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

eddddy

AliceBanned said

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

Yep - I looked into this a bit further, and as you say, some developers do use Estate Rent Charges (as well as service charges) with leasehold flats. But it seems to be unusual.

AliceBanned said

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.

I doubt that applies in this case.

That tends to apply to things like "Breach of Leasehold Covenant Indemnity Insurance", etc. For example, you've breached your lease by altering your flat without consent, or you've laid wooden floors - so you don't want to the freeholder to know what you've done (i.e. you don't want to tip the freeholder off), because they might force you to undo it.

With "Estate Rent Charge Indemnity Insurance", the freeholder knows what the Deed says (because their solicitor wrote it, and they signed it), and they (or their solicitor) will know what the Law of Property Act says. So there is nothing for the leaseholder to keep secret.

If you are buying through an estate agent, it might be worth asking the agent to contact the buyer to ask them why they won't contact the freeholder - and maybe suggest that you'll have to think carefully whether you want to proceed, if they won't contact the freeholder.

RelievedSheff

In this situation I would just pull out of the purchase of the flat and buy the house.

The costs involved with the flat will only ever go one way.

AliceBanned

Thanks both that’s helpful. I will give it some thought.

AliceBanned

The lender has now seen the accounts and approved indemnity as option. Estate agent said these are used a lot but !!!!!! why are freeholders able to have so much power?! I may be too risk averse to go ahead. So hard to decide but not sure whether it is truly a big issue or not. If there is a workaround with indemnity that a major lender accepts. I think the risk is lenders changing in the future when I want to sell, and cost of Deed of Variation - several thousand. Leasehold flats seem like a depreciating asset.

eddddy

AliceBanned said

Estate agent said these are used a lot but !!!!!! why are freeholders able to have so much power?

I think you've got the wrong perspective.

Freeholders didn't do this 'on purpose'. The problem with Estate Rent Charges was discovered in a Tribunal Case in 2016 (Roberts v Lawton).

Before that Tribunal Case, Mortgage Lenders (and home owners) didn't see any problem with Estate Rent Charges. That Tribunal Case sent Mortgage Lenders into a panic.

As a result, many/most Freeholders will now happily do a Deed of Variation to solve the problem.

The weird thing is that your seller is refusing to ask the freeholder. If asked, it's very possible that the freeholder will say "yes".

AliceBanned

thanks but they have been asked and have refused. I’ve today found out that the freehold title for the block was bought by Ishguard ltd and they have a reputation for being - well more ruthless than most. I suspect it is very difficult/expensive to get deed of variation. I’m not comfortable buying the flat as there are others out there. Next time I will google and find out whether I am dealing with a draconian landlord and walk away.

AliceBanned

Thanks yes I found an MSE post on this - probably yours and that makes sense. The problem is the seller isn’t helping to improve things for me as buyer so I can’t really go ahead. I don’t want this problem and would feel anxious if I go ahead. It’s my life savings/pension/ retirement at stake.

eddddy

AliceBanned said

thanks but they have been asked and have refused.

OK - but that's not what you (and your solicitor) said earlier.

You said that your solicitor said "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."

AliceBanned said

I suspect it is very difficult/expensive to get deed of variation.

Not really. It's a one page document that the freeholder and leaseholder need to sign.

As an example, FirstPort is probably the largest property management company in the UK. Here is an example of their Deed of Variation wording: https://www.myfernwood.org/shared/attachments.asp?f=3c92a4e2%2De247%2D4ae0%2D8848%2D2fd5eaf55375%2Epdf&o=FP%2DDoV%2Epdf

I believe that FirstPort require the home owner to pay £550 to cover FirstPort's legal costs.

AliceBanned

In an email my solicitor said ‘refused’ which is also the same as saying ‘none will be made’ isn’t it?

And hearing that the freeholder is a foreign (Iranian) investor notorious for court battles isn’t reassuring. I believe deed of variation can cost more than that. I have found through online search £1300-£2000. I don’t know why my solicitor hasn’t put more pressure on them because it’s not right to expect me to buy it when there is concern over section 121.

eddddy

In an email my solicitor said ‘refused’ which is also the same as saying ‘none will be made’ isn’t it?

I don't really understand what you're trying to say.

To reiterate, your solicitor has said in an email that your seller is refusing to ask their freeholder for a deed of variation. (You posted your solicitor's email in this thread.)

So you should ask the seller "Why are you refusing to ask your freeholder for a Deed of Variation?"

I don’t know why my solicitor hasn’t put more pressure on them

It's not really the solicitor's job to put pressure on the seller. Solicitors don't do negotiation.

That's the Estate Agent's job - and/or your job.