Deed of Variation or Indemnity

Mason- · 9 Jan 2019 at 13:20

Hi all - writing this thread as I'm a bit impatient, and my solicitor is often slow to respond.

I'm in the process of buying a leasehold flat. There was an issue in the lease, apparently inside the forfeiture clause it's usually commonplace that if the landlord wants to claim back the property (say for example if I didn't pay ground rent/service charge etc.) that they need to give 30 days notice to the lender. My forfeiture clause has no notice period, essentially meaning the mortgage company doesn't need to be given notice that the landlord is taking it back (or beginning to do so anyway).

My solicitor advised a deed of variation, she also had to notify the lender of this and they asked for one too for the mortgage to go ahead. The seller's solicitor came back to us with an indemnity policy. This has been forwarded on to the lender who have come back saying they will agree to it.

I am concerned whether to proceed or not. While this will cover me, and my lender now. It will still be an issue in future if I come to sell the flat. I also plan to pay my ground rent so I really doubt the clause would be invoked. However I have a question:

If I were to proceed with the indemnity policy, leaving the lease as is. Could I then whilst owning the property apply for a Deed of Variation myself. Is this an expensive thing to do? I also suspect it would require consulting my lender as they have a vested interest in the property.

Also could anyone speculate as to why the seller's solicitors just came back with the policy rather than doing the Deed of Variation. Is a Deed of Variation more expensive to arrange and time consuming?

Any advice would be appreciated. Cheers.

Skillmister · 10 Jan 2019 at 06:24

Mason- said:
Also could anyone speculate as to why the seller's solicitors just came back with the policy rather than doing the Deed of Variation. Is a Deed of Variation more expensive to arrange and time consuming?
.

Indeminty policies are the "go to" method to sort almost any legal problem. They are not always the right solution, but in most cases they are good enough for a lender. In situations where the defect affects the buyer and the lender, just because a lender is happy to proceed with indemnity doesn't always mean a buyer should be happy with that and vice versa.

In this instance the risk is almost solely with the lender, as in its the lender who loses out if the lease is forfeited without notice, (obviously you still lose out if the lease is forfeited too but that goes without saying and isn't the issue here!) and the indemnity will likely provide only the lender with protection anyway. So if the lender is happy to proceed, that should be fine in this instance. Yes you should be mindful that the issue could come up with you sell but it's not a particularly major defect, not all solicitors will spot it/care about it and the majority of times indemnity should be fine .

Your solicitor and the lender should always request a deed of variation in the first instance as that is ultimately the best solution but it's extremely unlikely any seller would ever agree to do that as its a) very time consuming and b) very costly (the seller would have to pay the landlords legal fees and possibly a premium on top of their own legal fees)

This post is not legal advice and you should consult your own solicitor

Skillmister · 10 Jan 2019 at 06:26

Mason- · 10 Jan 2019 at 09:31

Skillmister said:
Indeminty policies are the "go to" method to sort almost any legal problem. They are not always the right solution, but in most cases they are good enough for a lender. In situations where the defect affects the buyer and the lender, just because a lender is happy to proceed with indemnity doesn't always mean a buyer should be happy with that and vice versa.

In this instance the risk is almost solely with the lender, as in its the lender who loses out if the lease is forfeited without notice, (obviously you still lose out if the lease is forfeited too but that goes without saying and isn't the issue here!) and the indemnity will likely provide only the lender with protection anyway. So if the lender is happy to proceed, that should be fine in this instance. Yes you should be mindful that the issue could come up with you sell but it's not a particularly major defect, not all solicitors will spot it/care about it and the majority of times indemnity should be fine .

Your solicitor and the lender should always request a deed of variation in the first instance as that is ultimately the best solution but it's extremely unlikely any seller would ever agree to do that as its a) very time consuming and b) very costly (the seller would have to pay the landlords legal fees and possibly a premium on top of their own legal fees)

This post is not legal advice and you should consult your own solicitor

Thanks Skillmister. One quick question. Would this affect my ability to remortgage? Does the indemnity cover all lenders that lend to me specifically, or is it purely between my lender now?

Skillmister · 10 Jan 2019 at 15:56

Mason- said:
Thanks Skillmister. One quick question. Would this affect my ability to remortgage? Does the indemnity cover all lenders that lend to me specifically, or is it purely between my lender now?

Depends on the policy. The wording for the one I use covers only the lender giving the mortgage at the time

Mason- · 10 Jan 2019 at 18:52

Skillmister said:
Depends on the policy. The wording for the one I use covers only the lender giving the mortgage at the time

Cheers Skillmister. My solicitor said that it could affect it. I’ve insisted on the DoV now so will see what happens. Thanks for your help

Skillmister · 10 Jan 2019 at 21:54

Mason- said:
Cheers Skillmister. My solicitor said that it could affect it. I’ve insisted on the DoV now so will see what happens. Thanks for your help

No problem, best of luck getting it resolved!

fastwunz · 10 Jan 2019 at 21:59

Agreed - a deed of variation is the ultimate solution and the most desirable - albeit the most time consuming and costly but, on my experience, provided both solicitors communicate, it can be done in days.

Laura Backshell · 3 Sep 2019 at 12:18

Hi, I don't know if anyone's still getting alerts for new comments.

I'm in a similar position with deed of variation and indemnity - there is an incorrect number of the plan of the stairs stated which leads to an issue of potential dispute that I own the stairs.

It says plan 1 but should be plan 2.

Its fine right? The landlord (its leasehold) will still let me use the stairs?!

Thanks