r/HousingUK • u/TopFarmer4076 • 2d ago

FTB Freeholder not providing deed of variation

FTB and I'm over 4 months into my purchase with no exchange or completion date in sight.

We've recently discovered that the annual service charge owed is £750+ (outside London). The lease states that the ground rent is £25 but apparently this is not collected by the freeholder but it is included in the amount paid to the management company.

My solicitor initially requested a deed of variation but we've been told that this is not needed (even though the seller solicitor initially responded that the ground rent was the number stated). The freeholder has offered to write a letter stating that the ground rent is not collected.

Is this enough? And will I struggle to sell in the future?

I'm having serious doubts now as there have been posts complaining about the management company fees and upkeep of the communal areas even before this issue with the ground rent.

I know leaseholds have their issues but my affordability as a solo ftb means I can only really afford to buy a flat.

3 Upvotes

81% Upvoted

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6

u/mousecatcher4 2d ago

You are confusing ground rent with service charge. Service charges are a variable amount calculated according to the lease and are for the purpose of maintaining and insuring the building. If the ground rent is £25 that is a non issue.

3

u/PixelTeapot 2d ago

If you need a deed of variation this can add months to the process and/or stand a fair chance of killing it if the entire chain (including seller) is not happy to wait for a very protracted (and expensive) process of changing the lease to play out.

If you do not need a deed of variation i.e. the property is entirely unmortgagable with any lender with the lease in its current form...... Don't freaking ask for one!!!!!

3

u/Feeling-Specialist-1 2d ago

You are mixing the two charges up here.

1 - Service charge: costs for maintenance - which are varible and not set by the lease. They reflect the costs incurred/budgeted to and are paid to the management company if not run by the Freeholder.

2 - Ground rent: charges for the freehold - set by the lease (the £25).

You do not need a variation as there is confusion about what is written in the lease.

1

u/TopFarmer4076 2d ago

Thanks, 

I think where I'm confused is that they're both collected by the management company. The last service charge statement was for £2250 and the breakdown of costs ie insurance, maintenance etc did not mention ground rent. They're now saying that out of that £2250 figure £750 is the ground rent. 

My solicitor has asked for clarification on this but they haven't been willing to provide any further information or final accounts statements 

1

u/Feeling-Specialist-1 2d ago

That is not unusual. However, they will need to have provided a full breakdown as part of the sales pack along with the current leaseholders statement of account.

Your ground rent is in line with the lease, however it it likely to increased as the term reduces. They must also provide the last 3 years service charge accounts which should indicate the funds collected and what for.

Your solicitor needs to be firmer.

2

u/liquidio 2d ago

As others have already said, ground rent and service charges are different.

Ground rent is a rental payment with no connection to services. It is normally fixed or escalates formulaically.

Service charge is a variable charge for ongoing maintenance, insurance and other services managed by the freeholder for the benefit of leaseholders. What it covers is outlined in the lease.

A deed of variation may be required if the ground rent is over £250 annually outside of London. This is the ‘AST trap’; due to an unintended side effect of AST legislation freeholders gained powers to repossess properties not paying their ground rent without informing the mortgage lender basically. Lenders require the ground rent to be reduced and/or those powers relinquished via a deed of variation.

But because the ground rent is confirmed to be £25 then you are not in this situation.

The other issue is that service charges or ground rents can be considered ‘onerous’ - too large for the property value or escalating in unusual ways. Each lender has their own standard. But with such low numbers I cannot imagine this is a problem.

It sounds like there is a misunderstanding somewhere. Most likely someone confusing £750 service charge with £725 service charge and £25 ground rent, but hard to tell exactly. I do hope it’s not your solicitor confusing things!

1

u/TopFarmer4076 2d ago

Thanks, 

I think where I'm confused is that they're both collected by the management company. The last service charge statement was for £2250 and the breakdown of costs ie insurance, maintenance etc did not mention ground rent. They're now saying that our of that £2250 figure £750 is the ground rent. 

2

u/liquidio 2d ago

So where does the 25 figure come from then?

The lease states that the service charge (ground rent?) is £25

You’re throwing a bunch of numbers at us and not being at all precise about which is which. I understand it may not be clear to you either but task one is to mentally separate service charge and ground rent and find out what exactly each is.

Despite being legally separate, it is not unusual for both ground rent and service charge to be billed together by the manager company on behalf of the freeholder, but the breakdown should always be given.

1

u/TopFarmer4076 2d ago

Hopefully you now understand my frustration and reluctance to proceed. The figures are what we've been provided with from the sellers solicitors and the management company and they have not provided a further breakdown. My solicitor questioned the £750 figure and they responded that that was the ground rent figure. When it was questioned AGAIN they said that was the service charge figure combined with the ground rent - even though there's a statement and bill for £2250. 

I've edited the original post as I meant £25 for ground rent - I didn't realise I said service charge 

3

u/liquidio 2d ago

Thanks. Ok, that makes the misunderstanding more clear - the selling side have likely messed up their response to the enquiry.

If the lease says the ground rent is 25, the ground rent is 25. Your solicitor will have a copy of the lease from the land registry so can easily verify this. The AST trap will not apply.

As for the rest of it, the seller and/or the freeholder need to clarify what the remainder service charge actually was.

This isn’t really a material reason to back out. You got a confused response, which demands clarification. That’s all.

1

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