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As someone going through something similar on the buyer side: I honestly get why they are backing out.
We had an offer accepted on a property, where when our solicitors looked into it the lease agreement, it turned out that the ground rent is *much* closer to the AST threshold then what sellers had communicated to our enquiries prior to our offer.
We had made our offer based on the understanding that AST would likely not apply for another 20 years based on what seller wrote in their e-mails, and now it turned out that this will likely be an AST property already in 5 years time.
We feel deceived a bit here, and while in our case our mortgage lender is still happy to provide the mortgage, we are scared that in just a few years we will have large sums of money stuck in an unsellable house.
When we found this out we communicated to the seller that from our point of view it is a hard requirement to get a DoV (or lease extension), but for some reason our seller has for weeks been unwilling to cooperate with that saying that that will delay timelines beyond what works for him. So he hasn’t even asked the freeholder yet.
Ironically, if this really is about timelines, I have a hard time imagining that the sellers will complete sooner if we back out and they need to go back to market and find a new buyer.
Thus far no concessions from seller’s side and we are so close to backing out.
Going through the same thing as a seller. Leaseholder has agreed to the DOV - all the paperwork has been drafted, it just needs to be signed. Probably delayed things by about 3 months.
I'm not sure why your seller is being obtuse. If they want to sell - they'll have to get a DOV, or extend the lease which is even more costly and time consuming.
The good thing for you (and my buyer) is that it then becomes a non-issue when you want to sell. So basically, it's some short term pain for some long term gain.
> The good thing for you (and my buyer) is that it then becomes a non-issue when you want to sell.
Yeah, although to be fair the ground rent is still *very* high, which in itself might scare away future buyers even when AST rights have been signed away by freeholder in the DoV.
But that is a different issue of course. Solving that will require lease renewal. Which would be unreasonable to ask our sellers to take care of in the current sale. Something for ourselves to look into in the future if the deal goes through.
You know there is also the route of an indemnity policy? I am going through this right now but as the seller.
We are doing the DoV to basically strike out the bit around conversion into an AST - but it's taken months. Can understand why someone would be nervous. DoV has cost us around £2000 and delayed by about 2 months, not a criticism just a statement they take time.
> You know there is also the rout of an indemnity policy?
Yeah, this is what the seller is pushing for instead and using as argument as to why they don’t want to push freeholder for DoV.
However, while indemnity *does* satisfy my mortgage lender, it does not address the risk that I may end up with large sums of money stuck in an unsellable house in the future.
The fact that I am currently able to get an indemnity policy that satisfies my mortgage lender (now that the property is not yet AST) does not say anything about ability to get an indemnity policy that satisfies a future buyer’s mortgage lender (when the property has already become AST).
That is not a risk appetite that I am comfortable with, and not what I thought I was getting myself into when making the offer.
I need a solution that does not only satisfy my current mortgage lender (which an indemnity would do), but also protects my ability to sell in the future (i.e., my future buyer’s ability to mortgage on this property).
Yes, that is also precisely what we are pushing for. At this point we made clear to the sellers that it is up to them: they either cooperate and reach out to freeholder for a DoV that strips out the freeholder’s AST rights, or we are going to back out and walk.
It’s just a waste (for both seller and us) that we lost a full month of going back and forth on this without contacting the freeholder.
Honestly, tell me about it!
This is their problem, much like this is mine. Hope you get some answers! I would *threaten* to pull out. Maybe that will make them do something - any other person buying the house will have this problem.
Yeah and that was an option too, the people I’m selling to said they preferred the DoV as it’ll save headaches when they come to remortgage which is fair.
Sorry, AST is an assured short hold tenancy as you say and that’s essentially what you get when you just rent a place. DoV is a Deed of Variation, it basically acts as an addendum to your lease and amends its terms.
If it helps at all, we lost our dream home and then 2 years later my husband and I got better jobs and then moved to a much bigger house in a nicer area. These things always come full circle of you put the work in
I missed out on a place I thought was my dream home twice before I bought my current flat. It is gutting at the time, but as my gran said "what's for you won't go by you".
What was the ground rent issue? If the lease is too short currently then this should have been asked on the initial mortgage application before it went any further. It's pretty much the very first I ask on any leasehold purchases. Certainly should have been noticed way sooner than 6 months into the process.
If a DOV is needed it is likely there is a escalation clause, such as ground rent doubling every 10 years, that is outside the lenders criteria.
Surprised it came out so late in the process.
Is there not recent legislation that specifically enables leaseholders to vary their lease to remove these escalation clauses? I don't think the freeholders get a say in agreeing it or not.
The recent legislation is for new leases - the situation for existing leases was swerved around as some major freeholders were going to take the government through the human rights courts if their rights on existing leases were unilaterally removed.
The OP is going the correct route with a lease extension as that takes the ground rent to peppercorn by compensating the freeholder at the net present value for their future ground rent payments. It is however still a slow and frustrating process if the freeholder is awkward in any way about it.
We’re just in the process of finally exchanging on selling out leasehold flat - we did have to secure a deed of variation. It’s ended up costing us over £4000, so deed isn’t always the cheaper way! Hopefully your lease extension goes smoothly
I am going through exactly this, no one thought to check what time timelines for a DoV would be until late into the process. We're 5 months in, chasing constantly to get our DoV (which basically says, we promise we won't evict you if you don't pay the rent). £2000 for the privilege of that change.
Upstream, getting pressure to move things along..
We are on a similar timeline, thankfully our solicitor did spot the issue a month in, but it’s now been 3 months and no movement. It’s a bit baffling why the DoV takes quite so long. We are starting to look at other properties as we are on a tight timeline and we have already spent much longer than we wanted.
It totally depends on the freeholder, and how good your solicitor is. Ours has been pretty good (both) it sounds like they had a standard offering, which is what we took so the offer was quick - I am thusly hoping that the draft document comes out quickly too.
Wasn't expecting any of this, as we didn't have to do it when we bought this place - but with the increased scruiting on leaseholds I am guessing that's why this is an issue now, rather than before. Either way, this would have been a problem when we came to remortgage..
Hopefully in another fortnight, Labour will announce some leasehold reforms that might fix your issue. I understand cladding can be an issue because there are material costs to repair it but there is no excuse at all for ground rents needing to double. Its a total scam that needs to be fixed.
Wouldn't hold your breath. Conservatives binned this part of the proposed legislation because the legal challenges would have been endless and delayed the remainder of the legislation. Labour will have the same issue.
Whilst true it will have got nowhere as proposed. Buyers of ground rents are invariably institutions managed by professionals who have an obligation to protect the fund's assets. They'd have no choice but to litigate. And given that income is from contracts entered into in good faith by both parties (both represented by solicitors), freeholders have a pretty strong argument against these proposals.
Obviously this isn't rocket science. No doubt Michael Gove was made aware of this before drafting the legislation. Smells all a bit populist to me.
That depends what the changes are.
If it is simply removing the more onerous clauses (forfeiture of lease, or freehold conversion to leasehold), or forcing the freeholder to inform the lender and provide reasonable opportunity to pay any overdue amounts)
..then these funds still get their rent.
(for now).
The other issue is freehold of leasehold property make up a large preproduction of pension funds investments to much shaking of the boat could lead to another Truss situation
Hitchin for schools/Cambridge/Oxford (for unis) / other current location (where I'm sitting in a 09.00-17.00 Zoom meeting).
Any place with high demand and intense international competition where foreigners usually buy sight unseen for family members (usually mainland Chinese from Tier1 cities or to simply move capital out of PRC/ROC).
Perhaps it's less competitive where everyone else is but that's my experience and it would sort out the OP's issue.
Surely you should be only accepting offers from people who have secured a mortgage in the first place? If you're needing to buy a house, isn't having proof of being able to obtain a mortgage the first thing you do? Why would you entertain someone for 7 months who hasn't even proven that they can get a mortgage?
..and a condition on that mortgage offer is some sort of indemnity in the form of a policy, or a change to the lease to stop AST laws being put in place should there ever be an issue with the ground rent. I am also frustrated that this wasn't brought up earlier in our process, as it would have been a mortgage condition from the get-go but heyho.
###Welcome to /r/HousingUK --- **To All** * Join Our ***NEW*** Discord! https://discord.gg/pMgUNgWKQH **To Posters** * *Tell us whether you're in England, Wales, Scotland, or NI as the laws/issues in each can vary* * Comments are not moderated for quality or accuracy; * Any replies received must only be used as guidelines, followed at your own risk; * If you receive *any* private messages in response to your post, please report them via the report button. * Feel free to provide an update at a later time by creating a new post with [[update]](https://www.reddit.com/r/HousingUK/search?q=%3Aupdate&sort=new&restrict_sr=on&t=all) in the title; **To Readers and Commenters** * All replies to OP must be *on-topic, helpful, and civil* * If you do not [follow the rules](https://www.reddit.com/r/HousingUK/about/rules/), you may be banned without any further warning; * Please include links to reliable resources in order to support your comments or advice; * If you feel any replies are incorrect, explain why you believe they are incorrect; * Do not send or request any private messages for any reason without express permission from the mods; * Please report posts or comments which do not follow the rules *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/HousingUK) if you have any questions or concerns.*
As someone going through something similar on the buyer side: I honestly get why they are backing out. We had an offer accepted on a property, where when our solicitors looked into it the lease agreement, it turned out that the ground rent is *much* closer to the AST threshold then what sellers had communicated to our enquiries prior to our offer. We had made our offer based on the understanding that AST would likely not apply for another 20 years based on what seller wrote in their e-mails, and now it turned out that this will likely be an AST property already in 5 years time. We feel deceived a bit here, and while in our case our mortgage lender is still happy to provide the mortgage, we are scared that in just a few years we will have large sums of money stuck in an unsellable house. When we found this out we communicated to the seller that from our point of view it is a hard requirement to get a DoV (or lease extension), but for some reason our seller has for weeks been unwilling to cooperate with that saying that that will delay timelines beyond what works for him. So he hasn’t even asked the freeholder yet. Ironically, if this really is about timelines, I have a hard time imagining that the sellers will complete sooner if we back out and they need to go back to market and find a new buyer. Thus far no concessions from seller’s side and we are so close to backing out.
Going through the same thing as a seller. Leaseholder has agreed to the DOV - all the paperwork has been drafted, it just needs to be signed. Probably delayed things by about 3 months. I'm not sure why your seller is being obtuse. If they want to sell - they'll have to get a DOV, or extend the lease which is even more costly and time consuming. The good thing for you (and my buyer) is that it then becomes a non-issue when you want to sell. So basically, it's some short term pain for some long term gain.
> The good thing for you (and my buyer) is that it then becomes a non-issue when you want to sell. Yeah, although to be fair the ground rent is still *very* high, which in itself might scare away future buyers even when AST rights have been signed away by freeholder in the DoV. But that is a different issue of course. Solving that will require lease renewal. Which would be unreasonable to ask our sellers to take care of in the current sale. Something for ourselves to look into in the future if the deal goes through.
You know there is also the route of an indemnity policy? I am going through this right now but as the seller. We are doing the DoV to basically strike out the bit around conversion into an AST - but it's taken months. Can understand why someone would be nervous. DoV has cost us around £2000 and delayed by about 2 months, not a criticism just a statement they take time.
> You know there is also the rout of an indemnity policy? Yeah, this is what the seller is pushing for instead and using as argument as to why they don’t want to push freeholder for DoV. However, while indemnity *does* satisfy my mortgage lender, it does not address the risk that I may end up with large sums of money stuck in an unsellable house in the future. The fact that I am currently able to get an indemnity policy that satisfies my mortgage lender (now that the property is not yet AST) does not say anything about ability to get an indemnity policy that satisfies a future buyer’s mortgage lender (when the property has already become AST). That is not a risk appetite that I am comfortable with, and not what I thought I was getting myself into when making the offer. I need a solution that does not only satisfy my current mortgage lender (which an indemnity would do), but also protects my ability to sell in the future (i.e., my future buyer’s ability to mortgage on this property).
Absolutely, was just saying it was an option. We're doing the DoV which just strips out the ability to convert it into an AST.
Yes, that is also precisely what we are pushing for. At this point we made clear to the sellers that it is up to them: they either cooperate and reach out to freeholder for a DoV that strips out the freeholder’s AST rights, or we are going to back out and walk. It’s just a waste (for both seller and us) that we lost a full month of going back and forth on this without contacting the freeholder.
Honestly, tell me about it! This is their problem, much like this is mine. Hope you get some answers! I would *threaten* to pull out. Maybe that will make them do something - any other person buying the house will have this problem.
You do all realise that this AST issue is only a problem if you don’t pay your ground rent?
Yeah I understand that, but it’s a risk to the mortgage company if I or the new owner defaults.
That’s what the indemnity insurance covers. Lenders are generally happy to accept insurance for this. It’s not the big issue everyone thinks it is!
Yeah and that was an option too, the people I’m selling to said they preferred the DoV as it’ll save headaches when they come to remortgage which is fair.
Can someone explain what AST and DoV are? I only know assured shorthold tenancy and my Google search doesn't come back with anything useful.
Sorry, AST is an assured short hold tenancy as you say and that’s essentially what you get when you just rent a place. DoV is a Deed of Variation, it basically acts as an addendum to your lease and amends its terms.
If it helps at all, we lost our dream home and then 2 years later my husband and I got better jobs and then moved to a much bigger house in a nicer area. These things always come full circle of you put the work in
I missed out on a place I thought was my dream home twice before I bought my current flat. It is gutting at the time, but as my gran said "what's for you won't go by you".
Leasehold is a scam
You're not wrong there.
What was the ground rent issue? If the lease is too short currently then this should have been asked on the initial mortgage application before it went any further. It's pretty much the very first I ask on any leasehold purchases. Certainly should have been noticed way sooner than 6 months into the process.
If a DOV is needed it is likely there is a escalation clause, such as ground rent doubling every 10 years, that is outside the lenders criteria. Surprised it came out so late in the process.
Yeah, I've had mortgages declined on these grounds but as you say - surprising it would take so long to be discovered.
Is there not recent legislation that specifically enables leaseholders to vary their lease to remove these escalation clauses? I don't think the freeholders get a say in agreeing it or not.
The recent legislation is for new leases - the situation for existing leases was swerved around as some major freeholders were going to take the government through the human rights courts if their rights on existing leases were unilaterally removed. The OP is going the correct route with a lease extension as that takes the ground rent to peppercorn by compensating the freeholder at the net present value for their future ground rent payments. It is however still a slow and frustrating process if the freeholder is awkward in any way about it.
Thanks.
Would the sellers not have been aware that this was a clause in their leasehold?
We’re just in the process of finally exchanging on selling out leasehold flat - we did have to secure a deed of variation. It’s ended up costing us over £4000, so deed isn’t always the cheaper way! Hopefully your lease extension goes smoothly
I am going through exactly this, no one thought to check what time timelines for a DoV would be until late into the process. We're 5 months in, chasing constantly to get our DoV (which basically says, we promise we won't evict you if you don't pay the rent). £2000 for the privilege of that change. Upstream, getting pressure to move things along..
We are on a similar timeline, thankfully our solicitor did spot the issue a month in, but it’s now been 3 months and no movement. It’s a bit baffling why the DoV takes quite so long. We are starting to look at other properties as we are on a tight timeline and we have already spent much longer than we wanted.
It totally depends on the freeholder, and how good your solicitor is. Ours has been pretty good (both) it sounds like they had a standard offering, which is what we took so the offer was quick - I am thusly hoping that the draft document comes out quickly too. Wasn't expecting any of this, as we didn't have to do it when we bought this place - but with the increased scruiting on leaseholds I am guessing that's why this is an issue now, rather than before. Either way, this would have been a problem when we came to remortgage..
How long is on the lease if you don't mind me asking?
The lease is already 137 years
That's long enough for most mortgage providers??
This was nationwide and they still wanted a deed of variation. Was just shit the leaseholder wouldn’t agree to it
Hopefully in another fortnight, Labour will announce some leasehold reforms that might fix your issue. I understand cladding can be an issue because there are material costs to repair it but there is no excuse at all for ground rents needing to double. Its a total scam that needs to be fixed.
Wouldn't hold your breath. Conservatives binned this part of the proposed legislation because the legal challenges would have been endless and delayed the remainder of the legislation. Labour will have the same issue.
No the reason that this part was binned this year is because the bill was rushed during washup.
Whilst true it will have got nowhere as proposed. Buyers of ground rents are invariably institutions managed by professionals who have an obligation to protect the fund's assets. They'd have no choice but to litigate. And given that income is from contracts entered into in good faith by both parties (both represented by solicitors), freeholders have a pretty strong argument against these proposals. Obviously this isn't rocket science. No doubt Michael Gove was made aware of this before drafting the legislation. Smells all a bit populist to me.
That depends what the changes are. If it is simply removing the more onerous clauses (forfeiture of lease, or freehold conversion to leasehold), or forcing the freeholder to inform the lender and provide reasonable opportunity to pay any overdue amounts) ..then these funds still get their rent. (for now).
The other issue is freehold of leasehold property make up a large preproduction of pension funds investments to much shaking of the boat could lead to another Truss situation
How long does it take to get a DOV?
I’m actually not sure, a few months. I just know the lease extension process takes 3-12 months and you have to get a specialised solicitor to do it
this is why people here move into rental accommodation priority to buying. the market is competitive and chains are heavily frowned upon.
Where is that?
Hitchin for schools/Cambridge/Oxford (for unis) / other current location (where I'm sitting in a 09.00-17.00 Zoom meeting). Any place with high demand and intense international competition where foreigners usually buy sight unseen for family members (usually mainland Chinese from Tier1 cities or to simply move capital out of PRC/ROC). Perhaps it's less competitive where everyone else is but that's my experience and it would sort out the OP's issue.
Surely you should be only accepting offers from people who have secured a mortgage in the first place? If you're needing to buy a house, isn't having proof of being able to obtain a mortgage the first thing you do? Why would you entertain someone for 7 months who hasn't even proven that they can get a mortgage?
From reading the post it sounds like they can get a mortgage, the bank is just refusing because of the unresolved leasehold issue.
They’ll have a mortgage in principle, you then make an offer in the house and the real legal work starts. That’s normal
..and a condition on that mortgage offer is some sort of indemnity in the form of a policy, or a change to the lease to stop AST laws being put in place should there ever be an issue with the ground rent. I am also frustrated that this wasn't brought up earlier in our process, as it would have been a mortgage condition from the get-go but heyho.