Leasehold flats - term regarding insurance

ajh1992

Morning all,

Apologies that my first post here is asking for help. I’ve had a search around the internet for advice on this without much look, but would welcome any pointers if I’m missing anything obvious!

I am in the process of buying a leasehold flat, part of the deal being that the seller extended the lease prior to sale. My solicitors have raised an objection to a clause in the new lease (which I understand has now been signed), the essence of which says that if the block is insufficiently insured to cover the full reinstatement cost should something destroy/damage the block, an extra service charge can be made to cover the difference.

There is also a clause saying the freeholder/management company is obligated to insure the block to a value they reasonably believe would be sufficient to cover full reinstatement, but obviously my solicitors’ concern is that if the management co neglect to do this, I would be on the hook for the cost. The other sides solicitors have suggested that due to the freeholder’s obligation to insure, this shouldn’t be a concern - after all if a gap did arise, there has to be some sort of mechanism to bridge it.

After some research, I asked about contingent buildings insurance to protect against such eventualities, but my solicitors advised that these are only typically for a maisonette with a defective lease.

I am interested in whether there is a consensus on whether this is really something to worry about - whether my solicitors are being over cautious or not? For instance, perhaps these sorts of terms are actually quite common, don’t tend to affect saleability? On the other hand, it may be more serious. My lender are pressing for it to be removed, so they seem to be aligned with my solicitors. I’d also be interested with any experiences anyone has had with any similar situations.

Many thanks

m0bov

Why is the lease being changed rather than simplifying being extended?

ajh1992

I believe this is as they have not been doing it under the provisions of the 1993 act, instead as a negotiation between the seller and freeholder/management co, which obviously gives the latter an opportunity to make changes etc.

m0bov

Not heard of this before, its normally the price that is negotiated.

Have you exchange? I certainly would not be happy, how many others in the block have this revised lease? Why are they changing it? Is it because they want to reduce the amount of insurance cover?

If the lease specifies the freeholder is responsible then there should be no shortall.

If your the only one in the block with the revised lease then you could be coughing up a lot of cash to cover the shortfall for other leaseholders. I'd be very suspicious of this!

ajh1992

A fair few flats in the block have now extended their lease from the original ones, based on some of the documents that I’ve seen as part of the conveyancing process, but I don’t know how many others will have this term. I suppose I could pay to look at a few of the leases on the land registry and see? I don’t know why they are changing it, but presumably as the freeholder would rather not be liable than would be liable should the worst happen (wouldn’t we all!).

I’ve not exchanged yet - we’ve actually just received word that my lender won’t lend unless the term is taken out, so the solicitors are going back to the other side to get them to try again on that front. But I think the seller has already signed (or is about to imminently) on the extension, so I can’t see what leverage they really have.

Probably the fact that my solicitors and bank both dislike this suggests it’s not ideal - if it was just one objecting I might think they were being over cautious, but as it’s both... In particular I’m worried about the potential future saleability - obviously my bank are being funny about it, and there is every possibility that even if I found a lender willing to go with it for now, when I came to selling in the future, it could be that potential buyers might not be able to find a lender.

One thing I would say is I’ve seen the amount the block is insured for and it seems to be more than adequate based on some layman’s calculations. It works out as about £400k per flat, which is way more than even a brand new development would sell for in the area, so hard to see how a shortfall could arise.

Thankfully I paid a £60 ‘no move no fee’ fee to my solicitors at the outset, so if it does fall through I don’t lose much financially, so can put it down to experience. But I am surprised the seller seems to be charging in to sign it on these terms given the potential impact on this sale and with any other buyers they might find if this falls through.

m0bov

How would you sell even if you could exchange? Its not your liability as you don't have the freehold. I'd run a mile...sorry.

eddddy

ajh1992 wrote: »

But I am surprised the seller seems to be charging in to sign it on these terms given the potential impact on this sale and with any other buyers they might find if this falls through.

I wonder if the seller's mortgage lender is aware?

If the lease extension has been negotiated informally, what are the current and future ground rents like?

Freeholders sometimes dupe leaseholders into buying 'cheap' lease extensions - because they have high ground rents.

eddddy

m0bov wrote: »

Not heard of this before, its normally the price that is negotiated.

As above, it's just an example of a freeholder trying to dupe leaseholders by sneaking 'unfavourable' terms into an informal lease extensions.