Buying free hold property with estate rent charge

Troy_af

Nickinok75 said:

Troy_af said:

K_S said:

Troy_af said:

joland113 said:

Hi all,

I am in thew process of buying a freehold property with estate rent charge. A deed of variation is requested by the bank and the solicitor is in the process of getting the approval from the management company. 

Please see the term to alter below:

1) The Management Company Covenants with the Transferee that before commencing any proceedings against the Transferee, either under section 121 of the Law of Property Act 1925 (“LPA 1925”) or otherwise, and arising from the non-payment of any rent-charge the Management Company shall:

 

2) notify the Transferee mortgagee where the rent charge remains unpaid and that no further action will be contemplated by the Management Company until the mortgagee has had two months of the date of notice of the breach to remedy the breach; and

 

3) where the statutory remedy of the grant of a lease of the Property on trust as provided for in Section 121(4) LPA 1925 is exercised for non-payment of any rent-charge such lease will be surrendered, within a premium, following the payment of all arrears together with all reasonable legal costs and court costs of creating and surrendering the lease.

The original deed includes a term mentioning that the service charge needs to be reasonable (so no variation is needed in relation to this).

The solicitor said this should be sufficient to address all the banks' requirements currently in relation to mortgage approval. 

So I guess subject to this deed of variation being approved by the management company, the estate rent charge issue should be resolved with this deed of variation and hopefully it will not affect the future remortgage ability and marketability of the house? (although I understand that there is a risk that the mortgage requirement may change)

I just want to see if there is any alternative view on this. Thanks!

Hello 

I am in a similar situation myself. Can I ask did this come to light before or after your mortgage offer was made? I have had a mortgage offer, but having read my lenders requirements on rent charges, they are actually quite strict. They have requirements to lend on homes subject to a rent charge and I know for a fact having spoken to neighbours and having seen their deeds that these requirements are not in the deeds. My worry is that when the details of the rent charge finally come out (solicitor I think is still waiting for details) the lender may then withdraw. But I thought a lender would have thoroughly been through the deeds before making an offer?

There is very confusing and conflicting information out there. So many articles and websites are saying that lenders do not like these rent charges and it may be a problem to get a mortgage in the future. On the flip side correct me if I'm wrong but all of the home owners in these new build estates must currently have mortgages, so what is going on here with the confusion, are the banks happy to mortgage these properties or not? I can't seem to find an answer.


Hope everything goes well for you, keep us updated.

@troy_af Issues with rent charges (if any) usually only come up during conveyancing.

But rent charges by themselves aren't a huge issue. In a minority of cases they might be drafted in a sufficiently poor manner that most lenders will not lend without a variation and won't be satisfied with an indemnity insurance. In most cases they're fine and often the buyer doesn't even know that the property they're buying comes with a rent charge.

From what lenders have told me, generally speaking, if the rent-charge falls within one of the following categories, it's usually acceptable to most lenders -

1. The provisions under section 121 of the Law of Property Act have been excluded under the estate rent charge clause.

2. The estate rent charge clause includes a mortgagee protection clause, which states that notice of at least 28 days is to be given to the mortgagee prior to any enforcement action being taken by the owner of the estate rent charge.

3. The owner of the estate rent charge is a management company comprising of the residents, who are the shareholders of a private freehold development. 

Thank you for the information.

What I still don't understand though is how the UK Finance Mortgage Lenders Handbook (which my conveyancer says they must follow), clearly states that my lender has 3 requirements that must be met. I know these requirements are not met because having seen the deeds for other properties on the estate, there is no mention of any of these requirements. For example one requirements is that the charge must not be more then £500, the deed however does not give an amount, it just says it will be decided by the company each year. Is the UK Finance Mortgage Lenders Handbook just more of a guide or is it hard rules?

Maybe this is already being dealt with behind the scenes between my solicitor and the lender but I haven't heard anything. Maybe I am trying to get too involved I don't know.

@troy_AF- How did you get on with the above clause being included in your Deed of Variation?
The Management Company of the Property we are hoping to buy has agreed to all the clauses apart from 'the charge must not be more than £500, or double in 25 years' and my Solicitor agrees that this clause is unreasonable.
We are waiting to hear back from the Mortgage company if they will waive this requirement, but i think i know what the answer will be, and potentially my sale will fall through. I was just wondering if your sale went ahead and your DoV included this clause or not

Hello,

So unfortunately we had to pull out of this purchase a few months back. We didn't even get to the stage of discussing a deed of variation with the management company. After receiving a 'management pack' from them which looked like it was put together by a 6 year old, we decided enough was enough. The charge was starting at £276 per year and they hadn't even started any work as the site was still in build.

I'm not sure exactly on the position of lenders on these homes at the moment, but I understand why they would be cautious of a fee with no cap. Either way it is good that you have had better luck than I did so far and at least they have agreed to some clauses.

Good luck