Self managed lease hold flat

[starchildmum]

Hi

I am about to make an offer on a leasehold 1 bed flat in London and the seller is also the freeholder. There is no service charge on the flat as such ( there are approx. 8 flats in the building) and the flat is marketed as “self- managed” or whatever that means. It makes me feel a little worried to take care of the exterior of the building etc. But my main concern is if the freeholder comes up at some stage with huge renovation costs of the building or other unforeseeable costs which I could not anticipate.
Is “ self- management” a good thing or is there a catch?
any suggestions would be much appreciated.
thank you

I am always weary when a property has no service charges (as an ex freeholder). All properties require maintenance, why are they not collecting any charges for ongoing maintenance? Will you presented with a massive bill? 8 flats is not a small property and are they not doing maintenance on a regular basis and so the fabric of the building is not in great shape?

Does it not mean I have to manage MY flat and surroundings? Building looked in good shape.

Self managed normally means that the leaseholders have taken over the running of the property from the freeholder. And have set up a managing group to do that.

I would ask for a clear explanation from the agents what this involves.

Having no service charge looks great on paper but then when work is needed you will have to stump up the money for it there and then. At least with a monthly service charge you can budget more for it. You may still have unexpected items come up but if you have a reserve account than that can help somewhat.

You've not yet put in an offer so you won't have all the answers. You'll get these answers on the LPE1 form, along with history and accounts.
Are you mixing up ground rent and service charge, I'd expect at least one of those. And self managed is preferable to external company management that would extortionate charge fees etc. It means freeholders self manage and get quotes to arrange maintenance together.

What the others said. What I do is have a pot of money I'd otherwise pay in ground rent put aside each month so I don't get stung too badly!

Self managed isn't necessarily bad, it probably means the residents are doing it themselves rather than paying an agent. You need to understand the structure in place and how decisions are made.

Separately, the lack of rent/ charge is more of a bother; how are regular costs paid for such as a cleaner for communal areas or gardener (or whatever, you get the picture)?

It also implies there is no reserve fund for big works and you will possibly be liable to be hit for your share of any works. You need your solicitor to explain the details in the terms of your lease.

This is my worry. If this implies there is no reserve fund for big works it means I will be liable to be hit for my share of any works! But if the freeholder is the previous owner I would wonder if he wants to keep the house in shape at my expense. Normally the freeholder should be in charge of paying for certain things and to keep the building safe etc. How can I manage pest control, ensure roof is in good shape etc. Seems very complex to me if there are 4-6 other flats involved and nobody “ manages” it and has ultimate responsibility/ liability for the building as such.

You need to establish if the seller of the flat is really "also the freeholder", as you say in your OP, as that would be highly unusual in a block of 8 flats. What's much more likely is that each leaseholder has an equal share of the freehold, which is very common, and that the seller will sell you their share of the freehold as well as the leasehold title.

Self management via a management company of which each flat owner is a shareholder is preferable to having an external freeholder imo, as freeholders come in two flavours generally - those that maintain the place properly and expect to make a profit for their trouble, and those that don't, which is bad for the building long-term. With a share of the freehold, everyone has a vested interest in maintaining the place but no one wants to pay through the nose. They are also generally in situ unless letting out to tenants, which makes meeting to discuss management of the building is easier. If all leaseholders have a share of the freehold, then renewing a short lease is generally a formality, whereas a short lease is a catastrophe with an external freehold (and would greatly reduce the value of the flat and the offer you should make).

You can perfectly well budget for maintenance without an external freeholder. As a purchaser, you will get accounts showing amounts paid over the last however many years, and your solicitor will enquire about known upcoming costs, and you just put enough away each month so you can afford it when it's needed. As a joint freeholder, you'll also get a say in what work is done, when and by whom. You do have to hope that everyone will take a similarly grown-up approach to it so that necessary work doesn't get postponed, but tbh being slightly at the mercy of other flat owners is part and parcel of only being able to afford a flat instead of a house.

The agent or the seller themself should know most of the answers to these questions so you can weigh them up before deciding if you want to offer. If you buy it, your solicitor will get chapter and verse.

Not having a go at you personally, but I don't really understand how anyone gets to the point of making an offer while still saying things like the flat is marketed as "self-managed" or whatever that means. How do you know what to offer if you don't actually know what you're buying, what it means or whether it's what you want? You need to ask these questions and make sure you understand the answers.

hi, someone wrote above:

You've not yet put in an offer so you won't have all the answers. You'll get these answers on the LPE1 form, along with history and accounts.

Personally, you need to ask these questions now, even before making an offer. The solicitor will check these thoroughly, but why don't you just ask now (and ask in writing and also make sure you write back with whatever they respond with). Protect yourself. Good luck

Hi

Thank you all for making so many helpful comments.

It explicitly states in the agent‘s description that the flat is self managed but comes with a new lease of 125 years and when I visited the flat I was told that seller is the freeholder and would keep his freehold title.
To me this seems very unusual because I know its either leasehold with service charge costs and freeholder manages or share of freehold and its either self managed or an external managing agent. Lease only plus no charge + self managed seems a highly uncommon set up which is why I am asking.
Sounds like s legal technicality which might be of benefit to the freeholder for some reason…
and there are only 4 flats in the building.
could the seller own a second property and therefore have majority say over whole building?

sounds like they are passing down all responsibilities to you. you have to ask and then rely on your solicitor to find out. personally, if they don't give you a straight answer with examples of what it means, i would walk away. keep everything documented though in case you do buy the flat and something goes wrong. tc

Self managed can happen when the leaseholders get together take on the right to manage.

It is all explained on link below

https://www.gov.uk/leasehold-property/right-to-manage-and-management-disputes

This sounds quite unusual to me. Without more information it sounds as though the person (potentially) selling to you originally owned the whole building and converted it into flats (or perhaps bought up a distressed property) and is now selling off each flat on a 125-year lease. But even though they're retaining the freehold, they seem to be declining to take any responsibility for maintenance of the building and just calling it "self-management".

In effect, this is the second type of freeholder I mentioned upthread - the sort who can't be arsed and just lets the place fall into disrepair. In practice, the individual leaseholders might decide to get together and cooperate to maintain the building as if they jointly owned the freehold, or they might not, and the state of the place in years to come will depend on whether there is cooperation or not.

But bear in mind that if each leaseholder owned a share of the freehold, they would be working together to maintain an asset that they jointly own, whereas in this scenario you would be working together to maintain/improve an asset that belongs to someone else - the freeholder. I just can't think why anyone would want to do this unless the flat is ludicrously cheap - and if it is, this might be why. Pretty much all the freeholder seems to be offering is an undertaking not to prevent you from maintaining the place, which I guess is a slight improvement on refusing to maintain it themself and you having no right to do so either, but only just.

I'd get some on the fly advice from a solicitor and see what they think about this arrangement. Perhaps I'm way out of date (perfectly possible!) and this sort of thing is common nowadays, but it seems pretty irregular to me and I'd be inclined to walk away from it myself.

Just to add that if this is being sold under a new lease and the "self-management" thing is a new arrangement, there may well be a complete lack of maintenance and financial history for the building, which would encourage me to walk away in itself.

I'm not sure what the relevance is of the freeholder owning a second building. Are all the flats in this building being sold at the same time, or are there any leasehold owners already in situ that you could speak to about what's going on there?

Reading a bit more, it looks a bit to me as if the freeholder here has extrapolated from the rights that leaseholders have to seize management of a block of flats from a freeholder who is neglecting their responsibilities to maintain the building (the Right to Manage) and is very generously (sarcasm alert) bestowing that right on you all from the outset.

I'm tempted to suspect that this is some new, exploitative and about-to-become very common way of going about the business of being a freeholder for people who would rather derive their wealth from the on-paper value of their property portfolio than trouble themselves with the tedious job of actually looking after it properly.

Here's a little light reading for you OP:
https://www.lease-advice.org/advice-guide/right-manage/
https://www.gov.uk/leasehold-property/right-to-manage-and-management-disputes
https://www.gov.uk/right-to-manage-a-guide-for-landlords

It doesn't seem to me to be a thing to take on lightly.