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    • neilio
    • By neilio 17th Oct 16, 11:39 AM
    • 84Posts
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    neilio
    Frustration Clause - will lender accept an indemnity policy?
    • #1
    • 17th Oct 16, 11:39 AM
    Frustration Clause - will lender accept an indemnity policy? 17th Oct 16 at 11:39 AM
    I’m about to exchange contracts on the sale of my flat, but my buyer informed his mortgage lender (Halifax) of the Frustration Clause in the Lease which I have already offered an indemnity policy for and which the purchaser solicitor has already accepted. The Frustration Clause is worded as follows:

    6.7.1 Subject to Clause 6.7.2, in the event of the repair, rebuilding or reinstatement of the Premises being frustrated by any reason beyond the control of the Landlord the Leaseholder will surrender to the Landlord this Lease in consideration of the Landlord paying to the Leaseholder a sum equal to the Acquired Percentage of any insurance monies received by the Landlord in respect of the Premises.

    6.7.2 If at the time of such frustration there is any Loan outstanding to a Mortgage of the Premises then the consideration for such surrender shall be the amount referred to in Clause 6.7.1 plus the Mortgage Protection Claim (calculated on the basis that paragraph (h) in the definition of “Loss” in Schedule 9 (Defined Terms) is the amount referred to in Clause 6.7.1).

    6.7.3 Any overpayment of insurance monies shall be a debt due from the Leaseholder to the Landlord and shall be payable on demand.

    My solicitor told me that she isn’t worried because lenders usually will accept the advice of the conveyancing solicitor if they suggest an indemnity policy, but, being a lawyer, she avoided saying it will all be fine. We are still waiting, and Halifax’s response to the buyer on this point is the only thing now outstanding. Are they likely to accept the indemnity policy and allow this to proceed? What are the chances of lenders not accepting indemnity against a clause such as this?
Page 1
    • G_M
    • By G_M 17th Oct 16, 12:12 PM
    • 37,082 Posts
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    G_M
    • #2
    • 17th Oct 16, 12:12 PM
    • #2
    • 17th Oct 16, 12:12 PM
    offered an indemnity policy for and which the purchaser solicitor has already accepted......................

    My solicitor told me that she isn’t worried because lenders usually will accept the advice of the conveyancing solicitor if they suggest an indemnity policy, but, being a lawyer, she avoided saying it will all be fine. We are still waiting, and Halifax’s response to the buyer on this point is the only thing now outstanding. Are they likely to accept the indemnity policy and allow this to proceed? What are the chances of lenders not accepting indemnity against a clause such as this?
    Originally posted by neilio
    In 99% of cases, the same solicitor acts for both the buyer and the buyer's mortgage lender.

    Assuming this is the case here, the solicitor has already accepted the policy so will give his client (the lender) the same advice.
    • Richard Webster
    • By Richard Webster 17th Oct 16, 5:37 PM
    • 7,326 Posts
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    Richard Webster
    • #3
    • 17th Oct 16, 5:37 PM
    • #3
    • 17th Oct 16, 5:37 PM
    OP hasn't set out all the wording - so we don't know what this "Mortgage Protection Claim (calculated on the basis that paragraph (h) in the definition of “Loss” in Schedule 9 (Defined Terms)" is.

    This looks like a shared ownership lease - or one that formerly was one. Unless there is some new ruling about frustration clauses, when I was practising full time they were generally accepted without any need for a policy. In principle this isn't much different from a mortgage lender claiming on a buildings insuarance policy for a freehold house that is a total loss following a fire or other insurable event.

    Also in the case of shared ownership there are generally clauses the protect a lender if the value of the borrower's share falls below the amount loaned (provided this was not more than 100% of the price paid by the borrower). I suspect that what thew wording referred in Sch 9 inthis case is about.
    RICHARD WEBSTER

    As a retired conveyancing solicitor I believe the information given in the post to be useful assuming any properties concerned are in England/Wales but I accept no liability for it.
    • neilio
    • By neilio 17th Oct 16, 6:34 PM
    • 84 Posts
    • 24 Thanks
    neilio
    • #4
    • 17th Oct 16, 6:34 PM
    • #4
    • 17th Oct 16, 6:34 PM
    Schedule 9, paragraph (h) says:

    the gross sale proceeds to be received from the disposal (including a surrender) of the Leaseholders interest in the Premises

    It is a shared ownership Lease but a Deed of Variation has been raised and approved by the purchaser solicitor to remove all the shared ownership pre-emption clauses.
    • neilio
    • By neilio 18th Oct 16, 3:00 PM
    • 84 Posts
    • 24 Thanks
    neilio
    • #5
    • 18th Oct 16, 3:00 PM
    • #5
    • 18th Oct 16, 3:00 PM
    Another day and still no news from the purchaser solicitor except that they are waiting for the lender to accept the contingent buildings insurance indemnity policy. I don't understand why it's taking Halifax so long to confirm this to them. How long would it normally take for a lender to confirm this? I'm trying to figure out if this is a genuine delay or if the purchaser solicitor is using a delay tactic.
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