Buying flat previously sold at undervalue (?) without indemnity policy?

lb00

Hi all,

I am in the process of buying a leasehold flat in London for £620,000. After conducting a RICS survey, the surveyor confirmed that the price is in line with the market value. However, I discovered that the flat was previously sold for £510,000 just four months ago, which seems significantly undervalued. My solicitor has flagged this as a potential issue and suggested taking out an indemnity policy to protect against creditors' claims under Section 238 of the Insolvency Act 1986.

The seller is a property investment company that bought the flat as part of a portfolio of three flats from the same owner, with this particular flat having a tenant in situ at the time of their purchase. They now refuse to provide the required statutory declaration and details about the nature of their transfer, insisting that the sale was not at an undervalue.

My solicitor remains concerned and stated:

"The difficulty is the price that is shown on HMLR records. Even if you take into account all the reasons you have just mentioned, I do not see how that justifies the price shown at HMLR. Therefore there is a risk in proceeding without the Indemnity Policy."

I am worried that if I proceed without the indemnity policy and the previous owner goes bankrupt, a judge could rule that the previous sale was undervalued, potentially requiring me to cover the £110,000 difference.

What do you all think? Has anyone faced a similar situation, and what steps did you take? Any advice would be greatly appreciated. Thank you!

Grumpy_chap

Is this the same flat referenced here?
https://forums.moneysavingexpert.com/discussion/6534077/house-previously-bought-at-undervalue-can-my-transaction-be-voided#latest

A property having a sitting tenant will always have a value below the market rate for vacant possession

sourcrates

This is not really appropriate for this board, it appears you have had good responses in your other thread.

lb00

Grumpy_chap said:

Is this the same flat referenced here?
https://forums.moneysavingexpert.com/discussion/6534077/house-previously-bought-at-undervalue-can-my-transaction-be-voided#latest

A property having a sitting tenant will always have a value below the market rate for vacant possession

My question is: can a tenant in situ justify a £110K discount (from £620K full market value to £510K), also considering the fact that three flats are being sold simultaneously by the same seller? 

Would this mean the sale is not considered undervalued?

Thank you.

Minkym00

Transactions under value might be considered when the seller has an insolvency event. The seller was a company, so you need to consider the likelihood of that company going under after you have bought the property. The applicable law is here:

https://www.legislation.gov.uk/ukpga/1986/45/section/238  

But the period of time after the insolvency event is key here. If you were a connected party to the company (owner, director, shadow director, or relative of one of these parties) then that period is 2 years. But if you are not a connected party then that period is only 6 months. 

The applicable law is here:

https://www.legislation.gov.uk/ukpga/1986/45/section/240  

Assuming you have not connection to the company then you have to weigh up the risk of them going under within 6 months of you buying.