A lease will often provide a landlord with the power known as ‘forfeiture’ which allows the landlord to end the lease and take possession of a leasehold property in the event that terms of the lease are breached. This might for example occur if the service charge remains unpaid for a certain period or if the tenant’s covenants are breached.
| Whilst this power is rarely exercised, it poses a significant
risk to a lender. The lender’s charge is registered against the leasehold title
of a property, if the lease if forfeited and the leasehold brought to end, the
lender’s charge is no longer secured against the property and they are
therefore unable to recover their investment in the property. Lease can however include a ‘mortgagee protection clause’ which significantly reduces the risk for a lender. This requires the landlord to notify any lender before they exercise their power of forfeiture, giving the lender the chance to remedy the breach of covenant or arrange payment of the arrears and therefore prevent the lease being forfeited. |
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There are many leases, some of which will not be particularly old, which don’t include a mortgagee protection clause. If you are in the process of buying a leasehold property and the lease does not include this clause, your lender will usually require that the clause is added to the lease before they will lend on their property.
It is possible to add a mortgagee protection clause to an existing lease by way of a Deed of Variation. Any such addition to an existing lease will however require the consent of the landlord and the landlord will typically charge a fee to enter into the Deed of Variation.
If the Landlord refuses to enter into a Deed of Variation or will not agree to lender’s requirements, the lender may well refuse to lend on the property and withdraw their offer.
If a Deed of Variation is required during the course of a purchase, you should expect there to be additional costs from your conveyancer for drafting, approving and arranging the signature of the Deed. In addition, the Deed of Variation will typically slow the conveyancing process whilst the exact terms are agreed with the landlord and their signature of the document is arranged.
If you would like to discuss a sale or purchase, or a Deed of Variation please contact us on 01394 277 941 or at info@fairstep.co.uk, alternatively fill out our contact form, and we would be happy to discuss your requirements in further detail.
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