Deed of variation for ground rent

Ticklemonster456

Hi. I was wondering if someone could offer me some advice or guidance with regards to a deed of variation on the ground rent of a flat that we live in.

We live in a very small flat and the flat is only worth about £50,000, The flat is outside of London and the ground rent is £375 per year which means, under current rules, that if we were to sell the flat the purchaser cannot get a mortgage as the ground rent is above £250 a year. We have spoken to the landlord and the landlord said they would provide us with a deed of variation but it would cost us about £10,000. This deed of variation would then keep the ground rent below £250 a year which means when we came to sell the flat people could get a mortgage on it. We are currently not in a financial position to spend £10,000 on this deed of variation and not being able to mortgage the property significantly reduces the market to cash buyers only. Does anybody know if there is going to be any change in legislation to make it easier or cheaper to do this or are we stuck in our flat? Just wondering if anybody was in a similar situation and what you have been able to do about it thank you.

eddddy

There's a lot to unpack here.

Who advised you that getting the ground rent reduced to £250 would make the flat mortgageable?

• A ground rent of £250 would be 0.5% of value - that's still likely to be a problem for many mortgage lenders.

• (And just to make sure, is the flat over 30 square meters? If not, that will also be a problem for most mortgage lenders.)

• Currently, is the ground rent fixed at £375 a year for the rest of the lease? If so, £10k to reduce it to £250 a year is a huge rip-off

But in spite of all the above, if you find somebody who will only buy the flat if the ground rent is reduced to £250 - you can try doing a deal with the landlord and buyer as follows:

• The buyer pays, say, £50k for the flat on the understanding that the ground rent will be £250 per year

• You get £40k of the £50k for the flat

• The landlord gets £10k for doing the lease variation

k12479

For properties around £50k, I imagine a larger proportion of potential buyers would be cash buyers anyway and so mortgageability may be less of an issue than you think.

Ticklemonster456

Thanks for the response. The agent at ‘sold’ informed us and when we tried to sell before, the buyers pulled out because their lender would provide them with a mortgage without a deed of variation in place.

the flat is over 30 square metres and the ground rent has a reasonable increase every 10 years. It went up £100 3 years ago.

my friend lives in a different flat run by a larger company and they have done their deed of variation for free, as well as paying their solicitors fees!

I do think that we could sell at a lower price, but to be honest, I really don’t want to lose too much money. 

Having said that, we have 87 years left on the lease and the leaseholder has estimated a cost of £15000, to extend the lease to 120 years.

i feel that I’m either trapped, or going to lose or spend lots of money that I don’t really have.

Thank you for taking the time to respond.

saajan_12

The over £250 issue is likely to be helped by legislation and until then it can usually be overcome. The issue is that currently the freeholder has strong powers to recall the lease if ground rent is unpaid. So an indemnity policy could just insure the lender against this or a simpler deed of variation could be agreed to ensure the lender is informed if there's any ground rent arrears, so that the lender can take steps before repossession. 

However the bigger issue is the relatively high ground rent vs the flat value. What are you basing the 50k valuation on? The ground rent would have a significant impact here, so arguably the real value is in fact lower. 

How long is left on the lease and what are the terms for increases? 

Ticklemonster456

Two years ago, the flat next door was sold for £77,000. But then the lenders became reluctant to mortgage the property without a deed of variation in place. Underwriters (from various house buying companies) have valued the property now at £50,000 due to the cash only option at the moment. If we got the deed of variation in place, then it could increase the value to somewhere near to £65,000 (We would hope)
The lease has 87 years left on it and would be extended to £120 years.

eddddy

Ticklemonster456 said:

Underwriters (from various house buying companies) have valued the property now at £50,000 due to the cash only option at the moment.

You shouldn't take too much notice of what house buying companies say - many of them are very close to being scammers.

(And they use words like "underwriters" to try to impress you. You can reply to them saying that "The Ruler of the Universe" has valued your property at £100k, if you want.  That would be equally valid.)

What do 'standard' estate agents say about the value?

Ticklemonster456 said:

The lease has 87 years left on it and would be extended to 120 years.

So that would be an informal lease extension. Would that include reducing the ground rent to zero?

If you did a statutory lease extension, it would extend the lease to 177 years, and reduce the ground rent to zero.

Ticklemonster456

Hi
The statutory lease extension is something that I’ve not heard about before, but sounds very promising. I’ll look in to that, thank you very much.

Extending the lease was going to be directly through the landlord and would not have any impact on the ground rent. 

The leaseholders quote was 10k for the deed of variation for the ground rent and 15k for the lease extension to 120 years

KnightsMaltings

I have the same problem on a flat which I would like to sell. There are two issues. First, once the length of the Lease falls below about 80 years then that will directly affect the value of the property, and in this case you would need to go for a Lease Extension, which would also have the effect of reducing the Ground Rent to a Peppercorn ( in effect, zero). This is the more
expensive option and I have received a quote of about £15000 for this. However, if you still have a reasonable length of time left on your Lease, then a Deed of Variation would be more appropriate, and probably cheaper. (£5000-£7000). I am waiting to see whether the Leasehold Reform Bill will affect these figures, but after talking to a couple of experts, it doesn't sound very hopeful or very imminent. No easy way around this. Pay up, stay put, or drop your asking price.

awfulmemory

Ticklemonster,  how urgent is it for you to sell? if you can hang fire for about a year, hopefully things will change in legislation.
I would balk at the idea of giving a shyster money to reduce a non-service tax a little bit, in the knowledge that it will increase and you will have to do the whole thing again. 

What is the lease extent? If it is over 80, better still over 90, you can extend it (formally) and therefore lose the ground rent altogether. If, however, by the value of your flat, it has a short lease, then you are at the mercy of government legislation coming to the rescue. Admittedly, it is unclear how this will work in practice retrospectively, as there are thousands of leaseholders effectively imprisoned by onerous ground rents and short leases. In the meantime, if you possibly can, resist giving money you cannot afford to those who see desperation as their last way to make money out of a dying system.

NameUnavailable

Ticklemonster456 said:

Hi
The statutory lease extension is something that I’ve not heard about before, but sounds very promising. I’ll look in to that, thank you very much.

Extending the lease was going to be directly through the landlord and would not have any impact on the ground rent. 

The leaseholders quote was 10k for the deed of variation for the ground rent and 15k for the lease extension to 120 years

Your freeholder (you're the leaseholder) is trying to rip you off.

Your best option would be a statutory lease extension, it's your legal right to extend the lease which also reduces the ground rent to peppercorn. There are costs of course so you would need to get an idea of those. The government are in the process of introducing reforms to make it easier and hopefully cheaper to extend the lease but how long that is going to take is anyone's guess.

Get a few local estate agents around to give you a valuation on the flat as it stands. 87 years lease is getting low, don't let it drop below 80 or the cost to extend will increase significantly.

If you're desperate to sell now and can't afford the lease extension you could try putting it on the market at a 'keen' price and ask the EA to try to target cash buyers, or alternatively there's the auction route - a proper auction NOT 'modern method' that some EA's peddle.