortgage balance and then mortgage interest accruing on this amount so our view is that this approach does not make commercial sense (particularly where buying with a mortgage) but of course this is a matter for you and your client to decide.

                    For the reasons above, we will not be contacting the freeholder/managing agent regarding their fees. If you consider it appropriate to do so then this must be done by your client at their own expense."

                    The response I received from our solicitors was very similar to this but I spoke to them on the phone but they reluctantly contacted the seller's solicitors and the above is the response I received.

                    Comment


                      #11
                      I can also send you the deed of covenant, I don't think there is any clause which suggests a fee associated with it.

                      Comment


                        #12
                        Originally posted by Lawcruncher View Post
                        Fees actually payable: £0.53
                        Far less than I thought then!
                        The c£10 figure I suggested takes into account inflation, while Lawcruncher, I think correctly, suggests a direct conversion.

                        I still think that the attitude shown by both solicitors is poor.
                        Although it may be true that the freeholder and managing agent will refuse to back down, they are relying on people paying without challenging the charges. If you pay whatever is due according to the lease any costs that the freeholder/managing agent try to add because they claim that notification has not been given will not be valid - but you would be taking the risk that (a) your mortgage company will pay and add the costs to your mortgage, or (b) the freeholder will win against you in court simply because they will have lawyers employed and hiring lawyers yourself may cost more that the fees they are trying to charge.

                        Comment


                          #13
                          Just to clarify we are nowhere near completion and have not exchanged contracts yet. This was all uncovered with the LPE1 form and the solicitor requesting information from the seller's solicitors.

                          I agree that the solicitors are acting poorly and I think at least challenging these fees is worthwhile.

                          However I am unsure of how to proceed and am specifically looking for advice on what to do going forwards. The way I see it I have a few options:

                          1. Do nothing and just pay the fees without complaint
                          2. Pay in protest and try to come to some resolution retrospectively
                          3. Request the solicitor to challenge these fees on the basis that they are illegal (not sure if this will incur further costs from solicitors)
                          4. Pay only what is owed when giving notice and risk forfeiture/increasing mortgage costs etc.
                          5. Negotiate with the seller to either prompt them to challenge it or negotiate the price to account for these costs
                          6. Back out of buying the house and look elsewhere

                          We are seriously considering backing out of buying the property if we can't get a resolution and this obviously presents an issue for the seller. Furthermore, I am in touch with the RMC and they have replied to me that they were not aware that the management company which they have hired is requesting these fees. I have informed them that the management company will impact any future sales or re-mortgages on the estate with their fees, so it is also in their interest to bring this to a resolution.

                          I would appreciate it if anyone has any ideas on which options are the best way to proceed with this, or if there are any other options available to us going forward.

                          Comment


                            #14
                            Personally I'd probably choose option 6.

                            I'd expect that nothing will be done about extortionate 'fees' like these until people stop buying the properties where freeholders and managing agents are charging them (although, unfortunately, that initially punishes the leaseholders rather than the freeholders/managing agents, it might eventually lead to action being taken to reduce the problem).

                            Comment


                              #15
                              1. Do nothing and just pay the fees without complaint Absolutely not!
                              2. Pay in protest and try to come to some resolution retrospectively Absolutely not!
                              3. Request the solicitor to challenge these fees on the basis that they are illegal (not sure if this will incur further costs from solicitors) There is no need to do this - at least not at this stage.
                              4. Pay only what is owed when giving notice and risk forfeiture/increasing mortgage costs etc. That is the thing to do! There is no risk of forfeiture.
                              5. Negotiate with the seller to either prompt them to challenge it or negotiate the price to account for these costs. There is no need to do that.
                              6. Back out of buying the house and look elsewhere There is no need to do that.

                              Let's be clear here. The lease is a fixed document. No one can unilaterally change it. The only notice required to be given is to the landlord and to advise of change of ownership. The only fee to be paid is 53p. No one can conjure up any additional notices or fees. There is nothing to negotiate.

                              You instruct your solicitor that he is only to give notice to the landlord and that the fee payable is 53p. If he disputes that come back to me.

                              If after completion the landlord or anyone else comes back saying they are entitled to more fees or notices or that they will decline to register the notice until fees are paid come back to me.

                              By all means send me the deed of covenant. Send me a PM when you do.

                              Comment

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