Service charge arrears - who is liable?

[Finallyspringishere]

We are selling our leasehold flat and there is set to be an arrears on the annual accounts. The reason for the arrears is that one of the other flats owes several thousand pounds in service charge arrears.
The arrears date back several years and for some reason the managing agent and or freeholders are not taking any legal action against the leaseholder.

Now that we are selling up the buyers solicitor is expecting us to put a large sum of money aside to cover our flats share of the shortfall. Apparently the managing agents have suggested this! We are furious as we don't see why we should be expected to pay the other leaseholders debts.

Can they hold us liable for this?

Even if the agents weren't crap at producing accounts you'd need to give a retention for the 6 months you've lived there of this service charge year, as the accounts for this period wouldn't be completed (at the earliest) until Jan/Feb 2016. It's not ideal that you have to provide for two accounting periods but it's absolutely normal for the purchaser's solicitor to request it.

They just want to proceed to completion without any hold ups. They trust that we will pay any genuine outstanding monies. We just aren't prepared to leave the unreasonable amount requested.

What worries me is that we'd leave several thousand pounds and never get it back. The agents are non responsive and totally crap. Once we move out we are going to be in less of a position to challenge them over the missing funds.

That's not the managing agent's issue though, that's the purchaser and their solicitor. They could proceed on the basis of no retention. But it would be really silly for them to do so.

I've never been asked to suggest a retention for a sale in 10 years of doing this job. It's nothing to do with the agent.

The retention is held by the solicitors, not the managing agents.

The buyers solicitor is saying the managing agent suggested to them they retain a retention and how much it should be.
I'm happy to pay any genuine amounts. Im just concerned that nothing adds up and that the agents are asking for a large additional sum of money and we can't see what it could be for.

The money won't go to the agents though!

I know but the solicitor won't be able to give it back to us until the accounts are finalised and who knows when that will be. We are then likely to have to challenge the accounts since a sum of money now appears to be missing. They have also undertaken work that we were not consulted over, and we're told was covered by insurance.
So I want to get to the bottom of it before we complete.

Are you sure that the agent has suggested a retention, or have they just advised the conveyancers the estimated total shortfall?

Without knowing exactly how this shortfall has occurred, not sure what else to advise you at this point other than to ask your conveyancer to negotiate the retention with the vendor with a view to:

• reserving the right to only release the retention in full, if once accounts are published, you get the opportunity to see these.
• acknowledging that if the building has received 'major works' in the last 12 months, the vendor is going to get more benefit from these than you, so perhaps you shouldn't pay 100% of those particular costs.

One other thing: is the freeholder someone who may respond to a direct letter advising that their agents are potentially creating legal costs / losing your sale. They really are the responsible party here, either by employing a rubbish agent, or by not fulfilling their duties properly (again without knowing facts, but for all you know, it could be them delaying accounts, not giving the agent timely instructions).

It must be so frustrating for you, however, put yourselves in your purchaser's shoes. Would you buy a leasehold property knowing that there are arrears and no retention from the previous owner to pay the apportionment when the accounts are done? I do understand that you shouldn't have to be liable for non-payment by another flat but neither should your purchaser. Perhaps you could agree a lower retention to offer the purchaser, but is extremely unlikely their solicitor would agree to going ahead without a retention in place. As pp have said above, it would be the purchaser's solicitor who would hold the retention, so when final accounts are completed (do you have some idea when previous years were completed?), you can press your solicitor to reclaim monies overpaid.