Legal Obstacle in Flat Purchase!

riad_2

Hi everyone,

I realise this isn't a legal advice forum, but was just wondering if anyone knew where I stand on an issue that I've come up against in the process of buying a flat.

I'll copy and paste a paragraph from a letter from my solicitor to the vendor's solicitor:

Continuing to deal with the outstanding enquiries:

6. A mere assertion on your part that there has not been a transaction at an undervalue, when your previous replies, and your last reply, indicate that there has, is hardly sufficient. Your Client and his sister purchased the property on the 4th May 2001 at the price of £142,450 as tenants in common in equal shares. You have not told us the date of the Transfer to your Client but have told us that it was for a nil consideration. Your Client was registered as sole proprietor on the 17th January 2003. We cannot see how you can escape the conclusion that your Client did not give his sister full value for her half share in the property. Accordingly you must provide at your Client's expense the indemnity policy referred to in this enquiry.

I spoke to my solicitor today and he has advised me that the reply he's received indicates that no legal documentation was done regarding the transfer of the sister's share to the current vendor when transferring the deed from joint names (vendor + sister) into sole name. We know that when his sister gave her share of the property to the vendor it was for no money, but that there should have still been some legal paperwork confirming this so that she cannot place a claim on the property at a later date.

My solicitor has advised me that in order to proceed, he will need some kind of "covenant" from the mortgagee (the vendor's mortgage company) as an insurance that they will not claim on the property in the event of the vendor going bankrupt. I don't quite understand this (if anyone can explain better please do!!), but my solicitor says that it will be about £140 that the mortgage company will charge for this document.

My solicitor says that he should be able to arrange this himself and doesn't necessarily have to rely on the vendor's solicitor to do it. He has said though that technically the onus of this is on the vendor to do it and suggested that I should ask for a price reduction on the property by £500 (to cover the cost of this document + his legal fees).

In addition to this, another obstacle is that it has come to light that the vendor has never paid ground rent during his time in the property!!! I imagine then when I buy the flat I will inherit the arrears which I will then have to pay? Assuming that the ground rent is about £10-20/annum... I'm guessing this isn't a big deal? Or is it?? (As arrears of 6 years would be £60-120) ???

Any thoughts on the above (particularly the first point) by people who might know what this is all about and how serious it is would be most appreciated!!

Thanks!

silvercar

The seller has no paperwork to say that the property is not still owned in part by his sister, or that the sister could lay a claim on the property or its sale proceeds. So he needs a policy taken out to protect you, just in case his sister appears and demands her share of the purchase price.

Is there some question of the vendor going bankrupt? or selling to you below market value? Or maybe the outstanding mortgage/ loans exceed the sale price. Your solicitor is making sure that the mortgage company can't claim some value of the property after the sale.

riad_2

silvercar wrote: »

The seller has no paperwork to say that the property is not still owned in part by his sister, or that the sister could lay a claim on the property or its sale proceeds. So he needs a policy taken out to protect you, just in case his sister appears and demands her share of the purchase price.

I understand.. is this the "covenant" that my solicitor is referring to which the mortgage company will charge approx £140 for or is that to do with the following point?

silvercar wrote: »

Is there some question of the vendor going bankrupt? or selling to you below market value? Or maybe the outstanding mortgage/ loans exceed the sale price. Your solicitor is making sure that the mortgage company can't claim some value of the property after the sale.

Not that I am aware, flat is market value, and LTV is about 70%. However what confuses me is presumably it's his sister who might lay claim to the property at a later date, not the mortgage company? Hence why do I need protection from a claim from the mortgage company?

silvercar

I think the £140 is for the latter point. An indemnity policy may be slightly more £200-300?

Just say the sister goes bankrupt in the next few years. The Official Receiver will look at her past transactions and see that she gave away her half share of the house. The OR will say that she shouldn't have given away the money, but it should have been used to pay off her creditors. So the OR could try and have some claim on the money that you have paid the brother.

Your solicitor is making sure that the mortgage company don't have some claim on the property in the future. They shouldn't have as a matter of course, but your solicitor is being cautious because he can see a transaction has taken place (the sister giving her half of the property) without any payment for it. If for any reason, the OR had a claim against the mortgage company because the lender now has what could be called the sisters money, and they were obliged to return some of it, they could try and claim that they should still have a charge on the property. All a bit remote and unlikely but you pay the solicitor to cover all angles.

riad_2

silvercar thank you so much for your extremely helpful replies!! :T This is all a lot clearer for me now.

If I have this straight... in order to proceed I will need an indemnity policy (approx £200-£300) and a covenant from the mortgagee that they will not claim (£140). With these costs in addition to the apparent ground rent arrears and the legal costs for arranging the first two... what would be a fair a reasonable price reduction to ask for?

I don't want to take the pi$$ in the amount, I just want it to be fair and reasonable to cover my additional costs for these obstacles which have arisen through no fault of my own. Maybe £1000?

silvercar

Ask your solicitor how much it should come to (it could be as little as £500). Then ask the seller to arrange these, tell him that (a) they will have to be done whoever buys his flat (b) you can't afford any extra expense. If he refuses then you can say that your solicitor will do them for xx and you will accept knocking that off the purchase price rather than him having to pay out for them.

That way, he'll know you are not taking advantage. It may be that his solicitor says that these things are unnecessary and he refuses to pay; in which case you will have to decide if it is worth pulling out or paying them yourself.

Don't know about groud rent arrears. The starting point is finding out exactly how much it is. I would guess that the statute of limitations will limit the arrears to 6 years. Whether it applies here I don't know. I don't know understand why the managing agents haven't collected this money on behalf of the freeholder.

Doozergirl

Beautifully worded advice from silvercar

With regard to ground rent; Any outstanding debts to the freeholder or managing agent should be cleared as a matter of course, by your vendors solicitor, either before or upon receipt of the purchase monies. Your solicitor should obtain confirmation from your vendor's solicitor that it will happen.

I have bought a property before where they agreed to clear existing debt but they hadn't been billed for the management of the full year (ie. any top up on the exisitng service charge), so we were hit with a surprise bill a few months later which we had to take on the nose. It was £200 or so; not life-threatening, but a surprise, all the same.

I'd do exactly as silvercar suggests. They will have this problem with any buyer, so they need to make it go away

Richard_Webster

Beautifully worded advice from silvercar

That's right.

Whichever solicitor dealt with the transfer into sole name should have warned the seller that this could happen further down the track. The point is that although it is very unlikely it is theoretically possible for the sister to go bankrupt and the OR or creditors to start asking questions. They could then set aside the transaction which would in turn invalidate the sale, with major consequences both for OP and his mortgagees. So the seller should pay for the indemnity insurance.

As far as ground rent is concerned the production of a clear ground rent receipt from the landlord/freeholder means that he is not pursuing any claim for breach of the lease terms. Without such a receipt there is always the remote possibility that he is taking action or is claiming some large amount which will then become OP's liability.

silvercar

Glad our legal expert has been able to confirm my thoughts.

I only learnt about the bankruptcy implications of house sales when our sellers went bumb just after we bought. Odd people and post started arriving, so I thought I'd better investigate!

Always good to have an expert opinion Richard; I do enjoying reading your posts and think a lot of people must be grateful for the time you spend answering queries on here.