Deed of Variation of Lease for your Flat
by Raminder Uberoi — Posted on 11 February, 2020
Reasons why a deed of variation of lease is required when rectifying a defective lease and complying with mortgage lender requirements
What is a deed of variation of lease?
A deed of variation is a document that supplements an existing lease when a leaseholder and freeholder mutually agree to a variation in the lease. Rather than draft an entire new lease, small changes can be appended to the lease through a deed of variation. This is better than a new lease because it costs less, is quicker and reduces the risk of making unforeseen changes
Why would you need a deed of variation?
There are several different scenarios where you might need a deed of variation. This could range from mortgage reasons, buying the loft space or to allow for subletting the property as set out below.
Why deed of variations may be necessary if you have a mortgage
When you buy a property with a mortgage, a solicitor is not only acting on behalf of the borrower, but on behalf of your lender too. Therefore, solicitors have to comply with the terms set out in the Council of Mortgage Lenders Handbook to ensure that a lender is happy to lend against the lease. Older leases may need to be varied to meet the lender requirements.
1.Short Lease Term
When leaseholders want to extend their lease, they go through the statutory lease extension process; a Section 42 notice is served onto the freeholder in accordance with The Leasehold Reform Housing and Urban Development Act 1993. Read more about statutory lease extensions in our buying a flat with a short lease/leasehold reform blog. Through this process, the lease is extended between the freeholder and leaseholder for a minimum of 90 years and ground rent is reduced to a peppercorn. The deed of variation amends the old lease term originally stated in the lease and replaces it with the new extended term.
Lenders will have specific requirements on what a term of a lease should be, and a borrower may need to extend the lease by deed of variation to comply with these requirements.
Read our blog on ‘Short lease mortgages and ground rent’ for a list of lenders and their minimum lease term requirements.
2. No provision for forfeiture on the insolvency of the tenant
If there is a clause in the existing lease that allows the landlord to forfeit the lease because a tenant has become insolvent, this must be removed using a deed of variation. Only then will a lender agree to the lease.
3. Restricting the ability to sell
The only situation where the lender will accept a restriction on the mortgage or assignment of the lease (i.e. selling) is where the landlord/freeholder cannot unreasonably withhold giving consent. The necessary consent for the particular transaction must be obtained before completion. The lender will require the lease to be amended using a deed of variation so that the landlord/freeholder cannot unreasonably withhold giving consent.
4. Legal Rights and Covenants
A lease should contain provisions that ensure that the following legal issues are covered for a lender to lend against the lease:
- satisfactory legal rights for access, services, support, shelter and protection
- A lease must clearly show what rights of way can be used to get to the property. These rights of way must be from the main public highway and over any communal areas of the property that you must pass through to get to your front door.
- adequate covenants and arrangements for building insurance, maintenance and repair of the common services (structure, foundations, main walls, roof, common parts, common services and grounds)
- The lease should make sure that it specifically states whose responsibility the insurance and maintenance of the common services rests on, whether it be the landlord, the tenants or the management company. If this is not already included in the lease, a deed of variation is needed to add the clarification.
- Mutual Enforceability
- Furthermore, where the responsibility for the insurance, maintenance and repair of the common services falls on one or more of the tenants, the lease must contain adequate provisions to allow the landlord or management company to enforce those obligations at the request of the tenant
If these provisions are not included within the lease, a deed of variation is needed to rectify these lease defects.
5. Ground Rent
If the ground rent unreasonably escalates or doubles, you must amend the lease using a deed of variation. Lenders won’t lend against the lease if you do not do this. The ground rent and any periodic increases of ground rent need to be reasonable. To read more about lenders and levels of ground rent increases they allow, read our blog on “Short Lease Mortgages and Ground Rent” and Purchasing a Leasehold Property.
6. Subletting (Renting) Your Property
Many older leases will prohibit subletting (renting) your property. If this is the case, i.e. you want to rent but your lease prohibits this, you will need to vary your lease. The landlord may insist on certain provisions to be incorporated as part of the variation, which could include:
- Requiring the tenants to sign an Assured Shorthold Tenancy Agreement
- Obtaining the Landlords approval on the suitability of the tenant
- Paying the landlord a fee
If you do rent the property and it is not a Buy to Let, you would need consent from your lender. For more information on obtaining a Consent to Let, read our blog on “Understanding how to obtain consent from your lender to let on your property from our London mortgage advisors”.
Surrender and regrant for loft conversions
If you’re buying a lease which has been sold with loft space, you must make sure that this part of the demise is expressly included in the lease. If this is not the case, then the lease must be varied to incorporate these areas by way of deed of variation.
A physical change in the demise of a property will however trigger a surrender & regrant of a new lease as opposed to a simple deed of variation. Read more in Section 4.4 of Land Registry Practice Guide 68.
If you would like to convert or use loft space that does not fall under your demise, you will need the landlord’s permission (and to possibly pay a premium). If you reach an agreement with the landlord the lease plans need to be altered to reflect the new use of the demise; any changes must be recorded in the lease. Not only will a lease be varied by surrender & regrant, but a separate document called a licence of alteration will also be required. For more information on licences for alterations to your lease, read our blog.
The loft may contain services or other communal systems that would interfere with the rights of other tenants, for example a water tank in the loft space. You would need to amend the lease to prevent interference with the other tenant’s rights.
You cannot force the landlord to sell you the space, you and the landlord must come to an agreement to do so. If the landlord is being uncooperative, you could consider purchasing the entire freehold with the other tenants by way of leasehold collective enfranchisement. Please contact one of our solicitors to advise on this problem.
Transfer of Garden, Garage or Parking spaces
If you live in a flat which benefits from a garden, garage or parking space, and that benefit is not contained in the lease, you will need to arrange for a deed of variation to reflect your right to use and have access to those areas. You must do this whether the right is exclusive or communal.
Sometimes there could be a slight complication if the seller of the parking or garden spaces has a mortgage over those areas. You need to ensure that the seller obtains a deed of release from their lender, to release their mortgagee’s charge over those spaces. For more information, refer to our blog ‘The title split of your property and creating new leases’.
Who is involved when creating a deed of variation?
Any party to the lease must be involved in the deed of variation, because it requires their consent. Namely, the freeholder, the leaseholder and if applicable any third party such as a lender should be involved. Take note that when carrying out a variation to a lease, the leaseholder will most likely have to pay the freeholder’s costs
If there is a guarantor on the lease, they need to consent to the variation and sign it too. This is because if they don’t, they could be released from their liability under the lease since the tenant’s liabilities have changed.
It is not legally mandatory that you have a solicitor to help with a deed of variation. However, the entire procedure is complex, and any mistakes made could negatively impact the leaseholder’s or the freeholder’s interests. Therefore, it is recommended that you instruct a solicitor that is a specialist in leases or lease extensions. At Starck Uberoi, our specialist solicitors can check your lease and draft a deed of variation to comply with mortgage conditions.
How Starck Uberoi can help
Starck Uberoi’s experienced conveyancing department can help you with your leasehold arrangements. For more information please contact us either by visiting our Conveyancing or Lease Extension pages, or to book an appointment please call 020 8840 6640. We have offices located in Brentford, Ealing, Canterbury and London Belgravia. For an appointment at one of our offices, email us at email@example.com or give us a call on 0208 840 6640.