‘Defective’ lease (possibly) and should I pull out?

AliceBanned

Hi I am several months into purchase of a two-bed leasehold flat in an area I like. My solicitor contacted me to say there is a clause in the lease relating to Section 121 Law of properties Act 1925 effectively meaning the freeholder can re-possess the property if estate charges go into arrears.

This is unlikely to happen but they recommend a Deed of Variation which the seller (ex landlord who tenanted it for 20 years) refuses to do. Not only refusing to arrange it but to even ask whether I can do so after purchase. They have been calling all the shots from the start and I am not happy but will spend £2k on conveyancing fees either way (and paid for survey).

A small freehold house I viewed previously is still on the market at a reasonable price though £80k more. I am 58 and have £80k deposit. House £360k and flat £275k with £3k a year service charges. I feel scared to make the leap to the house but can afford it - just. The attitude of the vendor is making me lean towards the house now as they probably doubt I’d pull out though zine told the EA I’m not happy at their approach and it is worrying for me that I could be left with a slightly risky clause in the lease. My lender NatWest would accept indemnity instead but conveyancer said there is no guarantee other lenders will when I sell. Co pilot advised it’s not a major red flag - but has made me undecided. Any advice welcome. Thanks

TroubledTarts

If it feels too risky then that's the answer.

They are insurances if a purchase or sale falls through, consider getting one for future sales or purchases.

anselld

The Leasehold and Freehold Reform Act 2024 removed Section 121 lease and possession remedies except for estate rentcharges which it doesn't sound like this is. Ask your Solicitor to double-check if the relevant lease clause is actually still in force following the 2024 L&F Reform Act.

AliceBanned

Thanks Troubled Tarts that’s helpful to know about if I decide to pull out this time and buy another property.

AliceBanned

However the estate agent tells me that he sees lots of indemnity for this type of lease. Of course he would say that!

eddddy

AliceBanned said

I am several months into purchase of a two-bed leasehold flat in an area I like. My solicitor contacted me to say there is a clause in the lease relating to Section 121 Law of properties Act 1925 effectively meaning the freeholder can re-possess the property if estate charges go into arrears.

It sounds like there is some confusion.

Did your solicitor actually mention "Section 121 Law of property Act 1925", or is that something you Googled?

Section 121 Law of property Act 1925 relates to rentcharges on Freehold Houses - it doesn't apply to Leasehold flats.

Is the problem with the leasehold flat that the ground rent is over £250 (or over £1000 in London)?

If so, the The Renters’ Rights Act 2025 removed that problem as from 27 December 2025 - so indemnity insurance is no longer required.

But did your solicitor actually use the term "Defective Lease"? A high ground rent doesn't really make a lease defective. Was your solicitor referring to some other defect in the lease?

AliceBanned

from my solicitor: ‘Estate Rentcharge

The title indicates that the property benefits from an estate rentcharge. We requested that the seller obtain a Deed of Variation excluding the statutory remedies available under section 121 of the Law of Property Act 1925 and requested that this be completed before exchange of contracts.

The seller has refused to arrange a Deed of Variation and has stated that their client is notprepared to pursue this with the freeholder. The seller has enquired whether your lender may accept indemnity insurance instead and has asked for lender instructions. When asked whether they had approached the freeholder regarding a Deed of Variation, the seller confirmed that no approach has been made and none will be made. This matter therefore remains outstanding.

Mortgagee Protection Clause

We noted that the lease does not contain a mortgagee protection clause and requested that the seller obtain a Deed of Variation to incorporate one.

The seller has declined to obtain a Deed of Variation and has indicated that their client is not prepared to make any approach to the freeholder. As with the estate rentcharge issue, they have asked whether an indemnity insurance policy would be acceptable to your lender.’

my solicitor has looked into ground rent and there is no issue.

thanks

AliceBanned

ps no I think I found ‘defective lease’ when I googled. My solicitor said NatWest are going to a accept indemnity insurance subject to scrutinising the service charge/estate charge but he recommends Deed of Variation - saying some lenders in the future may not lend on it ie selling could be problematic. I don’t know whether he has to say this to cover himself. Solicitors always have caveats with leasehold!

AliceBanned

I think the difference is it is an estate rent charge / service charge and estate rent charge are both charged on this property.

AliceBanned

I have since found on Google that there are legal reasons why seller won’t approach the freeholder - it is tipping them off if they refuse to allow a Deed of Variation, making indemnity impossible. Basically commercial freeholders do this as a cash cow so basically have leaseholders in a headlock. Not good but possibly common?!!!

ExEstateAgent

Buy the house. The £3K service charge will go towards the extra mortgage costs. Yes a house still needs insurance and maintenance but that £3K will increase and there will always be extra 'major works' costs to pay.

If buying a flat I would always look for one that has a share of freehold.