Defective Lease

MovingOn23

I am selling my leasehold flat and the buyer's solicitor says my lease is defective and that I need to take out indemnity insurance costing £500+.  This issue has never arisen before to anyone else selling property in the block,  including just 3 months' ago when the same solicitor was acting for a seller. 

The solicitor who extended the lease on the property, along with about 30 others in the block just one year ago claims there is no problem with the lease otherwise they would not have extended it. They have commented that the lease is plainly not defective and that they have used this form of lease extensions in the past without a single follow up query in more than 12 years with over 200 of these files opened a year.  They say that when these leases were originally granted, they were done in accordance with the law and convention at the time.  Many thousands of them remain in operation and the rolling out of new updated leases does not automatically mean that original leases must take on wholesale changes or be considered defective.  If that were the case then the impact on the validity of leases across vast swathes of property in the country would be meteoric

My own solicitor is unwilling to take up the challenge and prefers to agree with the buyer's solicitor.

I am not convinced that the buyer has been informed of this other opinion and I have no direct contact with her, so she will likely pull out of the sale.  What course of action is open to me when there is conflicting legal advice?

Tiglet2

What exactly is the buyer's solicitor saying is defective?  Have you seen the actual enquiry where they state the lease is defective and copy it here?  

MovingOn23

This is the information I was given by my solicitor in the first instance: The buyers solicitors have reviewed the title deeds and the lease is defective in many way i.e. plan not coloured, no mortgagee protection clause and no mutually enforceable covenants.

 Then my solicitor provided this:

5.14.2There must be no provision for forfeiture on the insolvency of the tenant or any superior tenant.

5.14.3The only situations where we will accept a restriction on the mortgage or assignment (whether by a tenant or a mortgagee) of the lease is where the person whose consent needs to be obtained cannot unreasonably withhold giving consent. The necessary consent for the particular transaction must be obtained before completion. If the lease requires consent to an assignment or mortgage to be obtained, you must obtain these on or before completion (this is particularly important if the lease is a shared ownership lease). You must not complete without them.

5.14.4You must take reasonable steps to check that:

• there are satisfactory legal rights, particularly for access, services, support, shelter and protection; and
• there are also adequate covenants and arrangements in respect of the following matters, buildings insurance, maintenance and repair of the structure, foundations, main walls, roof, common parts, common services and grounds (the "common services").

5.14.5You should ensure that responsibility for the insurance, maintenance and repair of the common services is that of:

• the landlord; or
• one or more of the tenants in the building of which the property forms part; or
• the management company - see sub-section 5.15.

5.14.6Where the responsibility for the insurance, maintenance and repair of the common services is that of one or more of the tenants the lease must contain adequate provisions for the enforcement of these obligations by the landlord or management company at the request of the tenant.

5.14.7In the absence of a provision in the lease that all leases of other flats in the block are in, or will be granted in, substantially similar form, you should take reasonable steps to check that the leases of the other flats are in similar form. If you are unable to do so, you should effect indemnity insurance (see section 9). This is not essential if the landlord is responsible for the maintenance and repair of the main structure.

And this is what the indemnity insurance covers:

Lease - Missing or uncoloured Lease plan Title to the Property is held under a Lease which includes reference to a plan but the plan is missing, uncoloured or the colouring is not clear. You suffer Loss or Damage in the event a third party: 

a) challenges your leasehold title and claim to ownership, occupation and enjoyment of the extent of the Property that has previously been occupied and enjoyed 

b) prevents your continued use of pedestrian and/or vehicular access to and from your Property over the common parts and access roads that have previously been used and enjoyed as serving the Property directly attributable to the missing or defective plan. 

 Lease - No Mortgagee Protection Clause (Lender only) You suffer Loss or Damage in the event your borrower's lease is forfeited because of any one or more of the following: 

a) your borrower becomes insolvent or is made bankrupt 

b) failure to pay ground rent, service charges or other fees due under the lease 

c) failure to comply with tenant covenants and obligations under the lease and your mortgage or charge secured on the Property is not enforceable as there is no, or a defective, mortgagee protection clause in the lease.

MovingOn23

This was how the solicitor who extended the lease replied:

I have had a quick look for you as it has been a while and I think you need to go back to the buyer’s solicitor quite robustly. The lease is not defective and if the buyer wants or needs to take out insurance then that is for them to consider, not you. When these leases were originally granted they were done in accordance with the law and the convention at the time. There are many thousands of these leases in operation. As time moves on modernisation does occur and new updated leases are rolled out but that does not automatically mean that those original leases should or must take on wholesale changes or be consigned to the rubbish bin. It is a perfectly serviceable lease as it stands. I have had a look the plan too and it is obvious to me what is demised and what is not, even if the colouring has been washed out in places on the second plan owing to the scanning process with the Land Registry. That is particularly so when read in conjunction with the title plan, which clearly and accurately delineates the demise.

 Thanks for looking at this.

eddddy

Looking at things pragmatically, I guess your choices include:

• 1) Arguing that the indemnity policies are not necessary

• 2) Telling the buyer that if they want the policies they should pay for them

• 3) You agree to pay for the policies, simply to make the problems go away

• 4) Negotiating with the buyer - maybe offering to pay £250 towards the cost of the policies

Options 1 or 2 might cause a delay - in the worst case, it might cause a stand-off which threatens to make the whole sale fall apart. Option 3 shouldn't cause a delay.

For option 4, you could try saying something like "The legal advice I have is that the lease is not defective and no indemnity policies are required. However, as a gesture of goodwill, I'm prepared to pay £250 towards indemnity policies, if the buyer decides to buy them."

Assuming you have a good estate agent, I'd be tempted to communicate/negotiate through them about this. An estate agent should phone the buyer, and try to negotiate a way around these types of problems. (A solicitor wouldn't do that.)

propertyrental

as edddy ays above.

My instinct would be to go for option 1 combined with option 2.

However, as edddy says this might cause delay or the buyer might withdraw, so it depends how desperate you are for the sale to Complete, and how important it is that you Complete fast.

Also depends how committed the buyer is, how much £ they've already invested in the purchase, and how good the advice they are getting is.

MovingOn23

Hi All - Thanks for your comments.  I guess a compromise payment of half might be the way to go.  I have previously asked the estate agent to email the buyer telling them that there is another legal opinion which I suspect their solicitor is not passing on to them.  It is the solicitors who are created this problem when there really isn't one.  I will also look into making a complaint to the legal ombudsman.  Cheers

eddddy

MovingOn23 said:

It is the solicitors who are created this problem when there really isn't one.  I will also look into making a complaint to the legal ombudsman.

Which solicitor are you planning to complain about?

• Your current conveyancing solicitor?
• Your lease extension solicitor?
• Your solicitor who handled your original purchase?

Based on what you say, it seems that..

• Two solicitors' opinions are that the lease is defective (your current conveyancing solicitor, and your buyer's solicitor).

• One or two solicitor's opinions are that the lease isn't defective (your lease extension solicitor, and presumably the solicitor who handled your original purchase).

Which solicitor do you think has been negligent, and/or provided you with poor service?