pre emption clause

rockall81

Hi,

I am trying to sell my flat and its been stair cased to 100%, i had accepted a offer and 2 months down the line, the buyers lender pulls out saying, they would not lend unless the preemption clause removed from the lease agreement,

I found it strange, because i have a mortgage as well. i did not had any issue when i stair cased.

Not sure what needs to be done, any help/advice would be great.

Thanks in advance.

kingstreet

If you have staircased to 100% ownership, what pre-emption clause is at issue?

Pre-emption concerns repayment of discounts for a particular period, such as on a RTB, but you are talking about staircasing, which concerns shared ownership.

You need to ask your solicitor what is in the lease and why. Why wasn't it removed at the time you staircased to 100%?

Your mortgage status is irrelevant. It's your buyer's mortgage situation which matters.

Senior_Paper_Monitor

Pre-emption can exist well beyond the shred ownership and/or claw back periods of a RTB.


It is simply the right for the stated party to acquire the property at market price in preference to a third party purchaser.


In the case of RTB this is for 10 years after the initial purchase (the claw back lasts for 5). This is enshrined in the Housing Act (which defines right to buy) and applies to the successor(s) of the original tenants.


According to my current notes (I did a lot of research work on this particular) there are only three lenders who will accept financing a purchase where per-emption will carry over to the new owner.


You (or your solicitor) need to check whether the original shared ownership/staircase arrangements correctly carry over pre-emption to today (and if so until when).


If it does, then your purchasers need a mortgage adviser who knows what they are at (or to be willing to do an awful lot of legwork). They also need to evaluate whether this will cause them a problem when they come to resell.

rockall81

ok thanks for the advice, i will chase the relevant authorities and see whether the lease can be amended now.

kingstreet

AIUI repurchase clauses and pre-emption clauses are two different things?

SPM knows more about this than I do, but I thought there was a difference...

For example, one of our local HAs has;-

"Nomination Period

If a shared owner wants to sell its share the HA has 8 weeks to nominate a suitable purchaser. If we are unable or cannot nominate, the share can be sold via an estate agent. The HA must approve the purchaser to ensure they meet the relevant criteria.

Mandatory Buy Back Clause

In the event that the shared owner owns more that 80% of the property and they want to sell their share on, we have to buy it back at full open market value.

Staircasing

The shared owner can staircase up to 100%."

Senior_Paper_Monitor

Hi Kingstreet -


My comments revolve around the assumption that the OP's reference to 'pre-emption' is technically accurate.


I know pretty much 'chapter and verse' around RTB and the associated pre-emption rights.


I believe that you are the shared ownership/equity and HTB king so happy to be corrected there .. "every days a school day" as they say.


I don't believe that any of 'Nomination Period/Mandatory Buy back Clause/Staircasing' items are 'pre-emption' by definition ...


Nomination Period - this means that the HA can point another party to the deal and approve any third party taking it up (this is because the HA has statutory social responsibilities if it is to maintain its status - and because it maintains a share).


Mandatory Buy Back - this is a 'put clause' rather than a 'take clause' and only applies where 100% staircasing hasn't taken place.


Staircasing - not relevant to the argument unless 'pre-emption rights' entitle the HA to bring the property back into its stock rather than permit an open market trade, at a point after staircasing.


I am not a social housing specialist, but I seem to recall from somewhere in the distant pass (and technically it would certainly be possible - and some [not necessarily me] would argue justifiable) that some have put such a covenant into the freehold/leasehold title in order to enable the theoretical return of the property concerned to the social housing stock once it has achieved the objective of putting the first owner into the open market.


The daft thing is I've never known a Council buy back an RTB under pre-emption !!

kingstreet

Conclusion - find out from your solicitor what the issue is and try to resolve that between solicitor and freeholder.

There may be plenty of opinion between people who are specialists, but only your particular circumstances are the issue here...

rockall81

Problem, HA has agreed for me to sell my property open market, they have written to my solicitor saying they are not interested in buying my property back.

Now the Lender does not want lend because of this clause,

Now as far i can see most lenders would not lend because of this clause, although i am not sure how i got a mortgage.

there should be a way to override this clause by HA, or provide another letter saying HA will not exercise this clause,

Anyway i should find out what will happen soon. I know you are right in a way its the personal circumstance i am in for which this forum can only widen my thinking.....

Senior_Paper_Monitor

Taking out a mortgage at the commencement of a deal subsequently involving pre-emption is easy.


As you are learning, it is the resale that causes the problem (as I said above - I only know three lenders who will consider this [assuming pre-emption is established]).


If the HA implemented this covenant then they certainly have the ability to remove - whether they will is very much another matter. Albeit I see no real reason why they shouldn't.


Whether the borrower should proceed is very much subject to a number of factors - not least the period and circumstances for pre-emption to continue. If they wish to then they need to go a broker/adviser that can help them identify a lender willing to take on finance under such circumstances.

rockall81

Can i ask, who are these 3 Lenders?, also if the HA gives additional letter saying they would not exercising this clause, then how likely lender would agree?

What i understand its legal to have this clause, so HA cant remove it. So in this case only a alternative would work. hence the above question

Senior_Paper_Monitor

Yes you can - but I can't answer because:
1) I don't know the circumstances of the potential purchasers/borrowers and whether they would qualify
2) this site, and more importantly the regulatory authorities, prevent us 'giving advice' on here (and I have no intention of dropping my employer 'in it')
3) Our charges/commissions from clients/lenders are what pay for me spending the hours researching such issues



If the clause exists the lender will look at the legal document only (no other indication matters).

I repeat ...

"If the HA implemented this covenant then they certainly have the ability to remove - whether they will is very much another matter. Albeit I see no real reason why they shouldn't."