Mechanics of putting a clause in a long lease – Lender wants a soft charge?

Mechanics of putting a clause in a long lease – Lender wants a soft charge?

10:02 AM, 19th August 2022, About 2 months ago 4

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Morning All, I have a remortgage renewal and the lender wants to take a ‘soft charge’ on the freehold of the building which houses 6 flats.

They say because I am the director of the management company and the long lease holder this becomes necessary.

Interestingly they go on to say that a share from the long lease on the flat being remortgaged to the freehold will suffice.

This seems preferable to me as it doesn’t seem to impact on any other of the flats when I come to mortgage any of them.

Does anyone know the mechanics of putting a clause in the long lease to satisfy the lender?

Many thanks,

Dave



Comments

Ian Narbeth View Profile

10:30 AM, 19th August 2022, About 2 months ago

Hi Dave
I am a property solicitor. I have never heard of a "soft charge". Googling "property "soft charge"" reveals nothing relevant apart from your unanswered post on PropertyHub!
Subject to a caveat below, the lender cannot reasonably ask for a charge of any sort over the freehold, You should ask them to clarify what exactly they want. If you have one of six shares in the company owning the freehold, that can be charged but that should not involve the freehold interest in the property itself.
My caveat is to ask if you own the whole building or just one flat and a share of the freehold. If you do, that might be affecting the lender's attitude.

david porter View Profile

13:04 PM, 19th August 2022, About 2 months ago

I do not worry about
the buildings
the tenants
the agents
I always worry about the banks.
If you are going to have serious trouble in the property business it will always be the banks.
Savings and Loan
Bank of England lifeboat ( material adverse change clause)
'87 crash
2008.
Try another bank
good luck

CMS View Profile

23:51 PM, 21st August 2022, About 2 months ago

Like Ian, I am a property lawyer, and i have never heard of that!

I think you are saying that the freehold is owned by the management company and you are a director. If that is the case then the lender cannot have a charge over the freehold as the management company are not, and nor should they be, a party to the legal charge.

Furthermore, it is not necessary. If the lease states that 'in order to hold a lease you have to be a director of the freehold' (which is the only reason why the mortgage company might be concerned - although their solution is not appropriate) then check the management companies articles of association as they usually deal with this situation and its normally acceptable to the lenders.

I really don't know what they are talking about with a 'soft charge' though...doesnt sound like they really know either. Best, Charles

Puzzler

8:47 AM, 1st September 2022, About a month ago

Reply to the comment left by Ian Narbeth at 19/08/2022 - 10:30
Precise Mortgages attempted this. I flatly refused. Be warned. It was remortgaged with the same company and they reluctantly agreed because it was not a requirement in the prior mortgage, otherwise I may well have lost the offer.

This was my solicitor's response:
We note that your offer of mortgage advises that your mortgage needs to be secured against the freehold should the freeholder be in the name of the company or the sole Director. The freehold is in the name of XXXXXXXXXXX. We note you require your charge to be secured against the freehold title as well. We are not sure this is necessary. There are 7 flats within the building. It would not be right if you repossessed Flat 7 and then also dealt with the freehold. The freehold we would have thought needs to remain in the name of XXXXXXXX mortgage free. Please confirm

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