Ground rent deed of variation - typical costs

BSW89

Hi all,

We're currently in the process of selling our flat. The ground rent is £250 p.a. which increases by £100 every 25 years. We've been told this is unacceptable to our buyer's lender and need to get a deed of variation so are now waiting to hear back on what this will cost us and how long it will take. 

While we wait to hear back, does anyone have a ball park figure on what the cost might be (£2k or £20k?!) and how long it might take to resolve (weeks or months!?). I think the alternative would be a statutory lease extension (which I think we could do as we've owned the flat for a few years now, and there are >100 years left on the lease) but am not sure what that would cost either.

Thanks for your help!

Edit: Also reflecting that since buying our flat we've had no issue getting mortgages with two mainstream lenders so is it just our buyer's lender being picky, i.e. is the flat really unsellable without this deed of variation or have we just been unlucky with our current buyer?

Marky4040

BSW89 said:

Hi all,

We're currently in the process of selling our flat. The ground rent is £250 p.a. which increases by £100 every 25 years. We've been told this is unacceptable to our buyer's lender and need to get a deed of variation so are now waiting to hear back on what this will cost us and how long it will take. 

While we wait to hear back, does anyone have a ball park figure on what the cost might be (£2k or £20k?!) and how long it might take to resolve (weeks or months!?). I think the alternative would be a statutory lease extension (which I think we could do as we've owned the flat for a few years now, and there are >100 years left on the lease) but am not sure what that would cost either.

Thanks for your help!

Edit: Also reflecting that since buying our flat we've had no issue getting mortgages with two mainstream lenders so is it just our buyer's lender being picky, i.e. is the flat really unsellable without this deed of variation or have we just been unlucky with our current buyer?

I would ( and have) walked away from this type of issue. A DoV can take months and cost thousands. 

I've just had exactly the same issue with the apartment i purchased. Ground rent is £200 with a doubling clause every 10 years so the ground rent should now be £300 but the landlord has held it at £200 and ignored their own clause because they won't be able to sell the apartments when it goes over £250 pa.   

Lenders don't like a doubling clause of less than 20 years but do provide a way out in their lending criteria, usually an indemnity insurance for any issues arising from the ground rent going above £250 pa.  The DoV is the nuclear option but as i said, can take months and cost thousands.

Believe it or not the buyers solicitor can tell the lender that the purchase complies with their lending criteria with the indemnity policy in place, it is not the lender who refuses to lend. They go by what the solicitor tells them but the solicitor pretends it's the lender making the decision. 

BSW89

Marky4040 said:

BSW89 said:

Hi all,

We're currently in the process of selling our flat. The ground rent is £250 p.a. which increases by £100 every 25 years. We've been told this is unacceptable to our buyer's lender and need to get a deed of variation so are now waiting to hear back on what this will cost us and how long it will take. 

While we wait to hear back, does anyone have a ball park figure on what the cost might be (£2k or £20k?!) and how long it might take to resolve (weeks or months!?). I think the alternative would be a statutory lease extension (which I think we could do as we've owned the flat for a few years now, and there are >100 years left on the lease) but am not sure what that would cost either.

Thanks for your help!

Edit: Also reflecting that since buying our flat we've had no issue getting mortgages with two mainstream lenders so is it just our buyer's lender being picky, i.e. is the flat really unsellable without this deed of variation or have we just been unlucky with our current buyer?

I would ( and have) walked away from this type of issue. A DoV can take months and cost thousands. 

I've just had exactly the same issue with the apartment i purchased. Ground rent is £200 with a doubling clause every 10 years so the ground rent should now be £300 but the landlord has held it at £200 and ignored their own clause because they won't be able to sell the apartments when it goes over £250 pa.   

Lenders don't like a doubling clause of less than 20 years but do provide a way out in their lending criteria, usually an indemnity insurance for any issues arising from the ground rent going above £250 pa.  The DoV is the nuclear option but as i said, can take months and cost thousands.

Believe it or not the buyers solicitor can tell the lender that the purchase complies with their lending criteria with the indemnity policy in place, it is not the lender who refuses to lend. They go by what the solicitor tells them but the solicitor pretends it's the lender making the decision. 

Thanks Marky. The reason I am a bit thrown by this is that's it's not a doubling clause and is more than 20 years, but I also appreciate anything that goes over £250 p.a. can cause issues.

I wonder what the indemnity insurance route would cost.

eddddy

To play devil's advocate on this...

• When you bought the flat you promised to pay the freeholder/landlord £250 plus extra £100s in ground rent.

• You're now asking the freeholder/landlord if you can reduce the rent you promised to pay. 

• If the freeholder/landlord knows this issue is holding up a sale, they probably realise that they have huge bargaining power over you.

So a 'nasty' freeholder might...

• Ask you for a ridiculous amount of money to do this - as they know it's blocking your sale
• Mess you around for ages, until you get desperate, and you offer them more money
• Completely ignore your request

But a 'nice' freeholder might be very reasonable about the whole thing.

BSW89 said:

Edit: Also reflecting that since buying our flat we've had no issue getting mortgages with two mainstream lenders so is it just our buyer's lender being picky, i.e. is the flat really unsellable without this deed of variation or have we just been unlucky with our current buyer?

Assuming the flat is outside London, I guess the issue is ground rent going over £250.

Most lenders will accept an indemnity insurance policy for this. So it could be the buyer's solicitor taking a punt and asking for a DoV - but if you say "no", they'll take the second best option of Indemnity insurance.

BSW89 said:

I think the alternative would be a statutory lease extension (which I think we could do as we've owned the flat for a few years now, and there are >100 years left on the lease) but am not sure what that would cost either.

A statutory lease extension takes between 6 month and 18 months.

If the buyer's lender really has a problem with the ground rent, the lender won't allow the purchase to go ahead until the lease extension is completed.  I doubt your buyer would wait that long.



Overall, perhaps the best option is to offer to pay for indemnity insurance.