HELP - rent charge with freehold

[ESali]

Hey all
New poster here.
We are in the process of buying a (freehold) property… the search has taken over a year now due to Covid and we finally found somewhere and had our offer accepted in May this year.

We recently found out there is a rent charge to be paid and our lender has asked us to either apply for the management compay’s power to create a lease under s121 of the Law and Property Act 1925 to be removed or get indemnity insurance.

I’ve done a lot of reading and it seems like indemnity insurance is a quick solution but there are risks when re-selling or re-mortgaging the property. The seller has asked the management company for a deed of variation, they are insisting they will not exercise the power to create a leasehold but agave said they will not agree to remove it.

What should we do?! Are there people who have knowingly bought a freehold property with a rent charge and a clause on the deed allowing the rent charge owner to create a lease?? Or should we just run away? Scared that we won’t find another property in this market and we really like it!

For those who are not sure what I’m talking about - Google “fleechold”.

Thanks so much everyone

Well, I'd never heard of 'fleecehold' until now. Just reading about it gave me the shivers. I would NEVER buy such a property. If other people feel the same, you'll find it hard to sell. You are really at the mercy of people/companies you have no influence at all over. What if the management company attitude changes or they sell on to a different company? What if mortage companies change their policies and it becomes unmortgageable in future?

I would walk away. The whole point of a freehold is that you own it fully forever.

Put this back in the seller - either they sort it or you walk. And get back to checking rightmove.

I've just found out on Friday that the house in buying has similar. Waiting for responses from vendor. You can redeem the rent charge. They are being written off in 2037 and you can use an official government site
www.gov.uk/guidance/rentcharges#how-to-redeem-your-rentcharge
To go through the process of redeeming the charge and getting it removed from the deeds. I worked out mine will cost 120 to redeem.

@Bobbingtons

I've just found out on Friday that the house in buying has similar. Waiting for responses from vendor. You can redeem the rent charge. They are being written off in 2037 and you can use an official government site www.gov.uk/guidance/rentcharges#how-to-redeem-your-rentcharge To go through the process of redeeming the charge and getting it removed from the deeds. I worked out mine will cost 120 to redeem.

Just wanted to check if this was in relation to a new build?

Thanks everyone for your replies so far x

Mine is a 1960s build so before the 1977 change in law. From what I've read if it's from before 1977 either you or the vendors should be able to apply to redeem. If it's later than that it could be an estate management charge which is treated differently but I've not researched the details on that

Just to add I'm not a solicitor, this is just my own research and I'm still waiting on what my solicitor and the vendors solicitor come back with. Little annoyed I only found this out 2 months into the process when close to exchange, but my purchase is a probate sale so the vendors didn't have a clue until the draft contracts were completed.

Solicitor here- common problem and indemnity insurance is fine.

Ah yes, I’ve heard about this too. The property is still considered as a new build, as it was built in 2017 so I don’t think we can redeem it like that and it will still apply after 2037.

We were so close to exchange when we realised how big of a problem this was. The management company has already refused to remove the power but I think we’re going to have to push the vendor to push them again.

We’re FTB so unsure of how the negotiation process works… I’m trying not to give up hope but so scared to give the ultimatum.

@Bobbingtons - I have my fingers crossed for you. Hope it goes well.

Dropped out of a place like this. This was about an estate charge, not a rent charge though - there were charges to a management company residents did not have the power to change. The management company wasn't getting any documents to the sellers that they needed, and took days to reply to every email. That alone was enough to drop out as it would be a headache to sell.

@jfhguseorjgijaerigjarfgj - got you. I understand there is an ability for the residents to own the company but there are no plans set in stone for this as of yet.

The management company came back and have provided suggested wording for a DoV but it doesn’t meet the requirements of the lender because the residents don’t own the company.

To be honest the DoV we are seeking (to remove the power) is the only thing that will make me comfortable - because I’m not really risk averse. However @Yougottawork is giving me some hope….

Btw I officially love this website. Thank you so much everyone