Ground Rent/Housing Act and Buyer’s Lender

AlloVera

If there are any Solicitors on here or anyone that has been in a similar position before I would welcome some guidance please.

Situation
Agreed a sale on a leasehold flat approx 1 week before lockdown. Our buyer is a property investor looking to buy to let. Our property has a long lease and we had a Deed of Variation in 2018 to get out of the “ground rent doubling every 10 years” situation. All going well, slightly delayed due to lockdown until 2 weeks ago when our Solicitor received the Landlord’s management pack. Our LL had sent the incorrect information with no mention of Deed of Variation. No problem, I have all the paperwork here, send this off to our Solicitors who then say “hey, slight problem as your ground rent is over £250 a year is falls under the Housing Act and there could be an issue with your Buyers Lender, but don’t worry, they can either renegotiate the amount of we can offer indemnity insurance. Ok, that’s fine, we are happy to pay for insurance as really need to complete ASAP. 

Two weeks later, no further forward, being told that “they” are awaiting decision from Lender. I’m now worried as starting to think the Lender will not lend them they money either way. Can’t get update from anyone, estate agent and solicitor useless. Has anyone been in this situation and can either reassure me or point me in the right direction to fix this?

Thanks in advance.

anselld

You cannot "fix it".  Either the lender will accept or not.
Longer term you can buy out the ground rent with a statutory lease extension but that is expensive and isn't going to happen in time for this sale.

AlloVera

Thank you for the reply, however, it’s not the length of the lease that’s  the issue, it’s the amount of the ground rent as it is over £250, if it was under then it’s not an issue. What I mean by fix it is should I be in contact with the solicitor that did the Deed of Variation as I’m starting to think that we were misadvised.

anselld

I mentioned statutory lease extension as a means of eliminating the £250 ground rent which would then become peppercorn rent.  However, if you think you can get a variation from the freeholder by negotiation that would also work.  I am surprised they released you from the 10 year doubling without significant money changing hands so perhaps they are generous.

Incidentally, £250 is borderline as far as the Housing Act is concerned.  You read some things which say "over £250" is a problem and others say "£250 and over" is a problem.  I have never been able to find the definitive answer to which is correct, but again it doesn't really matter as it is up to the buyers lender to decide their position.

eddddy

anselld said:

Incidentally, £250 is borderline as far as the Housing Act is concerned.  You read some things which say "over £250" is a problem and others say "£250 and over" is a problem.  I have never been able to find the definitive answer to which is correct, but again it doesn't really matter as it is up to the buyers lender to decide their position.

Here you go...

Housing Act 1988
Tenancies Which Cannot be Assured Tenancies
....
A tenancy—
(a)  which is entered into on or after 1st April 1990 (otherwise than, where the dwelling-house had a rateable value on 31st March 1990, in pursuance of a contract made before 1st April 1990), and
(b)  under which the rent payable for the time being is payable at a rate of, if the dwelling-house is in Greater London, £1,000 or less a year and, if it is elsewhere, £250 or less a year.

Link: http://www.legislation.gov.uk/ukpga/1988/50/schedule/1

 So a tenancy with ground rent of £250 or less cannot be an Assured Tenancy.

Therefore, the problem can arise if the ground rent is over £250 - so £250.01 and above.

eddddy

AlloVera said:

Two weeks later, no further forward, being told that “they” are awaiting decision from Lender. I’m now worried as starting to think the Lender will not lend them they money either way. Can’t get update from anyone, estate agent and solicitor useless. Has anyone been in this situation and can either reassure me or point me in the right direction to fix this?

Thanks in advance.

Typically, the indemnity insurance only protects the mortgage lender, and not the leaseholder. So if the lease is forfeited due to non-payment of ground rent, the mortgage lender gets paid, but the leaseholder loses all their equity.

So I guess it may be the buyer that's 'wobbling' rather than the mortgage lender.

 

AlloVera

This is the most frustrating part as the ground rent is £270, I’m wondering whether to approach the Solicitor that did the DofV as I do not remember them mentioning that anything over £250 would mean issues with selling, the main reason we pursued the DofV in the first place was because we knew we would be selling. Even more frustrating that 2 other apartments in the complex have sold within the last 6 months and neither seemed to have this issue. Our estate agent sold one of the other apartments but claim not to know what the ground rent was on that one 🤔

ChloeManoey

I was actually in your buyer's situation a couple of weeks ago. My lender (3 months after giving me a full mortgage offer) refused to lend because the ground rent is due to go over £250pa in 13 years time, and my mortgage term is 35 years. 

The lender suggested a Deed of Variation to cap the ground rent at £250pa. Or an indemnity policy to protect them against possible loss. 

As it happens, neither were required as my solicitor totally ballsed up and told the lender the wrong ground rent figures! But regardless, they are the options the lender proposed!