Premium payment for a lease variation

Getting_desperate

Hi All, I'm in the middle of selling my apartment at last, or thought I was...and just received an email from my solicitor informing me that my purchasers have stated to their solicitor they do not intend living in the property and will let it out. The Freeholder and Managing Agent have said on no condition would that be allowed unless both the Head lease and sub-lease have a variation allowing it to be sublet by them as tenants.
Fair enough that the legal costs may have to be paid by my buyers but they are asking for a £5,000 premium on top of their legal costs. The value of the flat is only £162,000 - this does not seem right, or even proportional?
I fear my buyers will walk away from the sale - should I be offering to pay half of this 'ransom' fee to try and save the sale?.
Any advice on whether the £5,000 can be challenged will be gratefully received.

eddddy

Getting_desperate wrote: »

Any advice on whether the £5,000 can be challenged will be gratefully received.

No - it can't be challenged as such, because it's not a service charge, or a charge for doing something that the lease allows.

All you can do, is try to negotiate with the freeholder / Mgmnt co to reduce the premium.


It's a little surprising that other peoples leases allow this variation.

Normally, every lease in the block would have the same terms along the lines of:

1. The leaseholder covenants (promises) not to sublet the flat
2. The freeholder covenants (promises) not to allow any other leaseholders to sublet their flat

So the freeholder cannot allow you to sublet, without breaking the covenant in every other lease. But I guess your freeholder has checked this out.

Getting_desperate

Thank you for your prompt reply eddddy. I should have said that there is a lease clause saying "for the duration of the term, not to let or permit the flat to be underlet". There is no further mention of subletting and definitely nothing as your point 2.

I wasn't aware the purchaser intended to buy it as an investment property and sublet it, until the email from my solicitor today; was under the impression from agent these were first time buyers.

The Freeholder is willing to allow a variation but subject to a premium of £5,000 plus legal fees. I've no idea if the FH has checked out whether they break the covenent on other leases in the block. I've never had any reason to question this clause.

I'm expecting the purchaser to withdraw, although I've emailed my Solicitor asking:
1. Why this issue has only just been raised when they've had the lease since the sale commenced and presumably the purchasers' solicitor has also had sight of it six weeks ago (I asked this because I've recently had to pay out a total of £540 to my landlord and the freeholder's managing agent for them to release the 'sellers pack', answer questions etc., and;
2. If the Buyers' solicitor will try negotiating the premium amount.

I've even contemplated offering to pay half the premium to try and hold the sale together.

I assume if the sale falls through, as I expect it will, that I will have to ensure the Estate Agent tells any future interested party of this lease clause to weed out investor only interest?
Is that a given when instructing an estate agent for a leasehold flat? Must admit I haven't bought a leasehold property before and hadn't realised I would have needed to make that clear to an agent.

eddddy

Getting_desperate wrote: »

There is no further mention of subletting and definitely nothing as your point 2.

OK - although I simplified my example a bit....

Looking at a lease I have here, the relevant covenant by the lessor (freeholder) is worded like this:

"That every lease of a flat in the building granted by the lessor after the date of this lease...

... shall contain lessee's covenants similar to those contained in this lease"

Getting_desperate wrote: »

2. If the Buyers' solicitor will try negotiating the premium amount.

Normally, it would be the seller that negotiates with their freeholder rather than the buyer - but if the freeholder is prepared to deal with the buyer, that's fine.

I guess the negotiating position with the freeholder would be something like:

"Neither the seller or buyer are prepared to pay £5k for the lease variation. However, they are prepared to pay a maximum total of £2k.

If this is not acceptable, this transaction will not continue, and the eventual buyer is likely to be an owner occupier, so no lease variation will be required, and no premium will be payable to the freeholder.)

i.e. If you don't accept £2k, you might end up with nothing.

Getting_desperate wrote: »

Is that a given when instructing an estate agent for a leasehold flat? Must admit I haven't bought a leasehold property before and hadn't realised I would have needed to make that clear to an agent.

Savvy EAs might ask that.

And savvy BTL buyers would make that the first question they ask - certainly before making an offer, and before paying any legal fees.

G_M

A lease that permits BTL is (arguably) more valuable than a lease that restricts it. Hence the premium.

If your investor/buyer wants the lease altered, he'll have to pay the costs. Just pass on the information to your buyer. Do not get involved in negotiation.

Though personally I'd think a lease prohibiting BTL was more valuable as it presumably guarantees that other flats in the building are owner-ocupied!

Getting_desperate

Thank you both for your comments.
The sale has indeed fallen through although I found that out today from my estate agent after sales team, not my solicitor who was apparently informed of that decision last week by the Buyers' solicitor. Am now confused as to why my solicitor only mentioned, at the end of last week - some days AFTER they were informed of the buyers withdrawing - about the sub-letting concern but ended email with a confirmation that they would let me know if the Buyers decided not to continue...

But that's another issue and not for this thread. Hey ho, onwards and upwards....