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Selling problem due to ground rent

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Selling problems with leasehold flat

So I am in the process of selling my flat. We were told we were likely to exchange by mid April but yesterday found out my buyers lender are now refusing to lend because the ground rent will not be capped at £250. It’s currently £300 and has been since I purchased in 2021 - I don’t remember it being a problem then. 
My solicitor has asked the freeholder for a deed of variation but says the only way around this is to extend my lease, which I’m led to believe will cost £10k+. 
Has anyone else experienced this? I’m feeling like our plans to move are rapidly disappearing!


For reference (it’s a long one) this is the email received from the freeholder: 

 
Dear Sirs,
 
Thank you for your email.
 
We are aware of the technical issue with ground rent in excess of £250 p/a and Schedule 2 of the Housing Act 1988. We do not accept that the issue is of real significance or acts as a bar to sale or lending if the protections available to the lender are properly explained.
 
Irrespective of whether the lease requires service of a Notice seeking Possession or advance notice before proceedings are issued on a lender, the lender is always entitled to be served with possession proceedings under Practice Direction 55A of the CPR 1998, and can at any time avoid mandatory possession by paying the outstanding ground rent into Court or to the Landlord under Section 138 of the County Courts Act 1984.
 
We do not see any realistic likelihood of Landlords using the Housing Act possession route instead of standard forfeiture to enforce rent arrears given the clear advantages of the latter, including recovery of costs. This is borne out by the lack of examples of such cases in the residential long leasehold sector to date. Furthermore, we have specific instructions from our client landlord not to pursue this type of possession proceedings.
 
Furthermore, The Renters (Reform) Bill, currently being debated in the Houses of Parliament would, if passed, prevent a tenancy of more than 7 years from being an assured tenancy.
 
We are of the view that there is no risk to a lender and that this point should not act as a bar to sale or lending. We therefore believe that any variation would be a waste of time and money and is not necessary.
 
As a reasonable landlord, and on the specific understanding that we do not believe this to be necessary, should you maintain that a variation is required, our client will offer to insert the following into the lease by way of variation:
The Landlord hereby confirms that it will not seek possession of the [property*] on the basis that this lease has created an Assured Tenancy under any of the grounds set out in Schedule 2 to the Housing Act 1988.
 
We are also able to insert:
 
Mortgagee Protection Clause

[Insert new sub-clause at the end of the landlord’s re-entry clause and renumber accordingly]
Before commencing any proceedings for forfeiture of this Lease, the Landlord shall:
 
Give notice of the breach to any mortgagee of this Lease of whom the Landlord has received notice pursuant to clause [[1] ]; and
 
If the mortgagee confirms in writing to the Landlord within 14 days of the notice that it wishes to remedy the breach, allow the mortgagee 28 days (or in the case of non-monetary breach only, such longer time as the Landlord may decide at its sole discretion) to remedy the breach.
 
 
In order to proceed with this, we will require:
Freehold OCE;
Leasehold OCE.
 
The fees payable will be HomeGround’s fee of £325 and our solicitor’s fee of £600 + VAT.

This is payable by undertaking to our solicitors upon completion and subject to increase should matters become protracted. Please do not attempt to make direct payment.
 
Once we have been provided the abovementioned documents, we will instruct our solicitors to contact you directly for a fees undertaking.

This offer is subject to contract and without prejudice.

Matters of this type typically take 4-6 weeks to complete from the date of instruction.
 
Please let us know how you wish to proceed.
 

«1

Comments

  • anselld
    anselld Posts: 8,646 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    edited 29 March at 6:24PM
    Yes it is a common problem with certain lenders.  The buyers have selected an inappropriate lender under the circumstances.
    So the options are …
       The buyers re-apply to a lender who doesn’t mind rent above £250.
       The existing mortgage co accepts the variation to the lease.  ( many do accept what is proposed)   It will cost you in time and fees.
       You find another buyer and warn them upfront about the rent so they can choose a suitable mortgage co.
        
    It is not really practical to extend the lease at this stage.  It will be costly and time consuming and it would in any case require the price to be renegotiated as the flat would offer better value with a peppercorn rent and a longer lease.
       

  • eddddy
    eddddy Posts: 18,026 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    edited 29 March at 9:31PM

    Taking a step back - the reason mortgage lenders don't like ground rent over £250, is that the freeholder might be able to use Ground 8 of Schedule 2 to the Housing Act 1988 to repossess the flat , if the ground rent is in arrears.


    Firstly... many mortgage lenders will allow that, if the seller buys indemnity insurance.

    Secondly, your freeholder is offering to do a lease variation saying 2 things:

    • 1) The freeholder 'promises' not to use Ground 8 of Schedule 2 to the Housing Act 1988 to repossess the flat
    • 2) The freeholder 'promises' to give the mortgage lender 14 days notice before repossessing the flat for any reason - so that the mortgage lender can pay the ground rent arrears etc.

    So that should be a 100% solution to the problem. Is your buyer's mortgage lender happy with that? (And indemnity insurance shouldn't be needed in that case).


  • Flooxx
    Flooxx Posts: 12 Forumite
    Seventh Anniversary First Post Combo Breaker
    eddddy said:

    Taking a step back - the reason mortgage lenders don't like ground rent over £250, is that the freeholder might be able to use Ground 8 of Schedule 2 to the Housing Act 1988 to repossess the flat , if the ground rent is in arrears.


    Firstly... many mortgage lenders will allow that, if the seller buys indemnity insurance.

    Secondly, your freeholder is offering to do a lease variation saying 2 things:

    • 1) The freeholder 'promises' not to use Ground 8 of Schedule 2 to the Housing Act 1988 to repossess the flat
    • 2) The freeholder 'promises' to give the mortgage lender 14 days notice before repossessing the flat for any reason - so that the mortgage lender can pay the ground rent arrears etc.

    So that should be a 100% solution to the problem. Is your buyer's mortgage lender happy with that? (And indemnity insurance shouldn't be needed in that case).


    Thank you, that’s a helpful answer. So the buyers lender won’t accept that for some reason. 
    It’s strange that it’s taken since December, when I accepted the offer, until this week to find all this out though. 
    I’ve read a lot about this since Friday and have been feeling really worried that it has made my flat totally unsaleable but hopefully there will be a fix. 

    My solicitor is saying the only way round this may be to extend the lease but we have 108 years unexpired so I’m not sure if this helps or would even be practical. 
  • Flooxx
    Flooxx Posts: 12 Forumite
    Seventh Anniversary First Post Combo Breaker
    anselld said:
    Yes it is a common problem with certain lenders.  The buyers have selected an inappropriate lender under the circumstances.
    So the options are …
       The buyers re-apply to a lender who doesn’t mind rent above £250.
       The existing mortgage co accepts the variation to the lease.  ( many do accept what is proposed)   It will cost you in time and fees.
       You find another buyer and warn them upfront about the rent so they can choose a suitable mortgage co.
        
    It is not really practical to extend the lease at this stage.  It will be costly and time consuming and it would in any case require the price to be renegotiated as the flat would offer better value with a peppercorn rent and a longer lease.
       

    Thank you. 
    My solicitor seems to think extending the lease is the only real option. It looks like the whole chain is about to fall through because of it which is very frustrating as I accepted an offer in December and all this has only just come to light re: my buyers lender 
  • anselld
    anselld Posts: 8,646 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    Flooxx said:
    anselld said:
    Yes it is a common problem with certain lenders.  The buyers have selected an inappropriate lender under the circumstances.
    So the options are …
       The buyers re-apply to a lender who doesn’t mind rent above £250.
       The existing mortgage co accepts the variation to the lease.  ( many do accept what is proposed)   It will cost you in time and fees.
       You find another buyer and warn them upfront about the rent so they can choose a suitable mortgage co.
        
    It is not really practical to extend the lease at this stage.  It will be costly and time consuming and it would in any case require the price to be renegotiated as the flat would offer better value with a peppercorn rent and a longer lease.
       

    Thank you. 
    My solicitor seems to think extending the lease is the only real option. It looks like the whole chain is about to fall through because of it which is very frustrating as I accepted an offer in December and all this has only just come to light re: my buyers lender 
    That is not the case.  This problem exists in a development my Mother had a flat.  I know for a fact several have sold with that same amendment from Homeground.  Some have sold without amendment depending on who the lender is.  I was not aware of the indemnity option mentioned by edddy but I am sure that must also be true for some lenders.   
    Are you sure the proposed lease amendment option (rather than the indemnity) has actually been put to the buyers’ mortgage co?

  • eddddy
    eddddy Posts: 18,026 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    Flooxx said:

    My solicitor is saying the only way round this may be to extend the lease but we have 108 years unexpired so I’m not sure if this helps or would even be practical. 

    A 'Statutory Lease Extension' is possible and would solve the problem - but it usually takes between 6 months and 18 months to complete. (And might cost £10k+, including fees)

    Flooxx said:

    For reference (it’s a long one) this is the email received from the freeholder: 

    Just to clarify - who received that email from the freeholder?

    Are you saying that...
    • your solicitor received that email from the freeholder.
    • your solicitor passed it to the buyer's solicitor
    • the buyer's solicitor replied that the freeholder's offer made in that email is unacceptable to the buyer's lender

    If so, I'm wondering if the buyer's solicitor is perhaps a 'conveyor belt solicitor' who just likes to tick boxes, and walk-away from anything that's a little non-standard, because they don't want to do any extra work.



    FWIW, your freeholder's email seems to suggest that they are knowledgeable and sensible. You could try going back to them saying something like...

    "I realise that the buyer's lender seems to be unreasonable about this, but they are refusing to back down, Therefore, could you give me a quote for a lease variation that would cap the ground rent at £250."



  • Flooxx
    Flooxx Posts: 12 Forumite
    Seventh Anniversary First Post Combo Breaker
    eddddy said:
    Flooxx said:

    My solicitor is saying the only way round this may be to extend the lease but we have 108 years unexpired so I’m not sure if this helps or would even be practical. 

    A 'Statutory Lease Extension' is possible and would solve the problem - but it usually takes between 6 months and 18 months to complete. (And might cost £10k+, including fees)

    Flooxx said:

    For reference (it’s a long one) this is the email received from the freeholder: 

    Just to clarify - who received that email from the freeholder?

    Are you saying that...
    • your solicitor received that email from the freeholder.
    • your solicitor passed it to the buyer's solicitor
    • the buyer's solicitor replied that the freeholder's offer made in that email is unacceptable to the buyer's lender

    If so, I'm wondering if the buyer's solicitor is perhaps a 'conveyor belt solicitor' who just likes to tick boxes, and walk-away from anything that's a little non-standard, because they don't want to do any extra work.



    FWIW, your freeholder's email seems to suggest that they are knowledgeable and sensible. You could try going back to them saying something like...

    "I realise that the buyer's lender seems to be unreasonable about this, but they are refusing to back down, Therefore, could you give me a quote for a lease variation that would cap the ground rent at £250."



    Yes that email was sent to my solicitor and passed on to the buyer’s. Prior to this there was a lot of talk about deed of variation, indemnity policies etc. My solicitor has told me the buyers lender does not agree with the points made in the email and will refuse to lend unless the ground rent is capped at £250. 
    I just can’t believe it’s taken since the beginning of December to find this out. 
  • Flooxx
    Flooxx Posts: 12 Forumite
    Seventh Anniversary First Post Combo Breaker
    anselld said:
    Flooxx said:
    anselld said:
    Yes it is a common problem with certain lenders.  The buyers have selected an inappropriate lender under the circumstances.
    So the options are …
       The buyers re-apply to a lender who doesn’t mind rent above £250.
       The existing mortgage co accepts the variation to the lease.  ( many do accept what is proposed)   It will cost you in time and fees.
       You find another buyer and warn them upfront about the rent so they can choose a suitable mortgage co.
        
    It is not really practical to extend the lease at this stage.  It will be costly and time consuming and it would in any case require the price to be renegotiated as the flat would offer better value with a peppercorn rent and a longer lease.
       

    Thank you. 
    My solicitor seems to think extending the lease is the only real option. It looks like the whole chain is about to fall through because of it which is very frustrating as I accepted an offer in December and all this has only just come to light re: my buyers lender 
    That is not the case.  This problem exists in a development my Mother had a flat.  I know for a fact several have sold with that same amendment from Homeground.  Some have sold without amendment depending on who the lender is.  I was not aware of the indemnity option mentioned by edddy but I am sure that must also be true for some lenders.   
    Are you sure the proposed lease amendment option (rather than the indemnity) has actually been put to the buyers’ mortgage co?

    anselld said:
    Flooxx said:
    anselld said:
    Yes it is a common problem with certain lenders.  The buyers have selected an inappropriate lender under the circumstances.
    So the options are …
       The buyers re-apply to a lender who doesn’t mind rent above £250.
       The existing mortgage co accepts the variation to the lease.  ( many do accept what is proposed)   It will cost you in time and fees.
       You find another buyer and warn them upfront about the rent so they can choose a suitable mortgage co.
        
    It is not really practical to extend the lease at this stage.  It will be costly and time consuming and it would in any case require the price to be renegotiated as the flat would offer better value with a peppercorn rent and a longer lease.
       

    Thank you. 
    My solicitor seems to think extending the lease is the only real option. It looks like the whole chain is about to fall through because of it which is very frustrating as I accepted an offer in December and all this has only just come to light re: my buyers lender 
    That is not the case.  This problem exists in a development my Mother had a flat.  I know for a fact several have sold with that same amendment from Homeground.  Some have sold without amendment depending on who the lender is.  I was not aware of the indemnity option mentioned by edddy but I am sure that must also be true for some lenders.   
    Are you sure the proposed lease amendment option (rather than the indemnity) has actually been put to the buyers’ mortgage co?

    I am only going by what my solicitor initially said which is the following: 

    Unfortunately the buyers lender has advised they will not lend to the buyer unless the ground rent is capped at £250 per annum.   I further understand it has taken so long for them to respond due to internal reviews of the lenders risks regarding loans on leasehold property.    So we could not have known this outcome previously.   The Landlord has previously said they will not amend the ground rent.  I have sent them the attached email and I will let you know as soon as they respond.

     

    You will note that the email also refers to a lease extension which may be the only alternative to reduce the ground rent.    

     

    Either way I expect this is going to take a few more weeks until we know for certain whether the buyer can proceed. 

     

    I fully appreciate this is yet more disappointment for you.



  • anselld
    anselld Posts: 8,646 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    edited 30 March at 11:30AM
    In that case I would be inclined to put the flat back on the market at this point.  The majority of lenders would be ok with this.  Buyers just needs to take reasonable care over their choice of lender.
  • Flooxx
    Flooxx Posts: 12 Forumite
    Seventh Anniversary First Post Combo Breaker
    anselld said:
    In that case I would be inclined to put the flat back on the market at this point.  The majority of lenders would be ok with this.  Buyers just needs to take reasonable care over their choice of lender.
    The latest email is: 

    Hi, so we now need to wait for Homeground (the Landlord) about whether they will agree a deed of variation with the wording required by the buyers lender.    I sent the email urgently this morning so I hope we hear back next week


    So I’m guessing the lender wants a different variation? I have asked my solicitor countless times for brief explanations of things but it’s really been quite difficult. 
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