Flat sale - retention in respect of service charge?

HildaM

We are trying to sell our leashold flat. The buyer's solicitor has asked us to pay a retention in respect of service charges - in case there is a shortfall in the service charge for the period that we are living here. Apparently if there is no shortfall, we would get 'most of it' back.

This seems crazy to us. There is NEVER a shortfall in our service charges - every year we are able to add to the sinking fund which now has more than £80,000 (for 36 flats) - if anything we should be asking for some money back! We have been adding to that sinking fund for the last 22 years (in case of major repairs) and if we move out we get no benefit from it.

Our solicitor says this is common on sale of flats - is this true? I know £300 is small in the big scheme of things - but it is an unecessary expense.

kBHX

This is fairly common in respect to service charges. There could be an unexpected cost incurred for whatever reason which would need to be apportioned. Remember service charges are paid in advance and are based on expected expenditure for that period. However unlikely a shortfall could occur. If there is no shortfall you should get all of it back... not "most" of it!

Bluebonnie

This is perfectly standard.

You WILL get your money back once the accounts for the current financial year are finalised and published.

blckbrd

Just to labour a point OP, the shortfall would be the difference between estimated and atcual service charges. It's not related to whether you have paid all of your bill.

Payments into a sinking fund a non-refundable as far as I'm aware. But as the purchaser would benefit from your X pounds in the fund maybe this can be used as leverage for negotiation.

LallyHay

This is very common - we are having to leave a £500 retention, which is half a year's charge (plus we have already paid Jan-June this year). Like you, ours has never has a shortfall and we have a very large sinking fund. My solicitor suggested to them it should only be £50, but buyer's solicitor argued. I've agreed just because we want to keep this buyer so we can finally move. I am expecting we would get ALL of it back, not MOST if there were no problems.

HildaM

Thanks for your replies. Seems like we will have to stump up.

It is our solicitor who has said we will get "most" of it back, so I have emailed to ask her why we wouldn't get it all.

Our sinking fund is actually just a separate bank account. As we manage our own block, we can and do switch monies between the 2 accounts, as necessary.

propertyman

Then if there is going to be a surplus that is transferred to reserves, then there is no shortfall and the retention will not be not needed.

Unless you believe that this year will be different from the last 22 years..?

Richard_Webster

The buyer' solicitors are making a generally valid point. In practical terms I take the view that these retentions are often more trouble then they are worth because the buyer often forgets that his solicitor has arranged this retention and pays any excess charge he asked for without seeking to reclaim some or all of it our of the retention.

The other point is that logically if the buyer wants a retention in case he is charged more, why should the seller not ask the buyer to deposit an equivalent amount just in case the provisional charge exceeds the actual charge and the buyer gets the benefit of a credit against the following year's charge?

HildaM

Richard_Webster wrote: »

The buyer' solicitors are making a generally valid point. In practical terms I take the view that these retentions are often more trouble then they are worth because the buyer often forgets that his solicitor has arranged this retention and pays any excess charge he asked for without seeking to reclaim some or all of it our of the retention.

The other point is that logically if the buyer wants a retention in case he is charged more, why should the seller not ask the buyer to deposit an equivalent amount just in case the provisional charge exceeds the actual charge and the buyer gets the benefit of a credit against the following year's charge?

In our block, there is never a credit - if there is money left over at the end of the year it is added to the reserve account/surplus fund/sinking fund (call it what you will!). Maybe 1 year in 5 the income is less than expenditure (usually when major painting has been done) and then the money is taken from the reserve to balance the books. Even so, we have built up a fund of over £80,000 in the reserve.

I'm rather confused now - in my email I told our solicitor we would pay this retention on completion but that we were a bit reluctant. She has now emailed the buyer's solicitors to say we won't pay it at all. I'm sure she knows what she's doing *nervous twitch*

kBHX

When I brought my flat we requested and got a retention of £500. It offers piece of mind for a buyer that they won't be stung with an unexpected bill for charges incurred when they didn't own the property. Mine was never used so returned to the vendor when the years accounts / expenditure were published.

In the scheme of things putting aside £300 isn't a lot of money.

Markie11

I sold and completed on my flat on 30th September 2011. At the time I was asked to leave a retention value of £1000. This was because not only was the accounts for yr ending 2011 incomplete but also 2008, 2009 & 2010. The years run Oct-Sep.

Since this time, over 18 months ago, the management company have said the accounts have slowly but surely been finalised for the exception of 2011. 2008, 2009 and 2010 have finalised, and no further payments have been requested in addition to the monthly service charges. 2011 still remains incomplete.

At the moment I'm trying to get a release of the full retention amount. Unfortunately I'm facing opposition from the buyers solicitors.

I think given it's been 18 months since I sold up that the management company should have finalised all the accounts by now. Unfortunately for me that is not the case.

Does anyone have any ideas how a long a retention can be held or equally if the management company should have the accounts to date. Is there a cut off where they can't reclaim extra charges.