Estate Rentcharge - How long does it take to get Deed of Variation done?

HarveyNichols99

England, FTB.

3 weeks into buying a "Freehold", and turns out there's a Estate Rent Charge. My mortgage broker has indicated the bank won't issue a mortgage unless there's a Deed of Variation with the Rentcharge owner basically saying they can't impose a lease and have to give the bank 2 months notice before taking any action.

How long does it take a Deed of Variation to be put in place? And what fees should I be expecting?

Troy_af

I've heard of them taking a week, in some cases 6 month, in some cases the management company doesn't agree to the deed of variation and the sale falls through. Not sure about the fee, but since the sellers will have to pay for things such as management packs from the management company maybe the seller would have to cover this fee too? At the end of the day it could be preventing them from selling their property.

I am in a similar situation myself, powers to put a lease on the property have not been removed from the deeds. I haven't yet been told that my lender requires a deed of variation but they have been made aware of the rent charge and my solicitor has said that they may accept indemnity insurance. I'm fully prepared for my lender to withdraw their offer and if this happens I will pull out of the sale.

I would not blame the lender for requiring this variation of for withdrawing their offer. I would strongly advise that you do some research on the term "fleecehold" and you will see why this is. I would also look into who the management company is on the estate. Don't want to scare you but I wish I knew about this before I made an offer on a "fleecehold" property 5 month ago.

Good luck.

HarveyNichols99

Troy_af said:

I've heard of them taking a week, in some cases 6 month, in some cases the management company doesn't agree to the deed of variation and the sale falls through. Not sure about the fee, but since the sellers will have to pay for things such as management packs from the management company maybe the seller would have to cover this fee too? At the end of the day it could be preventing them from selling their property.

I am in a similar situation myself, powers to put a lease on the property have not been removed from the deeds. I haven't yet been told that my lender requires a deed of variation but they have been made aware of the rent charge and my solicitor has said that they may accept indemnity insurance. I'm fully prepared for my lender to withdraw their offer and if this happens I will pull out of the sale.

I would not blame the lender for requiring this variation of for withdrawing their offer. I would strongly advise that you do some research on the term "fleecehold" and you will see why this is. I would also look into who the management company is on the estate. Don't want to scare you but I wish I knew about this before I made an offer on a "fleecehold" property 5 month ago.

Good luck.

That sounds terrible. I guess the vendors bought these properties when estate rentcharges weren't seen as an issue (e.g. Before the landmark ruling).

I'm worried if I do proceed with the sale, will I be able to sell to someone else in 10 years time? Or will all banks avoid Fleeceholds like a plague. Scary stuff

Slithery

HarveyNichols99 said:

I'm worried if I do proceed with the sale, will I be able to sell to someone else in 10 years time? Or will all banks avoid Fleeceholds like a plague. Scary stuff

Do you mean proceed with the purchase? I thought that you were the one buying.

But once the deed of variation is in place it lasts forever so shouldn't be a problem for any future prospective buyers.

Troy_af

HarveyNichols99 said:

Troy_af said:

I've heard of them taking a week, in some cases 6 month, in some cases the management company doesn't agree to the deed of variation and the sale falls through. Not sure about the fee, but since the sellers will have to pay for things such as management packs from the management company maybe the seller would have to cover this fee too? At the end of the day it could be preventing them from selling their property.

I am in a similar situation myself, powers to put a lease on the property have not been removed from the deeds. I haven't yet been told that my lender requires a deed of variation but they have been made aware of the rent charge and my solicitor has said that they may accept indemnity insurance. I'm fully prepared for my lender to withdraw their offer and if this happens I will pull out of the sale.

I would not blame the lender for requiring this variation of for withdrawing their offer. I would strongly advise that you do some research on the term "fleecehold" and you will see why this is. I would also look into who the management company is on the estate. Don't want to scare you but I wish I knew about this before I made an offer on a "fleecehold" property 5 month ago.

Good luck.

That sounds terrible. I guess the vendors bought these properties when estate rentcharges weren't seen as an issue (e.g. Before the landmark ruling).

I'm worried if I do proceed with the sale, will I be able to sell to someone else in 10 years time? Or will all banks avoid Fleeceholds like a plague. Scary stuff

I don't think anyone will be able to answer the question of selling in 10 years time, unfortunately it would be your risk to take.

Whilst the lenders requirements will be a concern when it comes to selling, I think a much more likely problem will be the amount that is being charged, keep in mind these fees are uncapped and unregulated. 

What if when you come to sell the rentcharge is £400, £500 per year or higher? That will put buyers off, I know this because I am a buyer and its putting me off!

Troy_af

Slithery said:

HarveyNichols99 said:

I'm worried if I do proceed with the sale, will I be able to sell to someone else in 10 years time? Or will all banks avoid Fleeceholds like a plague. Scary stuff

Do you mean proceed with the purchase? I thought that you were the one buying.

But once the deed of variation is in place it lasts forever so shouldn't be a problem for any future prospective buyers.

Problem is a deed of variation is to satisfy your specific lenders requirements only, at that time.

Different lenders have different requirements. Therefore what is to say that the next time you need to remortgage or sell on you will have this issue again. 

eddddy

Troy_af said:

Problem is a deed of variation is to satisfy your specific lenders requirements only, at that time.

Different lenders have different requirements. Therefore what is to say that the next time you need to remortgage or sell on you will have this issue again. 

Just for balance...

• You're saying "What if lender's lending requirements get tougher?"
• Maybe you should also consider "What if the planned reforms become law?"

They're both "what-if" questions, but the combination of a deed of variation, and future controls over freehold service charges might make the OP's chosen property become more desirable, and therefore increase it's value.

With any property purchase there's an element of risk - because you can't be sure what will happen in the future. Different people are comfortable with different levels of risk.

Trinabelle1970

We are in the process of buying a new build with an Estate Rent Charge.  We are fortunate that the developer has already included a clause in the deed with a covenant preventing the enforcement of any provisions under Section 121 of the Law of Property Act 1925.  I believe the cost of DoV could be around £900, who is expected to pay for that I don't know.

You might wish to also check the deed for clauses relating to increases in Annual Service Charges, our deed states we have the right to challenge unreasonable increases via RICS. (Although we have to keep paying until they reach a decision!)

I believe there is more protection if the Estate Management Company is set up with all the residents on the Estate being appointed as Directors, (but don't quote me on that!)  Thus if the Management Company (aka the residents) are unhappy with the Managing Agent, with a majority agreement,  the Management Company can have the Managing Agent removed.  (My Mum did this on her new build a few years ago)

eddddy

Trinabelle1970 said:

I believe the cost of DoV could be around £900, who is expected to pay for that I don't know.

There's no rules - it's just a matter of negotiation between the seller and the buyer.

But other than that, it sounds like you have good terms for your rent charge.

Troy_af

eddddy said:

Troy_af said:

Problem is a deed of variation is to satisfy your specific lenders requirements only, at that time.

Different lenders have different requirements. Therefore what is to say that the next time you need to remortgage or sell on you will have this issue again. 

Just for balance...

• You're saying "What if lender's lending requirements get tougher?"
• Maybe you should also consider "What if the planned reforms become law?"

They're both "what-if" questions, but the combination of a deed of variation, and future controls over freehold service charges might make the OP's chosen property become more desirable, and therefore increase it's value.

With any property purchase there's an element of risk - because you can't 8be sure what will happen in the future. Different people are comfortable with different levels of risk.

I do see your point, believe me I'm in the same situation myself, trying to weigh up the risk vs reward. Thing is how long did it take for the leaseholders right to change this year? 15, 20 years? 

Like others have said though I think who the management company is and what rights they have is very important. You must research this yourself because the estate agents or solicitors ain't gonna do it for you.

I don't think many buyers (especially new buyers)  realise just how unregulated this is. The company you are paying the rent charge to do not even need to be a maintenance company. It can literally just be a sole person collecting the money (an amount they decide), then do absolutely no maintenance in return, no proof of account nothing .. it's perfectly legal 

princeofpounds

The actual direct process of producing a suitable deed of variation takes less than an hour. It's just a few lines of contract, with wording that is generally pre-established, and a couple of signatures.

In reality, it can take anything from a few days to several months. The real problem is getting everyone to actually agree and do it. There are several parties to co-ordinate - buyer, seller, their respective solicitors, the mortgage lender and the rentcharge owner. Some of those parties will see this as a priority, others will not. Some of these parties will be happy to pay for it, others will not. Sometimes, some of the parties do not even understand what it is all about and need to be educated and seek their own legal advice.

If everyone knows what they are doing then you are probably looking at 2-3 weeks at a guess, for the mail to go back and forth. But if there is other legal work that will drag on longer you may find the solicitors do not prioritise this until they can deal with everything in one go, and that's very possible given you're only three weeks in. For example, why spend on creating a DoV when you don't even have searches back yet that might scupper your purchase before you get going?

What your solicitor/mortgage lender is asking for (basically giving up the powers of Section 121 of the Law of Property Act 1925) is now a very standard approach - it's the requirement of almost every mortgage lender now. There are some exceptions at many lenders for situations where the rentcharge owner is a residents' association.

As others have said, it's impossible to predict what lending criteria will be like in a decade.

However, all of this is based around a specific issue caused by a legal case (Roberts v. Lawton, the 'Morgoed case' - google it) that gave a decision that no-one really expected. Which is that the Section 121 powers could be used by a rentcharge owners. Although in hindsight, that was pretty much what the law said, but people assumed the courts would never allow it.

The Deed of Variation entirely removes this problem. Everyone was fine - for the purposes of mortgage lending - with estate rentcharges before, and so there isn't a particularly strong reason why they should be afterwards. Huge numbers of houses have been and are being built under this system, so it's very unlikely the government would allow them all to remain unmortgageable for a protracted period of time.

But there could be some legal friction about how the rentcharges and services are provided are actually governed - it's analogous for a freeholder/leaseholder situation, but that is far more regulated by court Tribunals, whereas no equivalent exists for estate rentcharges. My personal opinion is that this will not stop you selling the property, but there is a modest risk it could reduce its attractiveness. It would not stop me buying such a property (thousands do every year for the last few years). I would have very few reservations about an estate rentcharge that is owned by a Residents' Association.