Impossible to sell flat with extortionate service charge

[Fwaltz]

I'll try to avoid drip feeding here. Scenario is that I bought a flat in SE London 4 years ago (it is a period conversion, one of 6 in a lovely Victorian mansion house). All 6 flats had previously been rented out by the freeholder and he had not built up a sink fund.

• Year one: service charge was an average-ish £1,500 per flat.
• Year two: service charge doubled to £3,000 per flat
• Year three: service charge upped again to £6,000 per flat

We have now had a notice that they will require £10,000 for works in 2019, and will require at least an additional £2,000k per flat per year for the next 5 years (on top of whatever normal service charge they deem necessary) to build a sink fund for the roof which will likely need major works by 2024.

I have been trying to sell my flat (without success) as buyers have been put off by the abnormally high service charges (based on the £3k and £6k amounts - I haven't even mentioned the £10k one yet!).

Is it reasonable for the freeholder to expect people to be able to magic up an extra £833 a month on top of their mortgages and bills? I am so frustrated and I don't know what we can do. If I had any inkling that the service charges were going to be so horrendous, I would have never bought the place.

In the current market, even if i rented it out, the ceiling price would only just cover the mortgage, not even the rental-management fees (and wouldn't come close to covering the service charge).

Has anyone else experienced something similar, and been able to find a way to reduce the costs? The freeholder's interpretation of 'reasonable' in the lease seems very different to mine and the other flat-owners.

Any advice gratefully received!

Is there anything in the lease.

Most I paid was £5000 per year on one flat for 2 years. The flat was part of a large block that had building work going on. £2000 service charge normally but that did include a reception and door man and all gas and electricity and a cleaner for the communal areas.

I think you need to find out what it normal service charge and what is for the maintenance and repairs

Club together with the other leaseholders and buy the freehold?
www.moneysavingexpert.com/mortgages/buy-freehold-right-to-manage/

Is your block managed by the freeholder directly or by a property manager who's RICS or ARMA registered?

I think the best thing you and the other lessees could do is go down the RTM route and take control of the management of the property from the freeholder.

It sounds to me like the freeholder knew what he was doing unfortunately. Selling leaseholds in a property he hasn't maintained passes the buck on to the leaseholders to pay for the work.

If the work really does need doing, a good property manager will have a surveyor prepare a schedule of work's which is costed, which would help explain the budgeted reserve funds.

It's not a great position either way and I feel your pain. The only hope is that the future works are either not needed or at least could be carried out more cheaply.

Otherwise the increased service charges is going to have a significant impact on your selling price.

This is a really difficult one and I have had friends in fairly similar positions with very high costs. Is it worth your while marketing your flat at a much lower than asking price to attract buyers recognising that whilst you may feel you are losing money, you will be out of this future mess? These service charges are going to have a major impact on your ability to sell and as you said if you had known you would not have bought the flat in the first place. I think I would want to offload the property to somebody who could afford this going forward even if it did mean a lower asking price.

Yikes that is a seriously high service charge.

What works have been completed so far?
What works are scheduled for the £60k?

Have you looked into right to manage? Do you know the other flat owners?

That is ridiculous!

Anyway, one thought to make your flat look more attractive would be for you to pay the service charge for the next one / two years for the new buyers. We negotiated this with a flat we bought where the freeholder decided to do some major building work when we were still in the process of buying it

Hi Friendlycat - We have taken it into account when marketing the flat. The price we first went on at last Spring (based on the average of three estate agent prices) was £465k. We took it off the market for 6 months, and are now marketing it at £350k (thanks to the massive drop in the market and taking into consideration the feedback on service charge).

Serbska - We are on good terms with all the other flat owners and have bounced the idea of buying the freehold, but some are not in a position to pay for it, and others (like us) at the time it was discussed were looking to sell so didn't want to.

We are currently waiting for the schedule of works to be sent to us. The had a surveyor come and take a look (and he told one of my neighbours that nothing looked 'too bad'), but froma phone call with the managing agent it's mainly the chimney stack that needs attention, and they have said it would be most cost effective to do some other roof area jobs while they have the scaffolding up (which is a fair point). I don't know that any of it should really add up to £60k though!

Fwaltz what part of south east London? Can you pm me a link?

We don't have resident directors. We have had self-organised meetings as the owner/occupiers to ensure we are presenting a united front when going back to the management agency. We are awaiting the full breakdown of the proposed charges, so perhaps things will become clearer when that arrives...

AlexaLee - The property is in Sydenham. Link here: www.rightmove.co.uk/property-for-sale/property-76007150.html

Serbska - We are on good terms with all the other flat owners and have bounced the idea of buying the freehold, but some are not in a position to pay for it, and others (like us) at the time it was discussed were looking to sell so didn't want to.

Right to manage isn't the same as buying the freehold - it is taking on the mgmt (or appointing your own mgmt agency)

I can’t help with your situation sorry- but what a stunning property! Beautifully presented.

Have you looked in the leaseholder pack from when you bought? Was there any indication in there that the building had not been maintained?

Unless there is something exceptional about your block (lift/gym/concierge etc) those charges are very high.

Well if there are only 6 flats and it costs £60k to re-roof the property then I guess that year it would be £10k each. But £60k seems like a lot of roofing and chimney work to me. Having looked at the building it isn't even THAT big or a complicated roof?

You really need a costed statement of works.

At a 350k price point the high service charges are going to be really off putting :-( Such a nightmare for you.

Year three: service charge upped again to £6,000 per flat

That sounds eyewateringly expensive.

You could look at challenging the level as being unreasonable at the Leasehold Valuation Tribunal.

www.lease-advice.org/fact-sheet/service-charges/

Sorry the LVT is now called the First-tier Tribunal (Property Chamber) in England but LVT in Wales I think .

I feel really sorry for you, that’s an outrageous amount for the size and value of the flat.

I had the same problem with a flat, not that far away from yours. I don’t have any suggestions as I couldn’t find a way around making the payments although in our case they were spread out over a few years.

I had to make the big payments and wait it out. It took me 10 years to sell it and I had to reduce the price as well, but it doesn’t make sense to reduce it too much as people buying a cheaper property can’t afford a big service charge.

It’s a nightmare and I really feel for you. You might have to pay the £10k or the next few big rises. Keep on marketing it and hopefully someone will fall in love with it enough to take it on. In a few years, the average service charge will rise a bit and your works will (hopefully) be completed so your service charge will go down and not be quite so much above the average.
So sorry you’re in this position.

If my maths are correct that is 30k per flat over a 10 year period. Regular maintenance and insurance in that time should be no more than 10k per flat... so 20k of major works per flat or 120k in a 10 year period... that is an awful lot of money, especially as the roof seems fairly easy

You have a right to challenge the cost of major works.

But saying that a scaffolding with a tin roof to keep it dry would probably cost 15-20 K on a building that size

This is an increasingly common scam and has been in the news loads recently. Basically the freeholder puts the fees up and up, and the owners are effectively trapped in their homes because nobody will buy them, until they go bankrupt and get repossessed.

You can either challenge the fees as unreasonable like pp suggested, OR take a hit on the price just to get rid of it before it totally bankrupts you.

I'd get a lawyer involved. I hope one can help you.

https://www.lease-advice.org/

Us too. Don’t know if the above link is useful to you but we all need to pursue these greedy freeholders and managing agents and claim back what we can - esp if they don’t follow legislation which is often the case

OP, did you ever manage to sell it?

Hi, yes, we did. We rented it out for a while and then tried selling again in 2020. Having started marketing it in the mid-400k range in 2018, we ended up accepting an offer of £325k in 2020 which was pretty galling, but at least we’re shot of it now. I’ll never buy a leasehold property again! 😆

I wish everybody knew that service charges can vary year by year..they can be a nightmare.