It ain’t over till the fat lady sings
Up until last week we had thought we had resold a flat we purchased in Hampstead. The property was exchanged by us for £850k, it was then resold on for £1m within a few weeks. The incoming buyer had exchanged as well meaning he had put down £100k which equates to 10% of his purchase price.
We promptly informed the investors we are out of the deal, as we had exchanged and the deal was done……….or so we thought.
The property came with its fair share of problems. The previous owner who had bought the property some years back had developed a very strained relationship with the freeholder who was an 88 year old lady who happened to live in the block.
It all started as soon as he had completed; the freeholder decided to put up a fence to separate the garden dividing it from the communal share and his, this was not there during the time of exchange. He went in guns blazing and got his lawyer to write to her stating his right of light had been infringed upon and the fence was not there when he purchased etc., and it’s been downhill from then. Since this time his builders had also managed to cover the communal manhole and of course there was a flood which effected the whole building, and the builders needed to get to the manhole, finding it covered over. Sometime later on the leaseholder decided to do some internal works and employed a structural engineer who basically got the calculations all wrong in regards to knocking down a supporting wall which would affect the whole building. The calculations contradicted the freeholder’s surveyor’s ones and given the history between these two personalities the issue landed up in court where it became apparent the leaseholder’s surveyor had got it wrong!
Consequently the leaseholder had enough and wanted to get out of this property hence he sold it to us for a reduced price in return for a quick exchange. We promptly exchanged and then stuck it back in auction, whilst the viewings were being conducted the freeholder assumed it was the existing leaseholder who had placed it in auction, not knowing that it had been exchanged and was being resold in the auction by the incoming buyer. In order to sabotage the deal she had her lawyers draw up a forfeiture of lease notice and stuck it to the front door of the flat, which is a ridiculous thing to do and it was obvious what the intention behind this was, namely to scarper the deal and put off any incoming purchasers.
Well the strategy worked – to some degree. Although we managed to sell the property prior to auction, the incoming buyer saw through the fog the freeholder was trying to create and was confident of getting through the apparent issues, however his lender, or more specifically the lender’s lawyer didn’t share the same opinion. The lawyer dealing with it was not comfortable with the situation and therefore recommended the lenders not to lend.
When it comes to doing deals with lenders, especially bridging companies, their lawyers often have the last word when it comes to sanctioning a loan. After it has been underwritten the case then goes to their lawyers, and often if they are not happy the deal collapses.
Once we were left high and dry when a lender’s lawyer decided they didn’t like the fact that we were buying the leasehold and also the freehold of a property. Three days before the end of the notice period they stated they will not be lending to us! Luckily we had access to another source of funds who managed to work over the weekend and close the deal for us.
Unfortunately it comes down to whether the lawyers are more interested in covering their own skins rather than getting the deal done. The line between whether they are looking after themselves rather than the client gets blurred. Under the disguise of following regulations and looking after their client they are in actual fact looking after themselves.
Lawyers are not always commercially minded, and therefore leaving the ultimate decision of whether to lend to them is not always the right choice. A lot of the issues require an interpretation this is why one lawyer advised the deal shouldn’t be done and another firm advised to do it. Therefore leaving the ultimate commercial decision to them in the case of sanctioning loans is not advisable. Smaller firms tend to take a more intuitive approach, whereas the larger firms are constrained by their own procedures.
The lawyers for the lender of the buyer we flipped this deal to had decided not to lend. This meant there was a real chance he may not have been able to complete and we would have been left to complete the deal.
The difference is we would be up £100k on the deal (as the exchange money would be ours), so instead of purchasing for £850k we would be in effect buying for £750k. None the less we would have to get the funds in a short space of time, even if we did gain £100k, the size of the borrowing is irrelevant as we would still need to follow the same process which will take the same amount of time.
It transpired over the weekend our buyer managed to get someone private to fund him in return for a first charge on the property. The property developed is expected to sell for in the region of £1.5m to £1.8m so there is enough margin for both of them to be happy with a return.
When a party doesn’t complete when they are supposed to, the seller has the right to serve them notice, this usually means they have 10 working days to complete the deal. If they go past this date they then lose the deposit they put into the deal.
In our contract with our buyer we put slightly less time than the standard 10 days allowed, this would have given us the precious few days required to gather funds in order to meet completion.
We have had to ensure our investors are aware we may need to call upon the funds, and we have had to prepare two or three different lenders to call upon the rest of the funds at short notice should we require them.
It just goes to show you can never be too relaxed; as the saying goes ‘it ain’t over till the fat lady sings’. This means that one should not presume to know the outcome of an event which is still in progress. More specifically, the phrase is used when a situation is (or appears to be) nearing its conclusion.
It cautions against assuming that the current state of an event is irreversible and clearly determines how or when the event will end.
West Hampstead, London, NW6
Purchase Price: £1.06m
- An extremely spacious three bedroom flat on the top floor of a beautiful block
- Share of freehold
- Can be converted into a four bedroom flat
- Two parking spaces, a very rare find in this location 1,450 sq. ft. area
- Prices in this location are around £1,000 per sq. ft. while we are getting this for around £731 per sq. ft.
- Two month completion period
Call us now to secure this deal!
Sow & Reap
A Property Investment Company
!Tips of the Week
You can easily understand the expenses and income associated with property investment, the same cannot be said of many financial products.
It is essential to determine what you want from your property investment if you want to get the best out of it; a quick gain (buy and sell) or a consistent secondary income from a Buy to Let. It is important to define what you want prior to investing.