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4. LEASEHOLD QUERIES

 

4.1 Notices to Landlord/Management Company

 

Where required, any notice of transfer, sublease and charge are to be served pursuant to the Superior Lease (meaning the lease (if any) by which the Property is vested in the Bank) by the Client's Solicitor once completion has taken place. You must provide copies of the receipted notices to the Bank's solicitors. The Bank's solicitors will provide you with template notices during the transaction for you to complete and submit along with the required fee.

 

4.2 Shares in the Freehold/Management Company

 

The Client's Solicitor is required to confirm if there is a management company and whether a 'purchaser' (i.e., the Bank) is required to become a member or shareholder of the management company.

 

The Bank would prefer your Client to become a member or shareholder of the Management Company but acknowledges that this may not always be possible. If your Client becomes a member or shareholder, the Bank will require a signed, but undated, stock transfer form to allow transfer of the management share(s) to the Bank if required.

 

Please liaise with the management company and/or freeholder to confirm whether your Client can become the member of the management company. If that is not possible, please confirm whether the Bank must become a member and what is required for the Bank to become a member and provide the forms for completion. If the Bank is required to become a member or shareholder, please confirm with the Management Company and/or freeholder if your Client can be appointed as the Bank’s Proxy, as that would be the Bank’s preference.

 

4.3 Energy Service Agreements

 

Where the lease requires the leaseholder to enter into an energy service agreement, you should ensure that the Client can enter into this instead as the underlesee.

 

4.4 Alienation Restrictions in the Superior Lease

 

Please ensure you review the alienation provisions and restrictions in the Superior Lease as soon as possible and liaise with the relevant third parties urgently to obtain any consents and/or licences and/or deeds of covenant required for the transaction.

Please note that where any licences, deeds of covenants or Leases need to be executed by the Bank, we expect these documents to be fully vetted by your firm as the certifying solicitor. Any unusual terms must be reported to us in an addendum to the Certificate of Title for consideration. All costs associated with any such documents and notices must be borne by the Client.

 

For ease, please note that there are multiple stages to this facility including:

 

a) the transfer of the property to the Bank from either the seller or Client;

b) the Lease from the Bank to Client; and

c) the charge granted from the Client to the Bank.

 

Please note, the Lease (between the Bank and the Client) is drafted so that it terminates on the Final Completion Date (as defined in the Diminishing Musharakah Agreement) at which stage the Bank has promised to sell the property to the Client and the Client has promised to buy the property from the Bank. Therefore, the Lease does not provide security of tenure which may assist in analysing whether consent is required under the Superior Lease.

 

Please also note that the Lease requests the Client to give the following covenant in the Schedule, paragraph 6:

 

"To observe and perform and comply with the lessee's covenants in any Superior Lease (if any) to the extent that those covenants are not already required to be complied with under the provisions of the Lease".

 

If the landlord and/or management company have confirmed that a requirement in the Superior Lease is waived in light of the financing structure, you must provide the Bank's solicitors with written evidence to be relied upon.

 

4.5 Ground Rent limits

 

You must flag to the Bank's solicitors whether the current or future ground rent will exceed 0.2% of the value of the property. The Bank's solicitors will report this to the Bank and valuer for consideration.

 

The Bank will not accept ground rent reviews that are reviewed more frequently than every 5 years against RPI or equivalent index.

 

4.6 Seller/Developer unwilling to transfer to Bank

 

If the developer and/or seller does not agree to directly grant the lease of/sell the property to the Bank, the structure will be as follows:

 

a) the lease/sale from the developer/seller to the Client;

b) the transfer of the property from the Client to the Bank;

c) the Lease from the Bank to the Client; and

d) the charge granted from the Client to the Bank.

 

All four stages (a) to (d) above will take place simultaneously. The Bank will not take an assignment of the contract. The contract must have been entered into only by the Client.

 

4.7 Lease Term

 

The minimum unexpired lease term for any leasehold property must be 70 years from the date of completion, subject to 40 years remaining at the end of the finance term.

 

The Superior Lease must not contain any onerous or unusual covenants or restrictions. There must be no outstanding disputes in relation to any breach of provision and all sums due under the Superior Lease must be paid up to the date of completion.

 

Where the Superior Lease term is shorter than the valuer has indicated in their valuation, this should be flagged to the Bank's solicitors to refer back to the valuer for consideration.

 

4.8 Leasehold Interest with Freehold Charge

 

Where the client holds/is purchasing the leasehold and the Client also owns/will own the freehold interest in the property, the Bank will require (in addition to holding registered leasehold title as per the diminishing Musharakah structure) a charge over the freehold interest as well.

 

Where a leasehold is being financed and your Client or the ultimate beneficial owner of your Client owns or controls (whether through shareholding, directorship or otherwise) the freehold, the Bank will require a charge over both the leasehold and freehold.

 

4.9 Enfranchisement

 

Following completion, the Bank will become the registered proprietor of the title to the Property and this could affect your Client’s ability to make an application to extend the lease or acquire an interest in the freehold/superior title.

 

The Bank would prefer not to be involved with any such application and so your Client should arrange for any such transaction to take place before completion.

4.10 Building Safety Act 2022

 

If the Property is leasehold, you must determine whether the Property is impacted by the Building Safety Act 2022, which seeks to improve building safety for high rise buildings that contain dwellings and protect qualifying leaseholders from costs associated with remediating historical building safety defects.


If the Property is impacted by the Act bank will NOT provide finance for the subject property.

 

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