The Estate Management Charge Was Not a Problem When I Bought. Why Is It Blocking My Remortgage Now?

A homeowner trying to remortgage was told that the estate management charge affecting the property required a deed of variation. The issue had not prevented the original purchase and had not been raised during an earlier remortgage. Why, then, had it suddenly become a problem?

This is precisely the kind of property problem that can remain hidden until an owner tries to sell or change mortgage lender. The estate charge has not necessarily changed. The title provisions may be exactly as they were when the property was purchased. What has changed may be the lender, its conveyancing requirements or the level of scrutiny applied to the title.

A problem that appeared during a remortgage

The homeowner owned a property on a managed development and paid estate management charges. During a later remortgage, the conveyancer advised that a deed of variation was required because of the provisions securing those charges.

The owner was understandably confused. The matter had apparently not arisen when the property was originally purchased. It had also not been raised during an earlier remortgage, although that transaction involved remaining with the same lender.

The experience changed the owner’s view of managed developments. When considering a future move, the owner indicated that avoiding another property subject to estate management fees would be an important requirement.

That reaction demonstrates why this is more than a technical title problem. If the owner had understood before purchasing that the charge could result in additional legal work, lender objections, expense and delay during a later sale or remortgage, it might have affected the decision to buy.

What is an estate rentcharge?

Many modern freehold developments contain roads, landscaped areas, play spaces, drainage systems or other facilities that have not been adopted by the local authority. Owners contribute towards their maintenance through an estate management charge.

The obligation may be secured by an estate rentcharge contained in a transfer or other deed affecting the property.

This should not be confused with ground rent payable under a lease. A homeowner can own a house on a freehold title and still be required to pay an estate rentcharge or management charge.

The concern for mortgage lenders is not necessarily the annual amount. The more significant question can be what remedies are available if the charge is not paid and whether those remedies could prejudice the lender’s security.

Why might a lender require a deed of variation?

Depending on the terms of the deed and the current legal position, the person entitled to a rentcharge may have significant remedies following non-payment. A mortgage lender may be concerned that enforcement could interfere with its charge over the property.

A lender may therefore require the deed to contain protections such as:

• notice to the mortgage lender before enforcement action is taken;
• an opportunity for the lender to remedy the breach or pay the arrears;
• restrictions on the use of particular statutory remedies; or
• other wording protecting the priority and effectiveness of the mortgage.

If the existing transfer does not provide adequate protection, the proposed lender may require the deed to be varied. This involves formally changing the relevant title document with the agreement of the necessary parties.

For the homeowner, the immediate issue is not simply the existence of the estate rentcharge but the demand for a legal document changing the original arrangements. The When I Bought deed of variation guide explains why a deed may be requested during a sale or remortgage, what it may be intended to correct and why the need for one can raise questions about the advice given when the property was bought.

The exact solution depends on the wording of the title and the lender’s requirements. An indemnity policy may be acceptable to some lenders in some circumstances. Other lenders may insist on a deed of variation.

Our earlier article explains more generally why a deed of variation may be required when selling or remortgaging a property.

Why did the previous lender accept the property?

The fact that a mortgage completed previously does not establish that every future lender will accept the property on the same basis.

There are several possible explanations:

• the new lender may have different estate rentcharge requirements;
• the original lender may have changed its requirements since the purchase;
• the earlier remortgage may have remained with the same lender and involved less extensive title investigation;
• the issue may have been considered previously but resolved or accepted in a way that is not immediately apparent;
• an existing deed of variation or indemnity policy may already exist in the old conveyancing papers; or
• the issue may not have been identified or properly addressed during the earlier transaction.

It is important not to assume the final explanation before reviewing the documents. A later lender’s objection does not, by itself, prove that the original conveyancer was negligent. Equally, the fact that an earlier mortgage completed does not prove that the owner received adequate advice.

The lender’s identity and the transaction date matter

Mortgage lenders publish instructions that conveyancers must follow when acting for them. These requirements are not uniform and can change over time.

A lender might once have accepted an indemnity policy but now require a deed of variation. Another lender might accept the existing provisions subject to a referral, while a different lender may regard them as unacceptable.

The relevant historical questions are therefore:

• Which lender financed the original purchase?
• What did that lender’s instructions say on the completion date?
• Was the estate rentcharge reported to the lender?
• Did the lender approve the arrangement?
• What were other mortgage lenders requiring at that time?

The Lexsure Lender Archive estate rentcharge records help establish how recorded lender requirements concerning estate rentcharges changed over time. Historical requirements provide context, but they must be considered alongside the mortgage offer, the title documents, the transaction correspondence and the advice actually given.

Our related article on estate rentcharges and mortgage lender requirements explains why these freehold charges can affect mortgageability.

What should the buyer have been told?

The conveyancer’s responsibility to the buyer is not identical to the obligation owed to the mortgage lender.

Even if the original lender was prepared to proceed, the buyer may still have needed clear advice about:

• the existence and purpose of the estate charge;
• whether the amount was fixed or variable;
• how future charges would be calculated;
• who controlled the management arrangements;
• the remedies available following non-payment;
• any restriction affecting registration of a future sale;
• the need for a certificate of compliance or deed of covenant;
• fees payable when selling the property; and
• the possible effect on future mortgageability and marketability.

A Report on Title that merely states the annual charge may not help the buyer understand the practical risk. The real question is whether the report connected the title wording with the consequences that could arise when the owner later tried to sell or remortgage.

This distinction is examined in our article asking whether a client who signed the Report on Title actually understood the property risk.

What should the homeowner do now?

The immediate priority is to identify exactly why the new lender requires a deed of variation.

The homeowner should ask the current conveyancer to confirm:

1. which provision in the transfer or deed is causing concern;
2. whether the objection comes from the lender’s published instructions, a case specific decision or the conveyancer’s assessment;
3. what wording the proposed deed of variation must contain;
4. which parties must consent to the variation;
5. whether an indemnity policy is an acceptable alternative;
6. what fees and timescale are anticipated; and
7. whether changing lender would genuinely resolve the problem or merely postpone it.

The owner should also retrieve the papers from the original purchase and any earlier remortgage. These may contain a deed of variation, indemnity policy, management information, lender correspondence or advice that explains how the position was previously addressed.

For conveyancers reporting to buyers, the Mortgagees and Estate Rent Charges warning addresses the possible effect of estate rentcharge enforcement provisions on a mortgage lender’s security. The separate Report on Title paragraph concerning a rentcharge affecting a non-new-build property illustrates how the underlying charge may also need to be explained directly to the purchaser.

Could the problem have been anticipated when the property was bought?

The estate rentcharge was not created by the remortgage. The relevant provisions were generally contained in the title documents when the property was purchased.

What may have changed is the lending market surrounding those provisions.

An investigation into the original transaction should distinguish between three separate questions:

1. What did the title documents say?
2. What did the original mortgage lender require at that time?
3. What was the buyer told about future ownership, sale and remortgage consequences?

The answer may be that the problem could not reasonably have been predicted in its present form. It may instead be that the risk was identified and explained. Alternatively, the original file may show that a material feature of the title was not properly investigated or communicated.

Only the contemporary documents can provide a reliable answer.

The charge did not suddenly appear

For the homeowner, the most troubling aspect is often that the property has already been mortgaged before. It feels as though a new problem has been created during the latest transaction.

In reality, the estate rentcharge may always have been present. The later remortgage has simply provided the moment at which its practical effect became impossible to ignore.

That is why the question is not merely whether a deed of variation can now be obtained. It is also whether the owner was given enough information when buying to understand that this problem could arise.

This article provides general information and is not legal advice. Whether a deed of variation or another solution is required depends on the title documents, current law and the requirements of the particular mortgage lender.