Indemnify policy on leasehold house

Karr55

I’m a cash buyer of a leasehold house with 987 years left on the lease. It’s currently £100 per year and due to go up to £150 per year in 2028, then £200 per year in 2058 and £250 per year in 2088. As this will affect resale value, the vendor’s solicitors have apparently offered an indemnity policy. 

Does anyone know how this works? I don’t want to own a house no one will be able to get a mortgage on if I decide to sell and my conveyancer isn’t responding to any calls or emails. Any advice would be appreciated as the vendors are keen to exchange within the next couple of weeks. 

user1977

I'm guessing it continues to go up at the same rate, so it will be £300 from 2118? At that point (as it will be over £250, and assuming the property isn't in London where the limit is higher) the risk is that under current legislation, it becomes an assured tenancy, which gives the landlord more rights to forfeit the lease.

But given that won't happen for another 95 years, and assumes that the law won't have changed by then, I have no idea why anybody is looking at indemnity policies, unless there's some other problem.

propertyrental

 If those cost increases were annual, you should run a mile irrespective of any indemnity insurance.

But spread over 65 years??

Find something more serious to worry about!

eddddy

Karr55 said:

I’m a cash buyer of a leasehold house with 987 years left on the lease. It’s currently £100 per year and due to go up to £150 per year in 2028, then £200 per year in 2058 and £250 per year in 2088. As this will affect resale value, the vendor’s solicitors have apparently offered an indemnity policy. 

It sounds a bit like something has got lost in translation.

Are you sure the indemnity policy relates to the ground rent?  Does your solicitor mention anything about "Forfeiture of Lease  - Housing Act 1988" indemnity insurance or similar?  Does the ground rent eventually go over £250 per year?

That kind of indemnity insurance normally only protects a mortgage lender, and you're not buying with a mortgage.

Or is your solicitor warning you that when you eventually sell, your buyer's mortgage lender might want indemnity insurance?


So can you be more specific about what your solicitor has said?

Karr55

user1977 said:

I'm guessing it continues to go up at the same rate, so it will be £300 from 2118? At that point (as it will be over £250, and assuming the property isn't in London where the limit is higher) the risk is that under current legislation, it becomes an assured tenancy, which gives the landlord more rights to forfeit the lease.

But given that won't happen for another 95 years, and assumes that the law won't have changed by then, I have no idea why anybody is looking at indemnity policies, unless there's some other problem.

My conveyancer has asked for a deed of variation which I am guessing the freeholder has refused, I’m not sure what an indemnity policy would cover. 

chanz4

at that tiny rate wouldnt bother with a policy

eddddy

It sounds like it could be an issue relating to the Housing Act 1988 and ground rent which eventually goes over £250.

Maybe read this article: https://alwenajonesbright.co.uk/housing-act-1988-and-how-it-affects-your-lease/

Karr55

eddddy said:

Karr55 said:

I’m a cash buyer of a leasehold house with 987 years left on the lease. It’s currently £100 per year and due to go up to £150 per year in 2028, then £200 per year in 2058 and £250 per year in 2088. As this will affect resale value, the vendor’s solicitors have apparently offered an indemnity policy. 

It sounds a bit like something has got lost in translation.

Are you sure the indemnity policy relates to the ground rent?  Does your solicitor mention anything about "Forfeiture of Lease  - Housing Act 1988" indemnity insurance or similar?  Does the ground rent eventually go over £250 per year?

That kind of indemnity insurance normally only protects a mortgage lender, and you're not buying with a mortgage.

Or is your solicitor warning you that when you eventually sell, your buyer's mortgage lender might want indemnity insurance?


So can you be more specific about what your solicitor has said?

My solicitor has said that when it comes to selling, I might find it difficult to get a buyer who needs a mortgage, so they want the vendors to get a deed of variation from the freeholder. Instead, the vendors have offered an indemnity policy. I’m not sure what an indemnity policy would actually do and my solicitor isn’t responding to any contact. 

The ground rent would go over £250 a year in 2088 but if I lived to be 80+ and my child inherited the property in 2058, they might have difficulty in selling it as there would only be 30 years until it becomes an AST. 

My solicitor actually said a law was passed last year preventing these kinds of escalating ground rents, but I’ve looked it up and it only applies to new build properties. 

Karr55

eddddy said:

It sounds like it could be an issue relating to the Housing Act 1988 and ground rent which eventually goes over £250.

Maybe read this article: https://alwenajonesbright.co.uk/housing-act-1988-and-how-it-affects-your-lease/

Thank you, that makes things much clearer. 

user1977

Karr55 said:

eddddy said:

Karr55 said:

I’m a cash buyer of a leasehold house with 987 years left on the lease. It’s currently £100 per year and due to go up to £150 per year in 2028, then £200 per year in 2058 and £250 per year in 2088. As this will affect resale value, the vendor’s solicitors have apparently offered an indemnity policy. 

It sounds a bit like something has got lost in translation.

Are you sure the indemnity policy relates to the ground rent?  Does your solicitor mention anything about "Forfeiture of Lease  - Housing Act 1988" indemnity insurance or similar?  Does the ground rent eventually go over £250 per year?

That kind of indemnity insurance normally only protects a mortgage lender, and you're not buying with a mortgage.

Or is your solicitor warning you that when you eventually sell, your buyer's mortgage lender might want indemnity insurance?


So can you be more specific about what your solicitor has said?

The ground rent would go over £250 a year in 2088 

No it won't. It will go over £250 (which is what matters) in 2118. It doesn't matter if it's exactly £250.

And guessing the state of the property market, mortgage availability, or leasehold reform in 35, 65 or 95 years' time is crystal ball-gazing territory anyway. You probably won't still own the property in even 2058, and if you do it'll be worth whatever it's then worth, which will be affected by umpteen factors we can't predict at the moment.

GDB2222

Nobody has mentioned buying the freehold. .