I Don't Have the Mortgagee Protection Clause in my Lease
When selling a leasehold property, you may encounter an issue when your buyer's solicitor raises their enquiries because your lease doesn't contain a Mortgagee Protection Clause (MPC). The problem is that most mortgage lenders won't agree to lend unless you have the clause in your lease, so you need to take action that costs time and money.
Without an MPC, a landlord can forfeit a lease without informing a mortgage lender, leaving the lender with no lease as security for the mortgage debt the leaseholder owes them. This is why most mortgage lenders won't lend on a lease without the clause.
You can update your lease to include the clause using a Deed of Variation, or you may be able to get Mortgagee Protection Insurance to protect your mortgage lender. The issue is that you'll incur costs to address the problem. However, you can't progress with the conveyancing until you do.
Why do leases need the Mortgagee Protection Clause (MPC)
A Landlord can forfeit a lease on a flat if the tenant (the leaseholder) breaches the lease terms. This exposes the mortgage lender to not being repaid their mortgage because if the lease is forfeited, the leaseholder can't sell it to repay the mortgage lender.
The Mortgagee is the mortgage lender, so the MPC safeguards their security, because the Landlord must inform them of the breach before they take any further action. The mortgage lender can then take action to protect their security held over the property.
Example of a Mortgagee Protection Clause
Before re-entering the Property under this clause, or commencing any proceedings for forfeiture of this lease, the Landlord shall:
(a) give notice of the breach complained of to any mortgagee of this lease of whom the Landlord has received notice; and
(b) if the mortgagee confirms in writing to the Landlord within 14 days of the notice that it wishes to remedy the breach, allow the mortgagee 28 days (or such longer time as may be reasonable given the nature of the breach) to remedy the breach.”
How do I find out if I have the clause?
The seller should have a copy of their lease to inspect. If you're the buyer, your solicitor can provide you with a copy of the lease. The clause can be found in the Leaseholder Section of the lease.
What could a leaseholder do to breach their lease terms?
- Failing to pay ground rent or service charges.
- Running out of years on your lease.
- Keeping pets in the property.
- Using the property as a commercial business.
- Using the property as a buy-to-let.
Some leaseholds don't include some of the non-financial breaches above, so read your lease covenants to see how you could breach your lease.
If your landlord has the right to forfeit a lease, the leaseholder can apply to the court for relief from the forfeiture. If the courts agree to this, the lease is restored. The courts will generally agree to this if the breach has been remedied.
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How do you add the MPC to your lease?
If your lease doesn't include the protection clause, the seller can request that their lease be varied to include it. The freeholder/Management Company should be contacted to obtain their consent to the variation.
If agreed, the freeholder's solicitor drafts a Deed of Variation to include or amend the mortgagee protection clause in your lease. The freeholder will require payment of their legal costs. The buyer's solicitor must confirm that their lender consents to the variation wording, which may take a few weeks to get the lender's response.
On completion, the buyer's solicitor registered the deed at the Land Registry. Our cost for a Deed of Variation is £499 the freeholder's cost should be the same.
Does a Deed of Variation delay the conveyancing?
It will delay the process whilst the seller obtains the deed of variation and the buyer obtains their mortgage lender's consent to the wording. A delay of 3 weeks or more would be usual.
Do all mortgage lenders need it?
Not all mortgage lenders have the same position on whether they require the MPC in the lease. For example, Leeds Building Society states: "The estate rent charge clause includes a mortgagee protection clause, which states that notice of at least 28 days is to be given to the mortgagee before any enforcement action being taken by the owner of the estate rent charge".
This means if your lease doesn't have the MPC, you'll need to vary the lease to include it. You may find your mortgage lender doesn't require the MPC. If your lease doesn't have an MPC, you face the cost of varying it when you sell or remortgage your property.
To read your specific mortgage lenders' criteria, read: UK Finance Mortgage Lender's Handbook - Question: 5.15.2.
Example of the buyer's enquiry
"There is no mortgagee protection clause within the lease or the Deed of Variation. Please obtain a Deed of Variation or provide a suitable indemnity policy if the landlord will not vary the same".
Can I get Mortgagee Protection Clause insurance?
An indemnity policy protects the mortgage lender's security if the lease is forfeited. The insurance would reimburse the lender for the mortgage. It doesn't protect the seller or a future buyer from the loss of the lease.
Not all mortgage lenders accept an indemnity policy. For example, Nationwide Building Society states: "Where in your professional judgement you deem a lease to require a Mortgagee Protection Clause and it does not, we will require a Deed of Variation to include an appropriate clause. Should this not be possible, you may arrange for the landlord/managing agent to enter into a side agreement (example below*). We may consider an indemnity insurance policy, however, the policy should be provided to us for approval along with an explanation as to why a Deed of Variation or the Side Agreement is not possible".
An indemnity policy should be seen as protection for the mortgage lender that allows a transaction to proceed to exchange. It doesn't address the issue, and it will arise again when you sell, transfer, or remortgage the property.
To read your specific mortgage lenders' criteria, read: UK Finance Mortgage Lender's Handbook - Question: 5.14.11.
How do I get indemnity insurance?
You can't get indemnity insurance without going through a solicitor. They will obtain a policy for you during the conveyancing transaction.
What is the cost of MPC indemnity insurance?
The cost starts from £100, but varies depending on the value of the property and the mortgage.
If your lease doesn't have the Mortgagee Protection Clause, your sale will be delayed until the buyer's solicitor is happy to accept Mortgagee Protection Insurance or a Deed of Variation. The latter is becoming the most common approach that buyers' solicitors want.
We can support you by varying your lease terms using a deed of variation. Get in contact with us today on 0333 344 3234 (local call charges apply) / help@samconveyancing.co.uk, or Ask a Question
Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.
Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.
