Ground rent deed of variation - which deal is best?

[Lorimer]

We are selling a flat with over 100 years left on the lease. The ground rent is £200 pa, doubling every 20 years throughout the term. It is next due to double in 2035. The buyer's solicitor insists that we get the lease varied because the buyer's mortgage lender won't lend against the current ground rent provisions. Our freeholder has offered two deed of variation options:

1. A premium of 2.5K, plus legal costs of c. £750.00 to enter a deed of variation stating that the freeholder won't rely on Housing Act 1988 for repossession

OR

2. A premium of 2.5K, plus legal costs of c. £750.00 to enter into a deed of variation stating that the doubling occurs every 25 years throughout the term instead of every 20 years.

Which deal is best?
Does 2.5K, plus legal costs of c. £750.00 sound excessive?

[sgclacy]

Or....a leasehold indemnity policy at £34.00

If you search online for Guaranteed Conveyancing solutions you will find a specialist site that offers indemnity policies. Go to quick quote and


select "forfeiture of lease Housing Act repossession"

limit of indemnity being the amount of the mortgage

and at £250k the premium is £34

Therefore, what this tells us is that if an insurance company (who will clearly understand the risks) decide the premium for such a risk is £34.00 then there really is nothing to worry about

If they won’t accept the policy then I think option 1 is the answer

[Jon66]

Our freeholder didn't charge a premium, just had to pay their legal fees. But 1 is probably the better option. There are mortgage lenders who will offer on 20 years gr doubling. There is a table of lenders somewhere on the net with their lending criteria.

[Lorimer]

sgclacy,

We didn't think there was an issue with 20 year doublers so we too suggested an indemnity policy but the buyer's solicitor insisted that this would not be good enough as it only provides indemnity for the lender - not the borrower. The buyer's solicitor said that any equity and/or deposit the borrower has in the flat would not be protected. That's why the buyer's solicitor is insisting on getting a deed of variation...

[Lorimer]

Jon66,

I agree that option 1 seems a better solution as option 2 still has the Housing Act 1988 to contend with. I wasn't sure whether I was missing something though?

You are lucky that your freeholder didn't charge a premium but ours is insisting on charging one - pointing out the fact that they are not compelled to enter into a deed of variation in the first place! This is what made me wonder whether a premium of 2.5K, plus costs was excessive. Let's face it - if the freeholder is not compelled to enter into a deed of variation - what would prevent the freeholder charging us 50K, plus costs for the deed of variation - knowing that if we refuse to pay then we are likely to lose this buyer and all other buyers using the same lender?

[Section20z]

Duh, 2 is far and away the better option as you will be paying considerably less ground rent over the term.
And all your buyer has to do is pay the ground rent and avoid forfeiture/loss of equity/ deposit.
It's a red herring and ruse for lawyers to make more money. Repossession under the act for ground rent has never happened.

[sgclacy]

Section20z,

With the premium at £34 the risk must be effectively zero

[Lorimer]

Section20z,

If we were keeping the flat, we would choose option 2. However we are selling the flat and the buyer's lender categorically won't lend with the ground rent provisions as they are. The sale is at a pretty advanced stage already and needs to complete by end of September 2021 to take advantage of the stamp duty holiday. Neither the buyer nor the buyer's solicitor seem willing to switch lenders at this late stage.

[Hes 61]

Hello I am desperate for some advice. I too am in the same situation as Lorimer. I sold my flat last July 2020 and had to get a deed of variation sorted at the insistence of buyers solicitor whereby the rent will increase with Retail Index Price. This took well over 5 months to get the Landlord to agree to and activate at a cost of £1500 including my solicitors charge. because it took so long my buyer pulled out. I was lucky to quickly get another buyer but after 12 weeks the new buyers solicitor is wanting a further clause added to the deed of variation stating that 'the freeholder won't rely on Housing Act 1988 for repossession' This was put to the management company back in July 2021 and so far have received no response despite my solicitor trying to chase. Is it usual for a buyers solicitor to want both clauses? I will point out my buyer is a cash buyer and not relying on a mortgage. I am in a stale mate situation and cannot afford further costs or the length of time to get sorted even if the management company agree. I am having to pay 2 mortgages as I now live in a different area and cannot sustain this. My solicitor is offering no solutions of

[Dannyhaddon]

Yes it's normal because even the gr going up with rpi is still a problem, mine is 12 years old and goes up with rpi and now it's 259 a year, no one can get a mortgage lender to agree with that amount as it's above 250.

[Babyspice]

Why don’t u trigger section 42 (lease extension) to get rid of the GR once for all???

u can start the process then pass on the benefit to the buyer on completion. That should resolve the issue.