Leasehold sale - section 20 notice

[Wolfmango]

We are selling our leasehold flat and we are ready to exchange any day now after a long and stressful few months of negotiations, enquiries, extra costs etc. We've just heard there are major works coming up and we will be issued with a section 20 at some point. Don't know when, don't know how much it will cost. At what point do I have to tell our buyer? There was nothing in the searches, landlords pack or maanagement pack as the works weren't known about then, it's unexpected. We know we are going to have to pay something or reduce the sale price accordingly. But how can we if we don't have a bill yet? I don't want to delay the sale any further or lose our buyer as it's already been delayed several months and we are packed up and ready to go! What happens if we exchange and the section 20 notice comes soon after?

Be honest. If they find out afterwards that you knew they can sue you. They would win. Justice would prevail hopefully.

So, when I complete management packs unless the first S20 notice has actually been issued then I wouldn't usually mention it. We complete LPE1s to the best of our knowledge at the time, and I know from experience that not only can it take a long time to get major works off the ground, but also they often get dropped through lack of funds (everything is SO expensive at the moment), or funded from existing reserve funds. Nothing is set in stone until the second notice is issued and a contractor instructed.

If they're due it should be apparent to the conveyancing solicitor too, as presumably they will have a) read the lease and b) asked when the last maintenance cycle took place.

This. You need to be honest and let the buyer know straight away.

I had a similar situation once when selling a flat. It was agreed that my solicitor would withhold part of the sale proceeds from me. Then when the exact cost was known, it would be paid out of my money held by the solicitor, and the remainder returned to me.

The bill (for this S20) follows the property, NOT the outgoing leaseholder. If it hasn't shown up in your solicitor's searches, you are 'home and dry'. In the pre-sale pack from your Freeholder which you would have requested there is a question about whether any large scale spending ie S20s are anticipated. If none have shown up, then you have a clear conscience.

I agree with this and would crack on and exchange, then your obligations are over.

Don’t forget the buyers are also going to be the ones benefiting from the works…

Yeah but we sued our former solicitor for £20k and won for a similar mistake. So your firm may be telling you to do this, but it's a high risk strategy.

OP, as a seller, this is in the hands of your solicitor which has indemnity insurance. Keep a paper trail to prove that you're following whatever their advice is.

The LPE1 enquiries are a matter for your management company, not you OP. So you’re not being misleading. You haven’t said yes or no to section 20 works so unless you’re asked you haven’t lied at all.

But it’s not a mistake? The answers were correct at the time they were given. It’s not an error on the solicitors part?

It's not a high risk strategy. My response to the question about S20 works in the pipeline is always 'no section 20 notices have been issued in relation to this property' (or copies provided if there have been). It's absolutely factual.

As an agent we also have to be mindful that we're not prejudicing someone's sale by providing information that is, at that point, only hearsay - a conversation is not an instruction.

Speak to your solicitor, let them know of the S20 and get their advice on how to proceeed. That is what you are paying them for.

This happened to me many years ago.. the cost of maintenance was £20k and I met them halfway as I wouldn't benefit from the work I wasn't knocking it all off. Luckily they were happy it was going to be spruced up.

Doesn't your block have a reserve fund to cover major works? If it's being properly managed, it should have one, and you will have already paid your share into it.

@the@TheOccupier it's partly being paid for by the reserve fund and partly being paid for by us. But it's all very vague at the minute.

Any decent solicitor will be asking the question about what reserve funds the building has in hand for major works. If the reserve fund is small or non-existent, this should be a red flag, regardless of whether any specific works are scheduled. Whether a Section 20 has actually been issued is less important.

There has more recently been some criticism of large sinking funds being held by management companies - because it means leaseholders have paid when it’s not really necessary, because of situations like this where incoming tenants will benefit from previous tenants payments.

Op how did you 'hear' about it?

@SunQueen24 reserve funds are necessary though, or at least good practice. Otherwise you may have a situation where you suddenly need a new lift/roof/communal boiler and there's no money to pay for it. The management then has to surprise leaseholders with a large unexpected bill, which means they may struggle to collect the money from them and in the meantime can't start the work. I wouldn't buy into a block that didn't have a healthy reserve fund.

@Unexpectedlysinglemum the building manager told me in person they will need to fix the issue. Had a letter after saying what the works needed are and reasons for it and they are getting quotes etc. I've heard informally from another resident that he was told they will be issuing a S20.

I know. But hence I said “large” a sinking fund which is too big rings alarm bells too.

It suggests tenants are paying more service charge than they need to.

@Wolfmango why didn’t you say in the first post you’d received a letter from the management company?

@HellsBalls because it's just a letter. Not an official section 20. It doesn't say when or how much.

OP you can see the wording at section 4 of the LPE1 re the information the management co should give - but either way, unless you are directly asked this is not your obligation to disclose. Any answers you have given will have a date attached to them.

www.lease-advice.org/files/2022/01/LPE1-form.pdf

The thinnest of thin ice. Discuss it with another solicitor maybe, not your one. You need to know your liability, let alone obligations.
If you don’t disclose the first thing your buyers will hear when they move in is ‘We all received a letter from the management company a few weeks ago about the major works that are needed. The building is defective. It will cost us thousands. Didn’t you know?’

And OP will say - rely on replies to the LPE1 sent by the management company. That wasn’t an enquiry for me.

The principle of Caveat emptor applies to buying houses - it is not the sellers job to disclose everything there is to disclose.