Leasehold Residential Conveyancing
I have found the flat of my dreams and a good financial package from my lender. I intend to instruct you to act on my behalf in connection with the purchase of the flat. Where do you fit in as far as my lender is concerned?
Provided that we are on the panel for your lender, we will be instructed on behalf of the lender to verify the title and the associated paperwork to the property not only for you but also for the lender. This is because the lender will want to be sure that the property is good security for the loan to you. To that extent, we will be wearing "two hats" although there is no apparent conflict of interests as our intention will be to review the title and associated papers for both of you.
How does this work in practice?
We will report to you and will also report or certificate to the lender. When giving the certificate we must confirm that the flat you intend to purchase satisfies the detailed requirements set out in the Council of Mortgage Lender's Handbook. The lender will not release the funds to finance the purchase until it receives a satisfactory certificate that the requirements are satisfied.
That sounds straightforward enough, presumably most leases follow a standard form and the lender's requirements will be easily fulfilled?
This is not always the case. Over the years the requirements for a satisfactory residential lease have developed. For example, many of the leases granted in the 70's and 80's do not contain a covenant allowing the tenant to require its landlord to enforce covenants given by other tenants. This is referred to as a mutual enforceability covenant. If a residential lease does not contain a mutual enforceability covenant the lender must be notified and the lender will require that the lease is varied or, if this is not possible, that indemnity insurance is obtained.
The lease for the flat was only granted six years ago so the form of the lease shouldn't be a problem should it?
We will, of course, need to carefully review the terms of the lease. The first point to consider is the length of the term. Remeber a lease is a diminishing asset. The lender will want to know the length of the unexpired residue of the term. As a general rule, a lender will not lend against a lease with less than 60 years remaining at the date of the mortgage. If the lease has only a short unexpired residue we would consider whether or not you are able to take advantage of the statutory regime that allows tenants, in certain circumstances, to obtain a lease extension.
Another point to consider will be the ground rent that is payable. Many modern leases provide for the periodic review of ground rent. This can be problematic if the increases are high or are calculated by an arbitary formula. We will certainly need to report the position to the lender.
The agent has mentioned that there is a management company that will sort out any problems at the property. Is this a good thing?
Management companies can cause particular problems. In a typical set up, a developer will construct the property, grant the leases and then retain the freehold interest to reap the benefit of the payment of the annual ground rents. The developer will, however, pass the bulk of the obligations such as insurance, repair etc. to a management company. In such circumstances we will need to satisfy the lender that the appropriate enforcement provisions are available in the event that the management company breaches its covenants or goes into liquidation.
We will need to carry out checks to ensure that the management company is operating satisfactorily. We will also want to be certain that the freehold has been transferred to the management company - if it hasn't then the lease will need to include an obligation on the landlord to step in and carry out the repair and insurance obligations if the management company defaults.
What is the next step?
The next step is for you to formally instruct us and provide details of the heads of terms for the sale of the flat and the details of your seller's solicitors and your lender. We will establish contact with the seller's solicitors and request a draft contract and title information, including a copy of the lease for consideration.
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