Defective Lease · Report on Title scenario
Your lender wants to be told before it loses its security. Leases allow a landlord to forfeit for non-payment or breach, and lenders require that right to be qualified by a clause giving them notice so they can step in. Where the lease has no such clause, there are two ways forward — fix the lease, or insure the lender — and they differ in a way that matters when you come to sell.
From the e-ROT archive
This scenario is drawn from Report on Title material dealing with this specific circumstance.
Forfeiture is the landlord's remedy for a breach: the lease comes to an end and the flat goes back. A mortgage secured on that lease disappears with it, which is why lenders care.
A mortgagee protection clause obliges the landlord to notify the lender before forfeiting, so the lender can pay the arrears, remedy the breach or apply for relief. It converts a catastrophic risk into a manageable one, and lenders now treat it as a requirement rather than a preference.
If a defect has surfaced now that you are selling or remortgaging, what was reported to you about the lease during the purchase is where the question starts.
Find out what should have been explained → WhenIBought.comThe landlord agrees to vary the lease to insert the clause. This is the answer that actually solves the problem: once done, the lease is compliant and the issue does not come back on a sale or a remortgage.
It is slower and more expensive, and it depends on a landlord who will engage. Some will not — and some will not vary one lease in a block without varying all of them.
A policy covers the lender against the specific scenario: the landlord forfeits following a breach, the lender does not get sufficient notice, and cannot obtain relief or remedy the breach before the lease ends.
Here is the catch, and it is the reason to read the Lexsure wording below carefully. <b>The policy is specific to your lender and cannot be passed to a future buyer.</b> Unlike most indemnity policies in conveyancing, this one does not run with the property. When you sell, your buyer's lender needs its own — and may not accept insurance at all.
So the choice is really between paying once to fix the lease and paying repeatedly to work around it, with the risk that at some future point nobody will accept the workaround and the fix is no longer available.
This is one of the clearest examples in conveyancing of a requirement that comes from the lender rather than from the law, and lenders do not all answer it the same way. Some accept indemnity insurance; some require the lease to be varied; some set conditions about the form of the policy.
There is also lender-specific wording in the corpus dealing with a particular lender's own protection clause requirements, which illustrates how far these requirements are set individually rather than by any general rule.
The instruction that governs your purchase is the one in your lender's own current answers, and the Lexsure Lender Archive holds them lender by lender.
Research lender requirements → Lexsure Lender ArchiveFrom the e-ROT archive
Report on Title paragraph
Indemnity Insurance - You can obtain indemnity insurance which protects the mortgage lender and provides cover to a mortgagee of the property (as defined in the policy) where the lease of the mortgaged property does not contain a mortgagee protection clause and the landlord exercises a right to forfeit the lease following a breach by the leaseholder (your borrower) without giving you sufficient notice, and you are unable to seek relief from forfeiture and/or remedy the breach, before the lease is terminated. This method is obviously a much quicker and usually less expensive route of moving forward. You should be aware however that these policies are specific to your mortgage lender and cannot be passed on to any future buyer meaning that you may be required to pay for a policy when you come to sell the property. …
Master precedent wording. This is current Lexsure Report on Title material, shown here in extract and reproduced exactly, including the shift into addressing the lender rather than the client part-way through. It is professional precedent wording and is not advice about any particular property.
Do not rely on wording copied or saved from this page. Get the current wording dealing with this scenario.
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