Leaseholder Deed of Variation for extension - do I have to sign?

granta

A leaseholder in my block (we have share of freehold between 4 of us) has recently completed a roof extension/closet wing extension under a licence to alter and the completion license has been granted. The Freeholder’s solicitor is now drafting a Deed of Variation for each of us. This is the text form the licence.

"On completion of the Alterations and Landlord Improvement Works the Landlord will enter into deeds of variations with the remaining leaseholders at the Building to amend the service charge proportions to 20% per flat (save for the Lease for the Premises which will be 40%) and maintenance responsibilities in respect of the new mansard roof extension of the Building which shall be that of the Tenant under the new lease and the Tenant will pay the Landlord’s reasonable and properly incurred costs"

My question is whether I am obliged to sign this and what are the consequences of not doing so?

The reason is because the leaseholder who did the works offered each flat owner a premium for a storage cupboard that was built in the communal area as part of his offer to us to get us to agree to the works, i.e. he would buy the cupboard from us. But nothing was put in the licence to alter and the solicitor has said we have to agree this between ourselves. I had verbal/email agreement from him a year ago but I suspect he will now decline to buy the cupboard. I know he has agree to buy the cupboard from one of the other flat owners but as relationships between us all is minimal, I have no insight into how he got him to agree.

So, I want to know what options I have to negotiate this and whether I can withhold signing the new lease until he honours his offer.

Also, do I have to get permission from my mortgage lender for the deed of variation?

poseidon1

On the variation issue and your mortgage lender, it does not appear to adversely affect your property. Indeed, if it was the case your service charge percentage was originally 25% and is now reduced to 20% won't you  in fact benefit from a lower charge?  Can't see such a change adversely affects  your mortgage lender's security, but surely this is a question for the solicitor representing the rest of you in exactly the same position?

As to what might happen if you refuse to sign the variation, again only your solicitor can advise based on exactly how your particular freehold reversionary title was structured and if there was any provision for 'deadlock' or absent co -freeholder situations. 

 A sensible freehold structure would have been a company with all relevant matters relating to the administration of the company covered in the Articles and Memorandum of Association. Can't see how anyone here can second guess your set up.

granta

Thanks, agree re there being no adverse effect. I just wasn't sure if I have to notify the lender or they would have to do any legal work to update any documentation. So I don't need to tell them?

I will be enquiring with the solicitor next week but they are unresponsive to individual queries from leaseholders but you've given me a steer to ask about freehold title and making an enquiry about that. 

eddddy

Your mortgage lender would need to approve any lease variation - and they will probably want you to instruct a solicitor to deal with this.

Ideally, you should instruct your own solicitor, and not rely on what somebody else's solicitor says.

Presumably, your legal fees will be paid by the tenant who's done the extension.

You generally cannot be forced to sign a Deed of Variation - unless you have previously agreed that you will sign it.

Has the leaseholder converted some/all of the roof space / loft? If so, did the roof space / loft belong to that leaseholder (i.e. was it demised to that leaseholder)?  Or was it jointly owned by the 4 joint freeholders?



Are you being asked to contribute 20% towards the cost of maintenance of anything that the other leaseholder has changed or has built?

If so, the risk is that the other leaseholder has used 'cowboy' builders to do a botch job of removing walls, building new walls, putting in new windows, etc - and the botched work will need expensive repairs to put it right in future years, and you have to pay 20% of the cost.

granta

Thanks for your helpful reply.

The tenant had agreed to pay the Landlord's costs (solicitor, surveyor etc) but there is no agreement in place to pay Tenant's costs. It is only now that I am aware that my lender has to approve this. I can ask them but I imagine they will not agree to anything else at this stage.

Do you know roughly what the cost might be and do they have to conduct a full conveyancing process? How long would it typically take? All of this is important because there is a lot of pressure form the other freeholders to finalise the lease ASAP so that the new service charge arrangements come into effect [plus everyone is just tired of this painful project!].

Also, what would happen if I didn't inform the lender? I ask because i have had little contact with them in years other than paying my monthly repayment. I plan to stay with them until end of term or even pay off the loan a little early. So if I carried on as I am doing now, what would be the issue?

 eddddy said:

You generally cannot be forced to sign a Deed of Variation - unless you have previously agreed that you will sign it.

I didn't personally agree but there is a Licence to Alter in place which states that new Deeds of Variations will be issued to each of the freeholders to reflect the changes. So as the freeholder has agreed to it, I presume I have to agree to it. If I don't agree to it, I don't benefit from the new service charge changes and I possibly lose the storage cupboard as it might revert to the freeholder.

And I need to look into the point @poseidon1 makes about the freehold structure. There must be a clause in there to prevent blockages if one person refuses to sign a document. 

Perhaps if 2 of us refused to sign it there might be more power but I cannot see that happening.

eddddy said:

Has the leaseholder converted some/all of the roof space / loft? If so, did the roof space / loft belong to that leaseholder (i.e. was it demised to that leaseholder)?  Or was it jointly owned by the 4 joint freeholders?


Are you being asked to contribute 20% towards the cost of maintenance of anything that the other leaseholder has changed or has built?

If so, the risk is that the other leaseholder has used 'cowboy' builders to do a botch job of removing walls, building new walls, putting in new windows, etc - and the botched work will need expensive repairs to put it right in future years, and you have to pay 20% of the cost.

The roof space belonged to the freeholder who granted the permission in lieu of him taking on roof maintenance and an adjustment of the service charge.
The 20% is just a reduction of our previous service charge of 25% to 20% and that  goes toward general building maintenance/insurance etc.  All the work has been signed off by the freeholder's surveyor/building control etc. 

eddddy

It sounds like there's a lot of confusion.  To be honest, it sounds like somebody is trying to dupe you.

It sounds like people are telling you that you must do things, which you don't really have to do.

(Was this all arranged by the person who has converted the roof space? They seem to have gained massively out of this.)



Is it the case that...

• The building originally had 4 floors and you had to pay 25% of the costs (i.e. 25% per floor)?

• The building will have 5 floors and you will be asked to pay 20% of the costs (i.e. 20% per floor)?

If so, it doesn't sound like you're really any better off. As I mentioned, you might be much worse off.

granta said:

The roof space belonged to the freeholder who granted the permission in lieu of him taking on roof maintenance and an adjustment of the service charge.

So you're saying the roof space was given away by the freeholder for free. 

Depending on local property values, a roof space could be worth £20k or £50k or £100k or more (and a quarter of it's value should belong to you).

granta said:

 what would happen if I didn't inform the lender?

Your lender will have a charge on your flat. Land Registry would not accept the lease variation without the lender's agreement. Your flat would probably be unsellable, if Land Registry refuse to register the variation.
 

granta said:

... and I possibly lose the storage cupboard as it might revert to the freeholder.

If your lease says you own the storage cupboard, nobody can take it away from you - unless you agree.

granta said:

I didn't personally agree but there is a Licence to Alter in place which states that new Deeds of Variations will be issued to each of the freeholders to reflect the changes. So as the freeholder has agreed to it, I presume I have to agree to it.

You own 2 things...

• You own a leasehold flat - so you are a leaseholder (also known as a Tenant)
• You jointly own the freehold of the building with 3 other people - you are a joint freeholder, also known as a joint landlord 

(Plus there are 3 other leaseholders who each own a leasehold flat in the building.)

To vary the lease (with a deed of variation), 2 parties must sign...

• 1) You as the leaseholder would have to sign
• 2) The freeholder - which may require 2 or 3 or 4 signatures depending on the set-up. (Yours might be one of those signatures).

So you might have to sign the document twice.

You cannot be forced to sign as the leaseholder. (But there might be 'rules' about signing as a freeholder)

granta said:

The tenant had agreed to pay the Landlord's costs (solicitor, surveyor etc) but there is no agreement in place to pay Tenant's costs.

If they refuse to pay your legal costs, then you really should refuse to sign the deed of variation. You should never sign things like that without legal advice.

You really need to talk to a solicitor who specialises in leasehold property. And explain that you're being asked to sign a Deed of Variation which seems 'dodgy', and you would like their advice on it.

granta

The block has 4 flats, a mix of 1 and 2 beds, and the current lease splits service charge 4 ways, 25% each.

As the developer has added an an extra floor, he offered to take on 40% of the service charge, and the other 3 flats drop down to 20%. The service charge covers everything from buildings insurance, maintenance of communal areas, cyclical works etc. He also offered to take on full maintenance of the roof (previously that was split 4 ways). Some additional sweeteners were also part of the deal, mainly doing full internal/external redecorations as a one-off which has saved us quite a lot of money. All of these points were in a legal agreement and they will be reflected in the new lease/deed of variation. I don't think we are worse of as a result of any of these offers.

The final offer was to build 4 storage cupboards in a newly built wing which would be demised to us 4 ways. However, the developer said he would pay a cash sum for the cupboard for any of us who wanted to sell. BUT this is where it has become tricky as this last point was never included in a legal agreement [it should have been but it was missed and as I am not a Director, I did not have sight of the documents.]

I completely agree that the freeholder should have sought a valuation for the roof space so that a price could have been negotiated. I attempted to persuade the other freeholders but bizarrely they were not interested in selling the roof space for a sum of money. They felt the offer we had was fine. In fact, before I had intervened, they were prepared to accept a much worse offer. I had no other powers to force the freeholder to do anything else. Very frustrating! But it is too late to dwell on that as now the works are completed and we are in the final stage, drafting and signing the lease variation.

But back to my original question, the reason I would refuse to sign the deed of variation is as a bargaining point with the developer if he refuses to buy the storage cupboard [which he can do because there is no legal agreement in place].
So I am asking what might happen if I refuse to sign but the other 3 freeholders do sign it? Where does that leave me and can the freeholder's solicitor still proceed without my signature? It would mean that my service charge would remain at 25%. 

The current sticking point is assignation of the cupboards because they will be included in the new lease plan for each of us. I don't currently own the cupboard but will do once the new lease is drawn UNLESS the developer buys it and has it included in his demise. BUT, if i refuse to sign the new lease, I assume that the cupboard will revert to the freeholder as I might be deemed to not have an interest in it.

granta said:

 what would happen if I didn't inform the lender?


Your lender will have a charge on your flat. Land Registry would not accept the lease variation without the lender's agreement. Your flat would probably be unsellable, if Land Registry refuse to register the variation.

 So the lender gets notified when the freeholder notifies the the Land Registry? 
Would you know how long the lender would take to give approval and what that process would involve?


I will of course ask the developer to pay legal costs, particularly for the lender but my gut tells me they will refuse. This is why I am having to think of any other points to negotiate with them without suffering any adverse consequences of not signing the new lease.

eddddy

granta said:

So I am asking what might happen if I refuse to sign but the other 3 freeholders do sign it? Where does that leave me and can the freeholder's solicitor still proceed without my signature? It would mean that my service charge would remain at 25%. 

There are 4 leases. There are 4 leaseholders.

So there will be 4 Deeds of Variation required - one per lease.

If you refuse to sign your Deed of Variation (as a leaseholder), the plan will be scuppered.  The developer will have to go back to the drawing board and make a new plan.

Then everything in your lease will remain the same.

i.e. You will be responsible for 25% of the costs relating to the original building.

And you will be responsible for 0% of the costs of things that the developer has added. e.g. New parts of the roof, new floor joists, new windows, new walls, etc

granta said:

I don't think we are worse of as a result of any of these offers.

But you could be worse off if you sign the deed of variation, and for example, if part of the new storey cracks or collapses - because the developer failed to strengthen the floor joists, or used inadequate beams, etc

The cost of putting that right could be tens of thousands, and you might be responsible for paying 20%.

How confident are you that the developer has used reputable surveyors and structural engineers - and followed their advice? And used reputable builders and got proper sign-off from building control?


It sounds like you really do need a lot of advice from a suitable solicitor about this.

silvercar

Do you want the cupboard or would you prefer the developer buy it off you? Either way you should/ could refuse to sign anything until this matter is sorted.

eddddy

silvercar said:

Do you want the cupboard or would you prefer the developer buy it off you? Either way you should/ could refuse to sign anything until this matter is sorted.

It sounds like the OP is being pressured into giving away 25% ownership of a roof space which will be used for development - in return for some free decorating.

That sounds like a much bigger issue to me.

granta

silvercar said:

Do you want the cupboard or would you prefer the developer buy it off you? Either way you should/ could refuse to sign anything until this matter is sorted.

Yes I want them to buy it as per my first post.

I will hold off signing but I was hoping someone on the Forum with some experience of leasehold/legal matters might be able to provide some brief insight into possible consequences of not signing. I realise it is quite complicated so will look to see how to contact a solicitor.