Estate rentcharge with repossession powers on freehold property.

Troy_af

Hello.

Looking for some advice on this as I know it is becoming a much more common issue, so hopefully someone has been in a similar situation.

I am in the process of buying a property with an estate rentcharge (only 2 year old on a new estate) and was hoping to complete soon had this issue not came about. It has only now just came up as a complication and my solicitor has advised me that my lender will need to be informed and they may require a deed of variation. The rentcharge is payable to a management company who are going to be maintaining the estate, apparently this is standard now with almost all new estates. The first problem with this is that the estate is not yet finished, the developer has not handed over the estate yet, therefore the management company has not been appointed or set up properly so communication/cooperation is non-existent (it’s a stretch to even call it a company, it’s a sole director who’s bought the land and has no history or experience of estate management).

The repossession powers are referring to the section 121 of law of property act 1925. Now I’ve done as much research as I can on this and it seems to be a growing issue. In every example I’ve came across though, these repossession powers have been removed from the deeds in order for lenders to be satisfied. Unfortunately I appear to be one of the unlucky ones who has the worst case scenario of these repossession powers still written into the deeds.

I’m asking for some advice because basically I’m not comfortable with this or with the situation regarding the management company and I am now seriously considering pulling out of the purchase. Even if the lender agrees to lend without a deed of variation, I would not be happy given that when I come to re mortgage or sell in the future, I could have issues. Is it acceptable for me to request a deed variation even if the lender does not or is this something that would probably not even be considered? Would appreciate any information.

Thanks.

eddddy

Troy_af said:

The repossession powers are referring to the section 121 of law of property act 1925. Now I’ve done as much research as I can on this and it seems to be a growing issue. In every example I’ve came across though, these repossession powers have been removed from the deeds in order for lenders to be satisfied. 

As you say, one route is to exclude the provisions of section 121 of the law of property act.

But many lenders also seem to accept an alternative option: That the mortgage lender must be given 2 months notice of enforcement action. That gives the mortgage lender 2 months to pay the outstanding rent charge.

Here's what the mortgage lenders say:  https://lendershandbook.ukfinance.org.uk/lenders-handbook/englandandwales/question-list/1865/

Troy_af said:

Is it acceptable for me to request a deed variation even if the lender does not or is this something that would probably not even be considered? 

You can tell the seller that you need a deed of variation, and they can ask their freeholder. Based on other posts, it seems like freeholders often agree.

But it might delay your purchase while it gets arranged, and there'll be a chunk of legal fees to pay. So you'd have to negotiate with the seller over who pays them.


And if the freeholder refuses (or the seller refuses because of the potential delay), you'll have to decide whether you want to proceed or walk away.

Troy_af

eddddy said:

Troy_af said:

The repossession powers are referring to the section 121 of law of property act 1925. Now I’ve done as much research as I can on this and it seems to be a growing issue. In every example I’ve came across though, these repossession powers have been removed from the deeds in order for lenders to be satisfied. 

As you say, one route is to exclude the provisions of section 121 of the law of property act.

But many lenders also seem to accept an alternative option: That the mortgage lender must be given 2 months notice of enforcement action. That gives the mortgage lender 2 months to pay the outstanding rent charge.

Here's what the mortgage lenders say:  https://lendershandbook.ukfinance.org.uk/lenders-handbook/englandandwales/question-list/1865/

Troy_af said:

Is it acceptable for me to request a deed variation even if the lender does not or is this something that would probably not even be considered? 

You can tell the seller that you need a deed of variation, and they can ask their freeholder. Based on other posts, it seems like freeholders often agree.

But it might delay your purchase while it gets arranged, and there'll be a chunk of legal fees to pay. So you'd have to negotiate with the seller over who pays them.


And if the freeholder refuses (or the seller refuses because of the potential delay), you'll have to decide whether you want to proceed or walk away.

Thank you for the advice.

So according to the lenders handbook, my lender (Accord) appears to be one of the more strict of lenders and has 3 requirements that must be met. One if these is that the rentcharge can be no more than £500 and not be capable of more than doubling over 25 years. Is this something that will also require a deed of variation for, or just removal of section 121 alone?

I agree that most likely the free holder will agree to remove section 121 powers, but I've not come across any rent charge examples where a cap has been agreed.

My solicitor has warned me that the rentcharge must be paid on time even if it is not demanded. However this is a variable charge, therefore if it is not demanded, then how does the home owner even know how much to pay? This is currently the situation on the whole estate, according to the deeds the payment is due on 1st Jan 2022. Nobody has paid it because it has not been demanded. So in theory, no matter how unlikely it is for this to actually happen, currently the management company now has the right to repossess every house on the estate.. that's how I read it.

It all seems like a massive legal loop hole mess. I think I've decided if the deeds aren't altered I'll be pulling out. Another quick question, the conveyancing process started over 4 month ago. Is it normal for something this serious to have only came up now?

Thanks again.

ProDave

Walk away and find a different property to buy.  I wish the original buyers took the same view, if nobody agreed to these rentcharge schemes the builders would have to change and not impose them or at the very least change them.

peter3hg

ProDave said:

Walk away and find a different property to buy.  I wish the original buyers took the same view, if nobody agreed to these rentcharge schemes the builders would have to change and not impose them or at the very least change them.

Most of the developers have stopped using them as far as I know.
The preferred method now is a restriction on the title that doesn't allow the owner to sell the property without agreement of the management company that payments are up to date (in effect).
This removes any risk of a lease being imposed and removes most of the risk for the lender as if they need to repossess and sell they would just need to bring payments up to date if in arrears.

diggingdude

ProDave said:

Walk away and find a different property to buy.  I wish the original buyers took the same view, if nobody agreed to these rentcharge schemes the builders would have to change and not impose them or at the very least change them.

Of course if council's took them on ... Considering they don't mind charging full council tax.....we wouldn't have this problem 

Troy_af

diggingdude said:

ProDave said:

Walk away and find a different property to buy.  I wish the original buyers took the same view, if nobody agreed to these rentcharge schemes the builders would have to change and not impose them or at the very least change them.

Of course if council's took them on ... Considering they don't mind charging full council tax.....we wouldn't have this problem 

From what I've heard its not the councils fault. For the estates to be adopted the developer would have to pay the council to take it over, which they aren't in order to save themselves money. Instead they can just sell the land to anyone. It doesn't even need to be a management company, literally anyone.

I'd imagine its something which will eventually be regulated and controlled, it desperately needs to be any way. 

peter3hg

Troy_af said:

diggingdude said:

ProDave said:

Walk away and find a different property to buy.  I wish the original buyers took the same view, if nobody agreed to these rentcharge schemes the builders would have to change and not impose them or at the very least change them.

Of course if council's took them on ... Considering they don't mind charging full council tax.....we wouldn't have this problem 

From what I've heard its not the councils fault. For the estates to be adopted the developer would have to pay the council to take it over, which they aren't in order to save themselves money. Instead they can just sell the land to anyone. It doesn't even need to be a management company, literally anyone.

I'd imagine its something which will eventually be regulated and controlled, it desperately needs to be any way. 

Certainly not true around here.
The council require a certain amount of parks and green space for any large developments but will not pay for their upkeep, so the only option is for the residents to pay.
Roads and pavements are built to the appropriate standard and are adopted, so the charges are just for the parks and green space.