Leasehold Query Holding Up Purchase

Caitykinss

Hello,

I'm asking for advice on behalf of my grandparents who are currently in the process of selling their flat and buying a new one. Because of this, please forgive me for limited information as I don't have any documents in front of me.

The whole process has been going on for around 4 months and it seems all sets of solicitors have been a bit slow, particularly the ones my grandparents are using. We had a tentative completion date agreed for today, but at the beginning of this week we received a letter from the solicitor warning about the leasehold status of the new property. She claims that the ground rent, while currently under £250, could increase in the future and if so, the landlord can take control of the property if it goes unpaid. Essentially, the letter is asking whether or not we still want to go ahead.

Unfortunately, the letter is jargon filled and very confusing. It doesn't explain how or why she thinks the ground rent may go up - she doesn't quote a clause in the lease for example. It also seems that my grandparents haven't had a copy of the lease through to read themselves.

The solicitor is suggesting that the property could become unmortgagable and although my grandparents are paying cash through the sale of their current flat, it may cause problems when we come to sell it on.

Does anyone have any idea whether this is something we should be worried about, or can shed any light on what it might mean? We are very annoyed it's taken this long for them to bring up something that could potentially mean it all falling through.

davidmcn

If your grandparents don't understand their solicitor's advice, they should phone or meet them so it can be explained in terms that they do understand. That is, after all, what they're paying for. There are limits to how much help we can give as obviously we haven't seen the letter or the lease either.

Caitykinss

davidmcn wrote: »

If your grandparents don't understand their solicitor's advice, they should phone or meet them so it can be explained in terms that they do understand. That is, after all, what they're paying for. There are limits to how much help we can give as obviously we haven't seen the letter or the lease either.

I understand there's only so much help people will be able to give, I'm just wondering if this seems like a familiar situation.

Unfortunately the solicitor has been terrible throughout, and has sent endless letters like this one that are difficult to understand, without offering much help to explain them. We were already planning on making a big complaint at the end of all this for various mistakes they've made along the way - we just want it all to be over first as they are desperate to move as my grandad can no longer get up and down the stairs in their current flat, so is essentially stuck inside. It's a really difficult situation for all of us.

Tiglet2

It sounds like there is an onerous multiplying ground rent clause in the lease. Ask your solicitor to explain it in layman's terms or send you the lease with the clause highlighted. Alternatively, you could obtain a copy of the lease from HM Land Registry (think the charge is £6 for them to post a copy to you), but I'm a business user so it's different for me). Make sure it is the genuine government website here:
https://eservices.landregistry.gov.uk/eservices/FindAProperty/view/QuickEnquiryInit.do

bouicca21

It’s about the Housing Act 1988. Google it for ground rents over £250 outside London, £1000 in London.

eddddy

Caitykinss wrote: »

She claims that the ground rent, while currently under £250, could increase in the future and if so, the landlord can take control of the property if it goes unpaid. Essentially, the letter is asking whether or not we still want to go ahead.

So, for example, the ground rent might be £200 at the moment, but with RPI increases every 10 years.

If those increases take the ground rent above £250, according to the Housing Act 1988, the lease will become an Assure Shorthold Tenancy (AST).

This will make it much easier for the freeholder to forfeit the lease (i.e. repossess the flat), for non-payment of ground rent.

See: https://www.mishcon.com/news/publications/real_insights_-_property_update_05_2017/assured_tenancy_traps__the_unexpected_ast_05_2017


This worries mortgage lenders - if the freeholder repossess the flat, they have no security for their loan.

Here's an example of what one mortgage lender says:

Principality Building Society

Any ground rent which is currently at a level or, may reach a level referred to within the Housing Act 1988 (hence allowing a long lease to be treated as an AST) is NOT acceptable unless the Lease is varied or a suitable indemnity policy is put in place to protect us. The applicable legislation relates to leases with an annual ground rent of more than £250 (or over £1,000 for properties in London).

Link: https://www.cml.org.uk/lenders-handbook/englandandwales/question-list/1852/

In future years, mortgage lenders may become more worried about this, or less worried. It's hard to judge.

There is talk of reforming the Housing Act to remove this risk - but who knows when/if that will happen?

Caitykinss

Thank you everyone for your responses. It's starting to make more sense now.

We've just heard back from the solicitor who has said the ground rent is currently £50 and will go up by £50 every 25 years. Essentially, it won't hit £250 for another 100 years. They're seeing if it's possible to change the clause, but feeling slightly less worried about it now.

eddddy

Caitykinss wrote: »

They're seeing if it's possible to change the clause....

In theory, it's possible to vary that clause, if the freeholder agrees.

But why would the freeholder agree - what's in it for him/her?

The current leaseholder is essentially saying to the freeholder:

"in order to sell my flat, I need you to agree to take less ground rent in 100 years time"

Unfortunately, many freeholders would think:

"Great!!! That means I've got you over a barrel. You can't sell your flat unless I agree to vary that clause! So how many thousands of pounds are you going to pay me to agree to do that change then?"

But perhaps this particular freeholder will be more reasonable.