There are many leases being bought and sold that are considered defective. Any and all types of defect should be rectified during the conveyancing process but the use of indemnity insurance to cover any and all defects have become second nature. There are 3 categories that defective leases fall into as per the CML Handbook:
LEASES WRITTEN BEFORE 2006Leases written before 2006 are particularly prone to fall into the defective category because they won't reflect the number of legislative changes made to the leasehold sector since they were created. The language used in them is usually written in convuluted legalese with no puctuation, are often very long in length, but neverthelss require reading all the way through to find the relevant parts. The main elements of leases written before this date usually fall into 6 categories:
ALTERATIONS DEFECTSMost leases require consent from the freeholder in order to carry out any alterations/repairs in the form of a Deed of Variation (also known as a Licence for Alteration) which then becomes part of the title deeds.However, there are no statutory guidelines on what the freeholder can charge for granting such consent so whilst at the time this may not be considered important, when it comes to selling the property and permission has never been granted, then the lease has automatically been rendered defective. Correcting it in order to make it saleable often runs into hundreds of pounds in legal fees, with a timeframe of several weeks. This has led to buyers getting the freeholder to agree to a retroactive Deed of Variation approving any risk and which they pay for in order to either prevent the sale to from being be delayed for months or fall through entirely. BUILDINGS INSURANCE DEFECTSWhilst some leases only enable flats to be insured separately, this is considered to be a lease defect because individual policies do not cover the structure, common areas and any other communal facilities.Having said that, insurers are still offering individual policies for each individual flat. This is known as dual insurance and occurs when a purchaser is sold an individual policy that is not required when the building is insured on the one block policy, something that will have been clarified before the mortgage was finalised. When this is later discovered, leaseholders will not be able to get a refund from the freeholder because the covenant to insure has been adhered to. It may also prove somewhat difficult to get a refund from the broker for the separate policy.Unless the lease clearly states that individual insurance is required, then the only other insurance that needs to be considered is that of contents.SERVICE CHARGE COLLECTION DEFECTS Any of the following omissions in the lease surrounding service charge provision will render it defective and should immediately be reported to the lender:
TITLE DEFECTS The main difference between registered and unregistered title concerns what is known as defective title. If the title is defective, the lender must be made aware of this and the title certified accordingly. Where a defective title insurance is needed resulting from a defect in the property, such as a missing deed or lack of title to the property, the seller will be expected to obtain and pay for the policy. Naturally this will not always be agreeable to the seller, particularly where the seller and the conveyancing solicitor differ in their view of the alleged defect. however, where insurance is required to cover the absence of an official local search for example, and the urgency to exchange is coming from the purchaser, the buyer should expect to pay for his own indemnity insurance. Sometimes the cost is split between the buyer and seller.SUMMARYThe use of indemnity insurances rather then resolving the actual problem during the conveyancing process has unfortunately creating a market where retroactive consent has had to be sought and where landlords can (and do) regularly demand hugely inflated sums for granting it. In turn it allows them to negotiate higher asking prices for the freehold when leaseholders want to collectively enfranchise, i.e. buy the freehold themselves.Even though newer registered leases written after 2006 have been re-worded to require them to have a set of prescribed details at the start, they can still become defective because requirements of lenders and other parties can change.
While this website is constantly checked and updated for accuracy, the information and articles provided by Leasehold Life and it's guest contributors are not to be construed as legal advice.
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