Deed of variation estate rent charge

Ftbs2022

Hello, little 'disclaimer': I know this has been posted about lots (I've been scouring the forums and Google for days) but I've read mixed feelings around estate rentcharges and wanted to get a feel for my partner's and I situation...

We're FTBs and have put in an offer on a secondhand new build (built by Persimmons in 2010).  We're at the stage that we've received our mortgage offer and are a about a month into the conveyancing process.  We've received the TP1 which outlines a covenant on rentcharges, which after some research we've worked out is an estate rentcharge.  The rentcharge has been passed to a management company - we're not certain which (waiting to hear from solicitor).  After an initial panic and a doom inducing Google search (LPA 1925 s121, Roberts v Lawton 2016 and the after effects of mortgage lenders being wary of rentcharges) we've realised that there looks to be a Deed of Variation in place, namely the power of re-entry won't be exercised until after 28 days notice has been given to us and our lender.  Reading the UK Finance Mortgage Lenders' Handbook for Conveyancer's this amendment seems to satisfy a good amount of mortgage lenders.  

Essentially from what we're reading the main concern around rentcharges is if a Deed of Variation is not in place or if a developer/management company is unwilling to agree to one.  And if a Deed of Variation is in place there is less risk?

Our main concern is that we get a mortgage approved now, but say in 5 years time we want to sell or remortgage/product transfer then we'll run into issues.  I.e. buyers will be scared off by the idea of rentcharge or mortgage lenders will have tightened their requirements.  Though our solicitor doesn't seem too concerned and doesn't seem to think it will hinder our current mortgage offer.

So long story short (sorry for the rambling) we were wondering what experiences others have had with estate rentcharges.  Namely:
1. do Deeds of Variation mitigate risks 2. has anyone faced any issues selling when a Deed of Variation is in place
3. has anyone faced issues with any mortgage lenders when a Deed of Variation is in place
4. and lastly has anyone experienced management companies seriously hiking their charges.  We've been advised our charges should be around £100 year on year and go up with inflation (though we have seen no written mention of this or a cap - something we will be investigating). While I'm doubting we'd be suddenly hit with charges in the £1000s it is still a concern.

I'd appreciate no unjustified, single sentence comments along the lines 'pull out now', just looking for some reasoned thoughts to see if there's perspectives we've missed whilst weighing this up. 

Thanks for taking the time to read!

P.S. Our current stance is that: 1. the Deed of Variation seems to appease a decent number of mortgage lenders; 2. we've never paid a late bill so we'd endeavour to never be late on any rentcharge payments; 3. the payments should be low and from what we can see visiting the estate it looks to be maintained at a good standard; 4. properties have been selling in the estate in recent years and months suggesting lenders and buyers haven't been put off... overall we're feeling the positives of the house (it suits all our other needs and requirements) are outweighing this risk.

eddddy

Ftbs2022 said:

1. do Deeds of Variation mitigate risks 

It depends what the Deed of Variation says.

As you probably know, if a rentcharge is unpaid, the rentcharge owner is allowed to create a lease on the property.

Assuming you fail to pay a rentcharge...

• If the deed says that the mortgage lender must be given 28 days notice of action - hopefully the mortgage lender will get their act together, and pay the bill on your behalf before 28 days is up. (But if the mortgage lender messes up, and doesn't pay the bill - the action would be taken.)

• Does the deed also say the owner must be given 28 days notice of action? If so that's a final warning to the owner as well - which might be important if the owner doesn't have a mortgage. But again, the owner might not take action for some reason.

It would  be even better if the Deed of Variation...

• Has a clause preventing the rent charge owner from taking a lease on the property, or

• Has a clause saying that if a lease is created on the property, the lease can be cancelled by paying the oustanding bill plus any legal costs

Ftbs2022 said:

4. and lastly has anyone experienced management companies seriously hiking their charges. We've been advised our charges should be around £100 year on year and go up with inflation (though we have seen no written mention of this or a cap - something we will be investigating). While I'm doubting we'd be suddenly hit with charges in the £1000s it is still a concern

The management charge will be your share of the bill for maintaining "something" - probably open spaces, maybe roads, pavements, street lighting etc. 

Check the deed to see precisely what you're responsible for maintaining and what percentage share you will have to pay.

(And check their current condition. For example, if you have to contribute to the cost of maintaining the road, and it's full of potholes - you might have a big bill ahead.)

The cost can't be capped - if giant potholes appear in the road, they have to be repaired, and the repairs have to be paid for, whatever the cost.


I can see why somebody said the costs would increase with inflation - but that might have mislead you a bit. You have to pay a percentage of the costs, and some of the costs will increase with inflation. For example, the grass cutting company might charge £2,000 to cut the grass this year, but charge £2,200 next year. So you could say the cost of grass cutting has increased because of inflation, so your management charge has increased because of inflation.

(But if the grass is cut weekly this year, but next year the management company decide it only has to be cut fortnightly, that would reduce the cost - which would reduce your management charge.)

Troy_af

Ftbs2022 said:

Hello, little 'disclaimer': I know this has been posted about lots (I've been scouring the forums and Google for days) but I've read mixed feelings around estate rentcharges and wanted to get a feel for my partner's and I situation...

We're FTBs and have put in an offer on a secondhand new build (built by Persimmons in 2010).  We're at the stage that we've received our mortgage offer and are a about a month into the conveyancing process.  We've received the TP1 which outlines a covenant on rentcharges, which after some research we've worked out is an estate rentcharge.  The rentcharge has been passed to a management company - we're not certain which (waiting to hear from solicitor).  After an initial panic and a doom inducing Google search (LPA 1925 s121, Roberts v Lawton 2016 and the after effects of mortgage lenders being wary of rentcharges) we've realised that there looks to be a Deed of Variation in place, namely the power of re-entry won't be exercised until after 28 days notice has been given to us and our lender.  Reading the UK Finance Mortgage Lenders' Handbook for Conveyancer's this amendment seems to satisfy a good amount of mortgage lenders.  

Essentially from what we're reading the main concern around rentcharges is if a Deed of Variation is not in place or if a developer/management company is unwilling to agree to one.  And if a Deed of Variation is in place there is less risk?

Our main concern is that we get a mortgage approved now, but say in 5 years time we want to sell or remortgage/product transfer then we'll run into issues.  I.e. buyers will be scared off by the idea of rentcharge or mortgage lenders will have tightened their requirements.  Though our solicitor doesn't seem too concerned and doesn't seem to think it will hinder our current mortgage offer.

So long story short (sorry for the rambling) we were wondering what experiences others have had with estate rentcharges.  Namely:
1. do Deeds of Variation mitigate risks 2. has anyone faced any issues selling when a Deed of Variation is in place
3. has anyone faced issues with any mortgage lenders when a Deed of Variation is in place
4. and lastly has anyone experienced management companies seriously hiking their charges.  We've been advised our charges should be around £100 year on year and go up with inflation (though we have seen no written mention of this or a cap - something we will be investigating). While I'm doubting we'd be suddenly hit with charges in the £1000s it is still a concern.

I'd appreciate no unjustified, single sentence comments along the lines 'pull out now', just looking for some reasoned thoughts to see if there's perspectives we've missed whilst weighing this up. 

Thanks for taking the time to read!

P.S. Our current stance is that: 1. the Deed of Variation seems to appease a decent number of mortgage lenders; 2. we've never paid a late bill so we'd endeavour to never be late on any rentcharge payments; 3. the payments should be low and from what we can see visiting the estate it looks to be maintained at a good standard; 4. properties have been selling in the estate in recent years and months suggesting lenders and buyers haven't been put off... overall we're feeling the positives of the house (it suits all our other needs and requirements) are outweighing this risk.

Hello.

I am in the exact same situation as you. Offer accepted on a property only a couple years old on a new estate, subject to a rent charge (also Persimmin). Only just come to light now after almost 5 month after offer being accepted. I haven't even had the deeds yet explaining the terms or amount of the rent charge. Yet strangely I have been given a deed of covenant to sign which is an agreement for me to pay the "reasonable" charge. This deed does name "the company" who the rent charge is payable to.. have you not had this yet?

In my case its left me a little confused because after searching for the company there is not much info on them. They don't have a website or contact information, nothing. They do appear on Gov.uk as a registered company and it looks like they are just some investment company that buys land all over the country, not an estate management company which I was expecting. My solicitor said "you are required to enter into a deed of covenant with the original developer", but as mentioned the company in the deed I have been told to sign is definitley not the original developer. So make sure you actually find out who the company is. 

I have also had a mortgage offer approved. I've also looked at the UK finance mortgage lenders handbook and my lender is on there and has quite strict rules on lending on such properties.  Now what I find even more strange about this is that I don't see how the lender could have possibly seen any of the rent charge details considering my solicitor cannot get hold of them yet.  Have you contacted your lender about this? My concern is that some lenders aren't even aware of this? Surely not?

Keep us updated I'm sure there are many in the same situation and good luck.

eddddy

Troy_af said:

I've also looked at the UK finance mortgage lenders handbook and my lender is on there and has quite strict rules on lending on such properties.  Now what I find even more strange about this is that I don't see how the lender could have possibly seen any of the rent charge details considering my solicitor cannot get hold of them yet.  Have you contacted your lender about this? My concern is that some lenders aren't even aware of this? Surely not?

Lenders are fully aware of this.

When you buy a property, your solicitor has 2 clients - you are client number 1, your mortgage lender is client number 2.

So your solicitor will read the deed and they will advise you about it, and they will advise your mortgage lender about it.

If the deed isn't satisfactory, your solicitor will tell the mortgage lender, and you will be refused a mortgage (if an offer has already been made, it will be withdrawn.).  The mortgage lender doesn't usually need to see the deed, they just rely on what the solicitor tells them.


So you don't have to contact your lender about this, your solicitor deals with it.

Ftbs2022

Thank you so much for your responses above.
Assuming you fail to pay a rentcharge...

• If the deed says that the mortgage lender must be given 28 days notice of action - hopefully the mortgage lender will get their act together, and pay the bill on your behalf before 28 days is up. (But if the mortgage lender messes up, and doesn't pay the bill - the action would be taken.)

Yes there would still be a risk, something we need to weigh up.  Though we would just be very careful to make payments promptly and on time, and to chase if we felt we'd missed any statements or requests for payment.

• Does the deed also say the owner must be given 28 days notice of action? If so that's a final warning to the owner as well - which might be important if the owner doesn't have a mortgage. But again, the owner might not take action for some reason.

Yes the deed advises that written notice would go to both the chargee and mortgagee.

It would  be even better if the Deed of Variation...

• Has a clause preventing the rent charge owner from taking a lease on the property, or

• Has a clause saying that if a lease is created on the property, the lease can be cancelled by paying the oustanding bill plus any legal costs

Agreed, we saw that Nationwide has set out those requirements (though they're not our lender), and they seem to be the tightest any of the lenders have gone. We felt having these amendments would protect and future proof us the best. We've asked our solicitor to go back and test the water with the management company, but we doubt that without our lender requiring such a variation the management company will refuse to consider it.

The management charge will be your share of the bill for maintaining "something" - probably open spaces, maybe roads, pavements, street lighting etc. 

Check the deed to see precisely what you're responsible for maintaining and what percentage share you will have to pay.

(And check their current condition. For example, if you have to contribute to the cost of maintaining the road, and it's full of potholes - you might have a big bill ahead.)

The cost can't be capped - if giant potholes appear in the road, they have to be repaired, and the repairs have to be paid for, whatever the cost.

We understand the rationale behind not capping charges due to unforseen expenditure.  Though we did notice some lenders are requiring a £500 cap? From what we can make out on the plans, the roads have been adopted by the council.  All the Deeds mention is that we pay for the maintenance of open spaces.  We're waiting on a management pack which will hopefully confirm who the management company is, what proportion we pay, and what maintenance we're charged for.  That should help us reasonably estimate whether or not our charges could drastically change year on year. 

Thank you again for your detailed and lengthy response.

Ftbs2022

Troy_af said:
Hello.

I am in the exact same situation as you. Offer accepted on a property only a couple years old on a new estate, subject to a rent charge (also Persimmin). Only just come to light now after almost 5 month after offer being accepted. I haven't even had the deeds yet explaining the terms or amount of the rent charge. Yet strangely I have been given a deed of covenant to sign which is an agreement for me to pay the "reasonable" charge. This deed does name "the company" who the rent charge is payable to.. have you not had this yet?

In my case its left me a little confused because after searching for the company there is not much info on them. They don't have a website or contact information, nothing. They do appear on Gov.uk as a registered company and it looks like they are just some investment company that buys land all over the country, not an estate management company which I was expecting. My solicitor said "you are required to enter into a deed of covenant with the original developer", but as mentioned the company in the deed I have been told to sign is definitley not the original developer. So make sure you actually find out who the company is. 

I have also had a mortgage offer approved. I've also looked at the UK finance mortgage lenders handbook and my lender is on there and has quite strict rules on lending on such properties.  Now what I find even more strange about this is that I don't see how the lender could have possibly seen any of the rent charge details considering my solicitor cannot get hold of them yet.  Have you contacted your lender about this? My concern is that some lenders aren't even aware of this? Surely not?

Keep us updated I'm sure there are many in the same situation and good luck.

Hello,

I'm sorry to hear you're going through something similar - I get the feeling they try to drop the rentcharge news as late on as they can to ensure we're emotionally and financially invested.

We haven't had a Deed of Covenant to sign, I have a suspicion who the management company is and we're just waiting on a pack to outline everything in more detail.  I hope you manage to find some more info on your company, or they at least supply a pack outlining what they manage and charge you for etc.

Eddddy has put on some info about lenders above so just to add to this our solicitor is making our mortgage lender aware and she didn't seem concerned that it would affect our offer.  We're waiting to see if they come back with anything so they haven't so far.  If they did we'd see if the management company would be willing to go along with another Deed of Variation, or potentially look for another lender with less strict requirements.

I'll post on here if there's any major updates, and if we go ahead how that goes.  

Thanks for your reply and best of luck to you too

ftb2024

Hi can I please ask if your purchase was successful in the end. Currently going through same thing

weworking

Ftbs2022 said:

Hello, little 'disclaimer': I know this has been posted about lots (I've been scouring the forums and Google for days) but I've read mixed feelings around estate rentcharges and wanted to get a feel for my partner's and I situation...

We're FTBs and have put in an offer on a secondhand new build (built by Persimmons in 2010).  We're at the stage that we've received our mortgage offer and are a about a month into the conveyancing process.  We've received the TP1 which outlines a covenant on rentcharges, which after some research we've worked out is an estate rentcharge.  The rentcharge has been passed to a management company - we're not certain which (waiting to hear from solicitor).  After an initial panic and a doom inducing Google search (LPA 1925 s121, Roberts v Lawton 2016 and the after effects of mortgage lenders being wary of rentcharges) we've realised that there looks to be a Deed of Variation in place, namely the power of re-entry won't be exercised until after 28 days notice has been given to us and our lender.  Reading the UK Finance Mortgage Lenders' Handbook for Conveyancer's this amendment seems to satisfy a good amount of mortgage lenders.  

Essentially from what we're reading the main concern around rentcharges is if a Deed of Variation is not in place or if a developer/management company is unwilling to agree to one.  And if a Deed of Variation is in place there is less risk?

Our main concern is that we get a mortgage approved now, but say in 5 years time we want to sell or remortgage/product transfer then we'll run into issues.  I.e. buyers will be scared off by the idea of rentcharge or mortgage lenders will have tightened their requirements.  Though our solicitor doesn't seem too concerned and doesn't seem to think it will hinder our current mortgage offer.

So long story short (sorry for the rambling) we were wondering what experiences others have had with estate rentcharges.  Namely:
1. do Deeds of Variation mitigate risks 2. has anyone faced any issues selling when a Deed of Variation is in place
3. has anyone faced issues with any mortgage lenders when a Deed of Variation is in place
4. and lastly has anyone experienced management companies seriously hiking their charges.  We've been advised our charges should be around £100 year on year and go up with inflation (though we have seen no written mention of this or a cap - something we will be investigating). While I'm doubting we'd be suddenly hit with charges in the £1000s it is still a concern.

I'd appreciate no unjustified, single sentence comments along the lines 'pull out now', just looking for some reasoned thoughts to see if there's perspectives we've missed whilst weighing this up. 

Thanks for taking the time to read!

P.S. Our current stance is that: 1. the Deed of Variation seems to appease a decent number of mortgage lenders; 2. we've never paid a late bill so we'd endeavour to never be late on any rentcharge payments; 3. the payments should be low and from what we can see visiting the estate it looks to be maintained at a good standard; 4. properties have been selling in the estate in recent years and months suggesting lenders and buyers haven't been put off... overall we're feeling the positives of the house (it suits all our other needs and requirements) are outweighing this risk.

Hi @ftbs2022 Did you go ahead with the deed of variation and how did the purchase work out for you?

PurplePow

weworking said:

Ftbs2022 said:

Hello, little 'disclaimer': I know this has been posted about lots (I've been scouring the forums and Google for days) but I've read mixed feelings around estate rentcharges and wanted to get a feel for my partner's and I situation...

We're FTBs and have put in an offer on a secondhand new build (built by Persimmons in 2010).  We're at the stage that we've received our mortgage offer and are a about a month into the conveyancing process.  We've received the TP1 which outlines a covenant on rentcharges, which after some research we've worked out is an estate rentcharge.  The rentcharge has been passed to a management company - we're not certain which (waiting to hear from solicitor).  After an initial panic and a doom inducing Google search (LPA 1925 s121, Roberts v Lawton 2016 and the after effects of mortgage lenders being wary of rentcharges) we've realised that there looks to be a Deed of Variation in place, namely the power of re-entry won't be exercised until after 28 days notice has been given to us and our lender.  Reading the UK Finance Mortgage Lenders' Handbook for Conveyancer's this amendment seems to satisfy a good amount of mortgage lenders.  

Essentially from what we're reading the main concern around rentcharges is if a Deed of Variation is not in place or if a developer/management company is unwilling to agree to one.  And if a Deed of Variation is in place there is less risk?

Our main concern is that we get a mortgage approved now, but say in 5 years time we want to sell or remortgage/product transfer then we'll run into issues.  I.e. buyers will be scared off by the idea of rentcharge or mortgage lenders will have tightened their requirements.  Though our solicitor doesn't seem too concerned and doesn't seem to think it will hinder our current mortgage offer.

So long story short (sorry for the rambling) we were wondering what experiences others have had with estate rentcharges.  Namely:
1. do Deeds of Variation mitigate risks 2. has anyone faced any issues selling when a Deed of Variation is in place
3. has anyone faced issues with any mortgage lenders when a Deed of Variation is in place
4. and lastly has anyone experienced management companies seriously hiking their charges.  We've been advised our charges should be around £100 year on year and go up with inflation (though we have seen no written mention of this or a cap - something we will be investigating). While I'm doubting we'd be suddenly hit with charges in the £1000s it is still a concern.

I'd appreciate no unjustified, single sentence comments along the lines 'pull out now', just looking for some reasoned thoughts to see if there's perspectives we've missed whilst weighing this up. 

Thanks for taking the time to read!

P.S. Our current stance is that: 1. the Deed of Variation seems to appease a decent number of mortgage lenders; 2. we've never paid a late bill so we'd endeavour to never be late on any rentcharge payments; 3. the payments should be low and from what we can see visiting the estate it looks to be maintained at a good standard; 4. properties have been selling in the estate in recent years and months suggesting lenders and buyers haven't been put off... overall we're feeling the positives of the house (it suits all our other needs and requirements) are outweighing this risk.

Hi @ftbs2022 Did you go ahead with the deed of variation and how did the purchase work out for you?

We're currently going through a Deed of Variation for our house sale (requested via Persimmon for £200 and issued without problems within a week or so) and had to fight to get one for our onward purchase (costing £1500 and no timescale provided as of yet).  Indemnity was offered instead which we declined as doesn't cover us enough for the future.