If you’re in the process of selling or purchasing a leasehold property right now and you’ve stumbled across this post, it’s likely that you are enquiring about, or you are having to start the process of a deed of variation.
It was only during my trials and tribulations of selling a flat with ground rent over £250 that the deed of variation reared its ugly head. For who was a first time buyer 5 years prior, I had no idea about any legal terminology surrounding leasehold properties and in fact, the dire implications of having a leasehold property.
I had already had my fingers burned with paying for the LPE1 form which set me back £840, I had to pay for it to be done twice by both the managing agent, and the freeholder. Surely, there wouldn’t be more costs I had to incur?
Once the sellers solicitors pointed out the issue with the ground rent already being at £250, their first request was that a deed of variation needed to be made, or else the mortgage lender would not release the funds, and the sale would collapse.
Due to fresh focus in the property sector, this ground rent issue is becoming a very prevalent issue.
In this article, I explore exactly what a deed of variation is, what instances it would be used for a leasehold property, and the cost implications of doing so.
What Is A Deed of Variation On A Leasehold Property?
A deed of variation essentially means making an amendment to the existing lease for the leasehold property, this document then supplements the main lease. There are a number of different reasons that you might want to undertake a deed of variation including; stopping the ground rent level from exceeding its current level, or allowing a leaseholder to sublet their property and run it as a business, where the existing lease has previously prohibited this from happening.
Who Pays For A Deed of Variation? How Much Does A Deed of Variation Cost?
The deed of variation is paid for by the leaseholder, as you are the person who is wanting to make changes to the lease. The deed of variation can cost somewhere in the region of thousands of pounds.
Firstly, it depends on what change you are making to the lease. If you are making a change that involves stopping ground rent levels from exceeding, then this is likely to run into the cost of thousands. This is dependent on your existing ground rent terms in the lease, and also who your freeholder is. Freeholders are NOT regulated, so they can charge whatever they like.
I required a deed of variation to cap the ground rent at the £250 mark for the rest of the remaining lease which was around 110 years. In line with the lease, the ground rent was to increase every 10 years at the rate of RPI. Whilst it wasn’t currently exceeding £250, it would in the future which is what caused the issue with the mortgage lender, and the issue of it becoming an assured tenancy agreement.
Whilst I cannot give an approximate cost for a deed of variation as every freeholder will be different, I was quoted the below. Without the initial enquiry fee, this could not be processed. Whilst my freeholder said it’s almost always approved, I have read of times where a deed of variation is rejected from the freeholder on this basis due to the amount of ground rent payments they miss out on over time.
- Initially we require an enquiry fee of £700 plus VAT = £840.00.
- This covers retrieval of the lease, studying it, consulting with the Freeholder and securing a valuation in order to arrive at the required premium.
- Once this information has been collected and assessed the details are passed onto our client.
- Heads of Terms (HOT’s) are then forwarded to you which will include the terms and conditions. Upon agreement please return the document signed and with a deposit cheque of £800.00 and your solicitors’ details.
- The sum of £800.00 will be deducted from the cost of the premium at the time of Completion.
- Upon receipt of the above items all the necessary documents will be drafted and forwarded to your nominated solicitor and we will manage the matter up to Completion.
- There will be a contribution towards our costs of £2,000 plus VAT = £2,400 which includes drafting all documentation executing them and taking this matter up to Completion. This fee is only payable at the time of Completion.
The worst part? This was a quote for the initial legwork. We are already at £3,240 but we have no idea what the premium is going to be.
The premium is the figure that is worked out to legislate for the amount of ground rent the freeholder would be missing out on for the remainder of the lease. I was pushing for this premium cost before parting with any money when I was told that it could range between £10k-18k!
After looking at the National Leasehold Campaign Facebook group and reading of similar stories, most people are faced with this sort of fee, however, there are anomalies where people have been able to do a deed of variation for less than £1,000. This is not commonplace though.
How Long Does A Deed of Variation Take?
Whilst a deed of variation is simply a template that gets filled out, this requires legal input and sometimes a chain of different people. I was initially quoted 20 days for the initial enquiry, but it could be some weeks or months for the deed of variation to be completed. From other peoples experiences it can often range between 3-6 months for a deed of variation to be completed. Again, this does vary on the freeholder, and how may parties you have to deal with during the process.
What Are The Alternatives To A Deed of Variation?
One alternative to a deed of variation is a formal lease extension. This still costs in the same region of money, but it is a much better option than a standard deed of variation.
A lease extension adds 90 years to the remainder of your lease, and the important part, it reduces the ground rent to a peppercorn, or £0. If you are currently exploring this as an option it’s likely because you are either selling a leasehold property, or about to purchase one.
A lease extension route is far more favourable for both parties due to this peppercorn ground rent. However, a lease extension can only be requested if you have owned the property for 2 years or more.
If you are going down this route due to issues with ground rent and you are purchasing, ground rent as abolished on the 30th June 2022 on any new lease. This does not currently apply to existing leaseholders, but there is hope that this will eventually be the case for everyone with a leasehold property. If you are currently purchasing, I would follow your solicitors advice and try to delay until this date passes.
A deed of variation can be a very costly route, and in my opinion there are more favourable options that will run into the same region of money.
I am not a legal professional, but I do have firsthand experience dealing with a deed of variation on my previous leasehold property. If you are looking to purchase a flat for your first home, make sure you consider the pros and cons of buying a flat before doing so as there is a lot of additional expenses and issues that can occur with a leasehold property.
Before You Go…
If you’re trying to sell a flat with ground rent over £250, it’s worth considering the indemnity policy route. It was my light in shining armour, costing me around £50, allowing the lender to release the funds and myself to sell the flat…
What is an indemnity policy for ground rent?
Very interesting, bit late for me, but after waiting for question with non cooperation with solicitor it has now come to part of DOV. Being needed.
And my buyer has now only 6 weeks for her offer of mortgage to expire. So not only have I lost my purchase, it looks like I am also about to loose my buyer. The money I have had to pay out for documents etc time lost. Yet my solicitor never answered the question which my buyer needed from July , they avoided it, although I may still of had to obtain the DOV it maybe a different outcome ,
I feel as though I am being robbed and there is nothing I can do. Why is this aloud to happen. I was cash buyer, and first flat I brought it was never brought to my attention and there was no way they would tell me.
For me I feel it’s to late atm, But I need to move out. So I will have to just change solicitors, agents and be aware I will have to pay this DOV that’s if anyone wants to buy my flat .
Hi Chris, so sorry to hear about this, it was a similar situation I was in. I’d already lost one buyer and managed to sell by some stroke of luck with an indemnity policy, will the buyers mortgage lender not accept one? I honestly completely feel for your situation, I too wasn’t told about this situation until I was 5 months in, what I assumed was days away from completing, solicitors don’t seem to know enough about it, such a disgrace. A lease extension is a better option than a DOV if you need to do one as it caps ground rent at a peppercorn rather than cap it at £250 and it adds 90 years to the lease. Really hope you can come to a solution, I found getting direct contact with the buyer which is not the done thing was the only way I could push this through. Wishing you all the luck and keeping my fingers crossed for you.
Hi Chris
I in a similar situation
How much were you quoted for a DOV please?
Thanks
Katec
Hi Nicole. I’m in the same boat my mortgage offer was rejected because the flat leasehold ground review is every 3 years at IRP. I have been viewing flats for over a year and this review period and the ground rent was acceptable to me when comparing with the other flats I saw, some of them were even reviewed every 2 years.
My question is about the paragraph where to mentioned that the “ground rent will be abolished from the 30th June “. Is that a passed law?
I remember one of the state agents mentioned that to me in Augst this year, but I can’t find it anywhere. Again, not sure if this would help when augmenting the lender.
Thanks
Hi Vanessa, sorry you’re going through this now. The ground rent abolishment was for new leases only so mainly new build properties or those which have had a lease extension. Unfortunately this doesn’t include existing leases, but hopefully something will change in the coming years. For now, I would avoid any flats where they have onerous ground rent and poor terms in the lease, it may take more time to find the right one but will save you a lot of money and stress. Good luck!