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?

I've checked the LPE1 and it says no anticipated works or extra costs.

Except there are anticipated works and extra costs. What is your plan then OP? Just keep quiet?

Just check with your solicitor instead of getting the advice of Mumsnet. Otherwise you potentially leave yourself open to legal action if it can be shown you knew about this and kept quiet.

@HellsBalls well that's the point of my post. I don't know what to do. Morally I know I should inform them but legally I don't think I have to unless they ask? I havent lied. The LPE1 was correct at the time.
Even if I tell the buyer, I don't know what to tell them as no costs have been announced yet.
My worry is the section 20 will come before we exchange then I think I have to inform them legally?

Didn't you say you're just about to exchange?
In reality, it might be months before an informal letter giving some vague indication of a S20 in the pipeline is translated into a formal notice. As you've already been informed here by many posters, until then, you have nothing to worry about. End of story.

It was correct at the time but you are now aware that information has changed. To not tell them is potentially misrepresentation, which has legal consequences.

That’s why you need to get the advice of your solicitor, and not rely on the legal advice of Mumsnet.

There’s no morality about it - you’re not
going to benefit from the works, will have contributed by your service charge during the course of your ownership. Why would you take this on the chin? The replies on the LPE1 are man co replies, if they’re inaccurate it’s down to them, not you.

Keep schtum, and as a contingency set aside some funds from the sale, and see how it plays out.

@SunQueen24 service charges and reserve fund contributions are two different things and are neither interdependent nor interchangeable. Construction costs have shot up in the past few years and even an apparently large fund doesn't cover as much as it used to.

OP if your managing agent has said no works are planned then they have been either negligent or dishonest. You could ask them to resend the LPE1, attaching a copy of the most recent letter. Remember that a S20 has to be issued for work that will cost any one leaseholder more than £250 so it may not end up being a dealbreaking amount for the new owner in any case.

A sinking/reserve fund is usually made up of excess service charge, so monies not accounted for that year(s) but nonetheless collected from the tenants/leaseholder. This can either be from an underspend and/or or an amount of service charge reserved by the lease for the purpose of accumulating a sinking fund.

Either way - OP has already contributed to that fund during the course of their ownership so I’m not sure why you feel the need to distinguish between a service charge and reserve or sinking fund - the point remains.

They were also not dishonest if there were no works planned at the date of replies.

I "feel the need to distinguish" service charges from reserve funds because they are generally two different things in law. Surplus service charge can only be transferred into reserve/sinking funds if the lease specifies this, but it's unusual - most leases don't have that provision. Generally, if there's a surplus, the landlord has a common law obligation to return the excess to the leaseholder, and can do this either directly or via a service charge account credit.

And in a properly managed block, you'd have a rolling program of major works with approximate costs attached to them and you would calculate and collect your reserve fund contributions accordingly. You don't just rely on surplus
service charge to cover major works, even if your leases do allow you to put it into the reserve fund.

Agreed.

In 15 years of property management I've only seen maybe five or six leases which specify that they allow for surpluses to be rolled into the reserve. Usually service charge surplus has to be handed back and reserves are collected in a ring-fenced separate account specifically for major works projects.

I didn’t say you would - the point I’ve made is that OP will have contributed and the incoming tenant will now be benefiting from future works.

How else is the reserve fund collected if not by a charge via service charge? It makes up part of the service charge whether or not it sits in the same account.

And how are they reserved as a payment in the lease. I’ll give you a clue. They fall under service charge… They might be ring fenced once they have been allocated but it’s collected as service charge.

My point was OP says there is a sinking fund and so it follows that OP has contributed to that during the course of her ownership. A reserve fund is collected as a service charge, whilst I accept that the lease has to have specific provision in order to do that, that is not relevant here - as there is a fund in existence, so going back to my first point - it still stands OP has contributed. I am well aware that the reserve fund not intended to cover all works - hence the serving of a section 20 but OP will not benefit from those future works. That was it.

How that reserve fund is reserved under the lease is immaterial to the first point I raised. Which really is a matter of opinion that I don’t think there’s a moral issue here, irrespective of the legal stance (and I don’t agree there’s a legal issue either for OP) 🙄

The whole premise of buying a property is buyer beware. The section 20 question is raised on the LPE1 which are replies of the management company, NOT the vendor. If OP is asked and lies, that’s different, but if they are not asked and so do not volunteer they are not accountable - if the Man Co have misrepresented replies they are or would be liable, not OP. It’s not OP’s responsibility to provide those replies.

https://www.starckuberoi.co.uk/property/lpe1-form/

OP you might find this link useful.

I’ve said it before and I’ll say it again. OP don’t rely on the legal advice of Mumsnet. Run this by your solicitor

Last time I was buying and selling, my solicitor drummed into me the importance of letting her know if I was aware of any changes to previously supplied information.

Absolutely- but OP has posted so people are going to comment.

I'd keep quiet- you haven't lied, and no S20 has actually been issued.

If this had never come up, you could have exchanged contracts then got a S20 through the door the next day- the buyers would be liable, not you. It's the risk of buying a leasehold.

When I sold this year I had a similar issue where we had been told a S20 was coming before we went on sale so we were honest and upfront to buyers because we felt it was the right thing to do (even though no S20 had been issued or mentioned in the LPE1 pack)- the management company were so incompetent that they hadn't actually sorted out the proper S20 process in the several months it took us to sell, and all it did was cause issues with incoming buyers who took us to the cleaners on the basis of this thing that was supposedly going to happen. We moved 9 months ago and there is still no S20 or works forthcoming, and we had to lose about £15k to get the sale over the line as a result. If we did it again, I'd have kept quiet.

It is usually collected WITH service charge just because that's less admin, but it's not part of the service charge. Same goes for ground rent.

The lease will set it out as part of the service charge. If you Google it it’s the first thing that comes up. No it’s not held in the same account, but it has no bearing on the point I was making and isn’t at all relevant really in the context of this post bar establishing that OP has made a contribution.

https://horizonmanagement.co.uk/guides/reserve-fund-guide/

@SunQueen24 I don't need to Google, I deal with this sort of thing every day and I've got years of experience with it! Please don't rely on Google/AI for legal advice, and please don't use it to try and prove your (incorrect) point. You've been told by me and others that you're wrong, just drop it. I don't know why people jump into these leasehold property threads when they don't know what they're talking about.

@TheOccupier yes, also my day job and suitably qualified. I still don’t understand what’s wrong with the point I’ve made. I said “OP will have already paid by service charge” you say no, it’s a different fund. I said it is yes, but it’s collected with service charge (and reserved as service charge I.e in the same schedule and listed as a cost amongst services usually in the lease) and you’re still arguing the toss 🙄 OP has already contributed which was the point I was making (and you haven’t disputed) and yet here we are however many posts in and I’m not sure why I’m so invested, nor why you are.