Indemnity Insurance vs Retrospective Consent

aflatbuyingbadger

We (FTBs) are in the process of purchasing a leasehold flat (England), and we are struggling with making a decision on whether to proceed with the purchase of a flat with an indemnity insurance in place for alterations (non structural) seller made without freeholder consent. We have asked the seller to obtain retrospective consent, but they have refused.

If we accept indemnity insurance and proceed, it's a quicker and easier solution. However, we have heard that indemnity policies are difficult to claim on. Additionally, if we ever wanted to gain consent for future alterations ourselves we are worried that this would tip off the freeholder about the previous alterations made without consent. We also do not want to face difficulty on resale (cautious buyers etc).

We understand why the seller does not want to request retrospective consent - the process will take longer and be more costly (and there's obviously more risk involved for the seller if the freeholder refuses consent - unlikely, but still a risk). However, the issue is fixed and we save ourselves a headache and difficulty on resale.

As explained above, we have asked the seller to obtain retrospective consent, and they have refused to do this. They have informed us they would pull out of the sale if we do not accept the indemnity insurance. The fact that the seller does not want to obtain retrospective consent makes us think that the freeholder (a private company) will likely be unreasonable and charge a high premium.

Has anyone ever purchased a property with a similar situation and gone down the indemnity insurance route? Have you experienced any difficulties / envisage any difficulties?

Has anyone gone down the retrospective consent route and could share some insight about this?

If the sale falls through, have we dodged a bullet?

Our solicitor has listed the benefits/pitfalls of each option but can't make the decision for us. We are looking for other advice / insights people have to offer! Thank you!

eddddy

aflatbuyingbadger said:

 The fact that the seller does not want to obtain retrospective consent makes us think that the freeholder (a private company) will likely be unreasonable and charge a high premium.

Who has mentioned anything about "charging a premium"? Your solicitor, or somebody else?

What type of alterations have been made?


Does the lease say:

• 1) No alterations, or
• 2) No alterations without consent from the freeholder

If it's option 1, it's trickier.

If it's option 2, the freeholder cannot unreasonably withhold consent, and cannot charge you a premium, (they can only charge you a fee to cover their costs)....

....Unless... the the flat owner has altered something that doesn't belong to them. For example, the external walls might belong to the freeholder. So it would be a bigger problem if the flat owner had cut holes in the freeholder's wall - for pipes, flues, vents (or windows) etc.

gm0

Only from the nature of the modification and knowledge of the construction can anything useful be said.  A flat on concrete pad floors will have endless bathroom and kitchen refits.  Of zero interest to a freeholder.  And of interest to you as a lease acquirer in terms of age, price, condition.

If the modifications stray to the edge or out of the demised space - enclosed halls. Into roofspace.  Red flag.  Paperwork essential. On who has use of and is responsible for maintenance of what.  Access. Costs. etc.  Lease modification territory.  Deeds. Legal mechanisms needed. Costs incurred. 

The middle ground is "open plan" stuff say dropping out a 3rd bedroom/study by adding/removing partition stud walls and an internal door. Or the fashion for one large living/dining/kitchen space.  Based on overall construction or conversion type - this could be absolutely fine. No bullet. Nothing to dodge.  Or a proper brick wall that was across the building at that point and part of the structural solution - really did matter and prior owner or their builder has done something very dodgy indeed.  See also chimney stacks - partial removal of floor by floor.

This is a "you" assisted by surveryor / builder expertise problem to assess the real world risk. To inform perspective on the paperwork glitch.

Building Regs are a consideration when you change the use of spaces.  As windows that are egress (but now don't need to be - don't really matter - it's just a design that sits there until replaced).  And windows that aren't but now should be - do matter a bit.  In that an egress window should be fitted.  See also wired smoke alarms etc.  Although many people happily add extra portable smoke alarms as needed and consider their fire risks under control.  And these are a maintenance item on a 10 year cycle.  On 1000 year leases - this is not a material consideration.

The key thing here is the real world risk. Not the conveyancer inspired legalistic any change is a change interpretation and tidy.  Depending what it was that was modified.

As a seller I'd likely do the same. Here is my sole concession indemnity. I will not be going retrospective with freeholder because your conveyancer is over interpreting the lease on changes vs common practice at this and other sites. It was and is trivial.  Here's the indemnity now put up or stop wasting my time. 

Going to the freeholder (or more likely their MA - just invites some admin clerk to cover their butt by requesting a survey commissioned by them by pet contractor - to be paid for by seller  (slow correspondence to agree that) - and then when this is ambiguous coming back - creating further difficulty.  Can of worms. Not to be opened.  Precedent on the site may make an MA predisposed to be difficult or easy going about such things.  On Share of Freehold it is common for people to take on director roles - for a bit - work together to approve "their" stuff (as leaseholders) on behalf of the company - and then move on.  You can overthink this stuff.  Freeholder permission may be rigorous, thorough, applied to ONLY the right things in the right way - with proper survey and structural engineer inputs.  Or a chocolate fireguard.

The benign explanation of trivial stuff is as above.  The "hidden horror" explanation also exists.  You cannot tell sat with or corresponding with a conveyancer who has never seen the site.

aflatbuyingbadger

Thanks for your response. The alterations were a new kitchen, new bathroom, removal of a stud wall and the moving of a bedroom door. The lease says no alterations without consent from the freeholder. Our solicitor has not said anything about a premium, it's just from what I've read online. I might have got confused between premium and the fees you mentioned. 

gm0

Most freeholders have a managing agent who does most things on their behalf day to day.
Share of freehold also have them for bigger ones.

They pay peanuts and get monkeys - significantly less than 1 full time equivalent.  And the "people" hired are not construction site managers, bc inspectors, structural engineers, surveyors. Just admin.  Everything is outsourced. When that happens somebody pays.   Depending on who hired the MA.  The base contract may be "as lean as possible" and involve extra "fees" for a range of activities which seem needed and could fall into the base - with a different set of choices when the contract was let.  It's not worth getting hung up on this.  At a given site.  With external freeholder, right to manage or SoF - it will be what was done last time it was let.  There can be fees to produce things or do admin - such as conveyancing management packs. 

The MA  in the real world doesn't want to be asked about trivial updates to demised space. Changes where a surveyor is redundant and a structural engineer doubly so.  A new bathroom suite in an existing bathroom. Or new kitchen units, CH boiler and stoves all being examples where nobody wants to do the "long way round"

But they do want to hear about more major works.  And will treat an ambiguous request as requiring hired help.  As you would not be asking for trivia - after all.  And so a circus of risk shuffling begins.  People updating a space may not have detailed drawings and plans.  Nor any interest in hiring architects to produce them.

eddddy

aflatbuyingbadger said:

Thanks for your response. The alterations were a new kitchen, new bathroom, removal of a stud wall and the moving of a bedroom door. The lease says no alterations without consent from the freeholder. Our solicitor has not said anything about a premium, it's just from what I've read online. I might have got confused between premium and the fees you mentioned. 

So the freeholder cannot 'unreasonably' refuse consent.

Typically, reasonable grounds for refusal would be if the alterations have a negative impact on the freeholder or other leaseholders.

The freeholder's fee could include things like the cost of hiring a building surveyor to check the alterations have been done 'properly' - so it could come to a few hundred.

The worst case would be that consent is refused, and you have to put the flat back as it was.

(But some nasty freeholders might be difficult, might try to overcharge etc - so you might have to deal with the hassle, and even go to tribunal to get the fees reduced.)


But if you approach the freeholder about this, you would nullify the indemnity insurance.