Selling - leasehold/deed of variation query

Tangerine88

Good evening, 

I am in the middle of selling my leasehold flat, about half way through the conveyancing process. The offer accepted is not great - bad agent, bad market etc. The buyer's solicitor has now raised a query about the lease as the ground rent will increase in 2032. Apparently this query is at the buyer's lender's request. There is no service charge applicable, just ground rent.  A deed of variation to amend the lease will cost us about £5000, possibly more, in legal fees.

As stated, the acepted offer is not very good and 5k may not seem much but we aren't in a chain and it's pushing us into a lower bracket where it's simply not worth selling, we might as well wait until the Spring and relaunch. Inconvenient but feasible.

My question is, is there another workaround or is a deed of variation to the lease the only solution? Is this reasonable given the increased ground rent (£300 PA) will not apply until 2032? 
It seems to me entirely expected that ground rent should increase over time and the buyer may be long gone by that point.

We are not getting much help/input from our own solicitor. Thoughts appreciated!

Jonboy_1984

Where did the estimate of £5000 come from? Has the freeholder indicated they would be willing to agree to the variation as they have no obligation too do so?

What would the new ground rent be, what is the property value, and what is the length of the remaining lease length. For that sort of money being thrown at it, a statutory lease extension, extending the lease by 90 years and reducing ground rent to peppercorn would possibly be better value but takes at least 6 months.

Richard1212

The buyer's lender seems a charmer. Why not tell buyer's solicitor that you have accepted a lower-than-possible offer already, taking into account a rise in ground rent in 11 years time ? And , let's face it, £300 pa is chicken-feed to most people who can afford to buy your flat ( and won't even be worth £300 in 11 years time).

Tell them it's the current offer or let them find somewhere else. And YOU will find someone else to buy who will not have a lender raising such a petty issue. The probable fact is that your buyer doesn't give a fig about an extra £300 pa so far in the future, and ask your solicitor to tell his solicitor to find a new lender if his current owner is not satisfied with your already low asking price. You say you have a bad solicitor---now's the time for him to be told to try and make up for his previous shortcomings and stand firm on a tiny "penny-pinching" issue that is not worth the prospective losing the flat he wants at the price you are already offering.

The bottom line is IMHO :  don't pay the £5,000 or even consider doing so.

Beth096

Ground rent that is expected to go over £250 (£1,000 in London) lenders don't like as it is seen as a AST so they'd request a deed of variation to cover themselves.

They may however accept an indemnity policy. 

I'm currently purchasing a leasehold flat which was £7k for the deed of variation but lender was happy with the indemnity policy. It protects the lender not the buyer so down the line they may need to she'll out the extra money. 

Tangerine88

thanks @Beth096 @Richard1212 @jonboy All very helpful. I'm in London, the flat is valued at 450k (the accepted offer is lower tho) and there are 108 years remaining on the lease. The ground rent will not exceed the £1000 London threshold for over 50 years by which time the lease will have been renewed anyway.  The ballpark of 5k came from my solictor - it does not include the additional premium. The freeholder has said thay are willing to look into it but that's about it - and we would have to foot all the costs. It seems to me that this is just a massive, unnecessary and unspecified expense and we should try the indemnity route? I understand that the premiums can run into five figures, if the variation is even possible.

The rent will increase to £300 in 2032, £600 in 2057 and £1200 in 2082. 

eddddy

This might just be a "standard enquiry" that the buyer's solicitor "cuts and pastes" for every leasehold purchase with an escalating ground rent.

Maybe as a starting point reply with something like "Given the level of ground rent, I don't agree that a deed of variation is a necessity" - and see if it's followed up, or if you never hear any more about it.

NameUnavailable

I would reply stating that as the flat is within the London area the GR is under the £1000 AST threshold and will remain so under current legislation for X years.

Tangerine88

So the buyer's lender will not accept an indemnity. As above, the ground rent will not exceed £1000 until 2082 by which point someone will have renewed the lease so IMO this is a moot issue. 

They are insisting on a deed of variation. Our freeholder (who owns 16 of these properties) has never had a request before, persumably because most lenders aren't such !!!!!! over a long-term low ground rent. Out solicitor has suggested we request that the buyer contributes to the costs which we think is a very limp response.

Any idea? Frankly, were it solely down to me I would just pull the sale as it is very evident the buyer doesn't actually have the finances yet and this is turning into a massive waste of time and money.