Buying a London flat, issues with ground rent and AST

jessb52

Hi there,
We put in an offer for a leasehold flat in London that got accepted back in September, so coming up nearly 6 months now. It's privately funded, not through a mortgage.

There doesn't seem to be any fixed reasons for the delays, just general slowness of the solicitors (both ours and the sellers), things like not having the right management pack, Covid etc.

We thought we were finally getting to the stage of completion (the sellers had been sent a contract to sign) and there didn't seem to be any major issues until now.

Our solicitor thinks that the ground rent is 'excessive'. There is currently 103 years left (of originally 125) on the lease. For the first 25 years, the GR is £150, then it will double to £300 in a couple of years time, then £600, then £1200 then £2400. They raised the issue that once it reaches £1000 per month, it will become a Shorthold Tenancy in which arrears of the GR could automatically lead to forfeiture of the flat back to the landlord. The solicitor has raised this as an issue as it may make it difficult to sell in the future, as it has become an issue with mortgage lenders.

They applied for a Deed of Variation to cap the ground rent, but the landlord refused. 
The solicitor is advising us to not purchase the flat unless a deed of variation can be agreed.  This could take weeks or months, with no guarantee that the landlord would agree.

Understandably, both ourselves and the seller are getting incredibly frustrated, this has just dragged on for too long.

We can sign a waiver to the solicitor essentially saying we are happy to ignore her advice and go forward with the sale nonetheless, but this seems like a big deal - ignoring the advice of a solicitor seems to go against the idea of hiring one in the first place.

What are people's thoughts on this? We seem to have three options:
1) go forward without the DoV, ignoring the advice of the solicitor
2) apply for the DoV, potentially waiting months with no guarantee it will be approved
3) pull out of the sale which we really, really, really do not want to do

Any other options that we haven't thought of? All help appreciated.

Thanks.

bouicca21

Get the DoV or walk.

yksi

It would not deter me. I have a similar clause, with smaller amounts, but I simply asked the solicitor to clarify, did she mean that in 2046, assuming the Housing Act or its equivalent still had the same conditions, that it could potentially become a Shorthold Tenancy assuming that the future potential owner was more than X amount in arrears and that this theoretical situation could potentially dissuade future buyers. She confirmed it, I told her that I understood the implications, I would no longer be the owner, this wasn't a concern for me and to continue regardless.

The solicitor's job is to measure and attempt to mitigate legal risk. If you make it clear you understand the risk and are comfortable with it then it is her job to do as you instruct. There's no such thing as a property purchase without risks and it's not the aim to eliminate them altogether

jessb52

yksi said:

It would not deter me. I have a similar clause, with smaller amounts, but I simply asked the solicitor to clarify, did she mean that in 2046, assuming the Housing Act or its equivalent still had the same conditions, that it could potentially become a Shorthold Tenancy assuming that the future potential owner was more than X amount in arrears and that this theoretical situation could potentially dissuade future buyers. She confirmed it, I told her that I understood the implications, I would no longer be the owner, this wasn't a concern for me and to continue regardless.

Thanks, I think it's about the saleability, rather than us being the owners in arrears in 50 years' time or whatever. Potentially, when we come to sell, we may have issues from those using mortgage lenders (the vast majority of people) as many mortgage lenders appear not to grant them based on future AST.

I do partly think it's not the end of the world too, I mean, there are over 50 flats in that complex and surely they must all face the same issue? If it was such a big issue, then no flats would be bought and sold?

davidmcn

jessb52 said:

Our solicitor thinks that the ground rent is 'excessive'. There is currently 103 years left (of originally 125) on the lease. For the first 25 years, the GR is £150, then it will double to £300 in a couple of years time, then £600, then £1200 then £2400. They raised the issue that once it reaches £1000 per month year (I hope!), it will become a Shorthold Tenancy 

So it wouldn't actually go over £1,000 for another 52 years? I mean, yes, the advice is in theory correct, but only if everybody assumes that the relevant limit (or indeed the whole law around leasehold in general) won't have changed by then. I don't see it as much of a risk.

dimbo61

This may make the flat unmortgagable so not a problem for you but could cause you Huge issues when you come to sell.
You are paying for legal advice so be Very aware of the consequences if you choose to ignore your solicitor.

hazyjo

How does the property price compare to others?

Don't get to the stage where you feel you've invested so much time and money that you don't want to walk away. It's rarely cheaper or more cost effective to just carry on and buy it rather than starting again.

It may be unmortgageable, or very hard to sell or rectify, so you'd be mad to pay full market value.

Personally, I'd probably walk.

AdrianC

4. Buy the flat, go for statutory lease extension at some point in two or more years time, which will bring the ground rent down to peppercorn.

5. Buy the flat, cross your fingers for the promised leasehold reform that the government have muttered some vague words about.

What's so special about THIS flat that makes 3 so unattractive? Simply the sunk cost?

Annisele

jessb52 said:

 I mean, there are over 50 flats in that complex and surely they must all face the same issue? If it was such a big issue, then no flats would be bought and sold?

I don't know anything about this, but in your OP you said the solicitor said this had "become" an issue for mortgage lenders - i.e. it wasn't before, but now it is. It's entirely possible that in the past, mortgage lenders didn't notice/didn't care, and so people could happily get mortgages for the flats in the past. Your seller may simply be the canary in the coalmine, and all future sales would have this issue.

I'd only take your option 1 (ignore the advice) if the flat was amazing AND if I intended to live in it for the rest of my life - in other words, I'd only buy it if it was the only one that ticked all my boxes and I didn't care about resale value. Otherwise, I'd say "seller's problem" - and either wait for the DoV or walk away entirely.

greatcrested

f you ignore your solicitor's advice you are taking a risk.

Up to you if the flat is worth the risk.......

NameUnavailable

Mortgage lenders don't like doubling ground rent clauses and many simply will not lend on them, so whilst you can buy the flat regardless, when you come to sell you may find it difficult to do so. This issue has only really become a thing in recent years. With all the other risks around flats right now lenders are being particularly cautious.

If you really want the flat then buy the lease it as it stands and in two years time you can apply for a statutory lease extension which will reduce the ground rent to zero (you can get a rough estimate of the cost online if you google lease extension calculator).