Buying leasehold flat - high service charge and repair costs

[Ivy37]

Hi all, hoping for some advice/experience here. Currently in the process of buying a leasehold flat in a block in London. Lovely area, loved the flat, got it off market (several flats sold quite quickly in the block, it was the 3rd one we saw). I'm currently pregnant so aim was to move in and be settled by month 6/7 of pregnancy. First time buyers.

However the solicitors have dug up alot of stuff. The service charge is 50% higher than we were told originally (damn estate agents). The building was mismanaged for years so was not kept up to a good standard and there is no reserve fund. Thus, there are several S20 notices delivered with lots of repairs and fire safety work - there are no current costs attached but likely to be costed just after we move in/with work aiming to start soon.

We are in a fortunate position, so I think even with repair costs of £10-20k, it would still be better value than renting over the next 3/4 years (lowish mortgage costs). We're keen to get settled before the birth, and for me to have mat leave in a nice area. BUT are we being mugs? Is this a red flag situation? Feels uncertain that service charges could increase and repairs might be above our estimate. Any advice for us?

Have you renegotiated your asking offer ? It's hard to avoid leasehold entirely if you have decided on a flat, especially in London, but you have a very strong case to want to adjust your price according to the unexpected extra costs ?

I’ve lived in several leaseholds in London and am not surprised that the estate agent didn’t have the right figures 🙄

Anyway - lots of people will tell you to run - but I think you’re taking a practical approach here.

You've got some reserve funds and if you leave this flat you could end up with another with a higher asking price, or service charge, or another set of repairs needed after you move in. It’s just the nature of leasehold that you need to be prepared to spend some money on this sort of thing - but usually the asking price is cheaper than say a freehold house.

I would -

• check what the standard increase is yearly on the service charge - eg does it go up by a percentage each year?
• use these outstanding s20s as a PP says to get some off the asking

At least when all this is done there won’t be any more large s20s for a good few years, sounds like you’re looking to stay long term.

If you buy it, you are basically opening yourself up to unlimited and unknown costs.
Give an overview of the size of the block and the amount of work.
I’ve heard of 50-60k costs when the roof goes, or the windows get replaced.

Good point on size of block - how many flats is this work being split between?

If say, 6 flats, it’s better in that it’s a smaller building so there is only so much it can actually cost.

If say, 50 flats overall cost obviously could be very large but also split over a lot of flats so not so bad individually.

We walked away from a lovely large flat because they had a s20 for replacing the windows and it was insane prices. The cost per flat was going to be around 50k iirc
If they hadn't had the estimate I would have assumed it was going to be more like 10k. So see if you can get some kind of estimation for the costs from the leaseholder. It can really go the wrong way.

What if it’s £70,000 or £150,000?

You don’t seem to be basing the £10,00 / £20,000 on any actual estimate?

It might all be fine. On the other hand, it might not.

No sinking fund and mismanagement suggests other repair bills may be coming due.

It sounds like the flat may be priced to take this into account. Only you know if you are prepared to take the risk.

I wouldn't touch leasehold with a barge pole , your costs are at the mercy of managing agents / freeholders with very little control .
Where else could you be demanded the price of a family car on demand . Once bitten and never again .

This would worry me and I would probably walk away, wait for another flat to come up without these issues. The leasehold element wouldn’t worry me in London as most flats will be leasehold. But the rest of it is not normal & the likely costs are unknown. Why choose to inherit someone else’s problems?

I would be cautious, partly because so many people are keen to sell out, and party because the poor upkeep may be due to other leaseholders not paying service charges, or endlessly contesting the cost of works, or because the proposed cost of works is outrageous.

I understand you are only planning to stay a fixed number of years, but you will still need to sell, and the issues could still be dragging on then.

Those projected costs need to be doubled and then some. Walk away OP.

Hopefully you’ve had a survey done on the whole building so have some idea of what needs doing and how major those repairs are. Presumably the higher service charge is now to build up the reserve fund for future repairs.

Whilst it would be nice to be in and settled by a particular time, I think this is one scenario where you would be better off to sit and wait for the costs to be a bit clearer and then renegotiate on price, or agree a retention (where some of the purchase money you pay is held back from the sale proceeds to contribute towards the future costs).

My parents have two flats in (well managed) leasehold blocks in London...recently they have had bills for £12k for windows, £8k for some rewiring and £20k for roofing costs. If there are 'several' S20s, I would not have confidence that the bills for rectification wouldn't be significantly higher than you expect - presumably you have had a survey done?

We lived in a SOF flat in London when we had our first child, and we were on top of maintenance, but bills were higher than we expected. Tread carefully....

The repairs may be the new rules in communal doors which all have to be fire proof including the flat front doors. That's just coming in for everyone.

Cost around £500 per flat maybe?

But the solicitor can get a retention so the older owner pays it in effect (to be negotiated)

Our 28 block (3stories high) is around £1300 per year now service charge. I am a director of the company so know it's all legit costs. (We employ a management company to do the day to day)

Thanks all for these helpful responses. It's a big block, 150+ flats. We're going to do some serious thinking now...

Leave it....find another with share of freehold, much more control over any costs or building work etc, friend got a cheap flat in a block many years ago and got rid due to high charges...lifts...windows..decorating which was all done poorly.

I would also want to explore the question of getting large sums of money for repairs from 150 owners, that is not going to be a straightforward task. Many owners may not be in a position to pay..

150+ flats means the bills are likely to be significant, simply because the building is large. Add to any costs the management fees for overseeing major works, which can add another 20+% . I’d run…

I think the mismanagement is the issue here because you won't be able to change the management company to a better one (there are ways to do it, but it's very hard). A poor management company can cause a lot of stress.

Why is the seller moving? To avoid the upcoming large costs heading their way?

I would walk away tbh. It sounds like the seller has sensed a huge bill coming and is jumping ship. Lack of transparency, potential mismanagement from the mgmt is worrying.

We viewed some lovely flats. But there was this nagging voice we couldn't dismiss, and was the no.1 thing that put us off from buying a flat. The unknown costs. We waited to save a little bit more and bought a 2bed terrace in an area we could afford.

It's not our dream home but it's still a home. At least we know what needs fixing and we can budget for them accordingly.

Don't do it. I've had a number of hefty repair bills over the last few years - knew there was work coming up but it was SO much worse than I expected. Not just the cost but the disruption to daily life; forget working from home...

Although I was able to cover the bills, it meant I wasn't able to do the internal renovations in my flat I wanted to, or get the furniture I wanted, and it just built a ton of resentment.

If I could do it all over again, I'd get a new build!

Agreed, our costs went up significantly just during the time that we were waiting for everyone to pay up!

How old is the block? What is the general state of the building and interiors? 150 apartments sounds like a nightmare to get any consensus if needed, and a lot will be owned by landlords who might not want to blow 10 years profit on upgrades. Everyone has heard of people on the ground floor not wanting to pay for lifts or roof repairs, and people on the top floor not wanting to pay for damp repairs and landscaping.
Heed the MN hive mind.

Worth mentioning it might not be the agents fault, they just go on what the seller says.

I know someone who is selling in a block of flats my friend lives in and they have blatantly lied about the service charge. It is a rather unpalatable c.£5k now but they have said on the listing its £2800, obviously using a bill from a few years ago.

Why do they want to do that? Obviously its done so people don't get put off the listing and on the chance that someone loves the flat, gets put in the same dilemna as you have - the fear of FOMO meaning they will overlook it.

My feeling is if the sellers/agents have embellished this then what other details have been embellished? Stuff about the repairs is a big thing and depending on the works, be very expensive.

There are plenty of flats in London so it's not as if there will be no other places.
In my view its better to own houses and rent flats, especially if it's an outer zone the cost for a terrace is often not that much more than.a flat, particularly if the flat is modern.

Walk away multiple S20s is a red flag join the National Leasehold Campaign (NLC) on Facebook to learn more about the least whole process and what you should look out for