Leasehold service charge higher than advertised

Errata

loki20 wrote: »

The way the service charge works though is that the estimate is calculated for the year, and then a monthly standing order is payed to the leaseholder based on a 12th of that. Any over (or under) payment at the end of the year is then subtracted (or added) to the next year.

The fact that they knew the standing order was now higher surely means that we have been mis-sold by the vendor? I understand that the estate agent was just going on what they were told.

I don't think there is a sinking-fund no.

You haven't been mis-sold anything, you haven't bought it yet.

loki20

harrys_dad wrote: »

Run, and quickly! Seriously though, this is a real minefield, and you may end up paying much more than you think in the future. Who is the Managing Agent? There are some poor ones out there. Why has the charge gone from £1300 to £1900 on two years? What will it be next year and the year after? Without a "sinking fund" do you know if there are any major works likely to be needed in the near future that will cost a large amount of money? You seem to be entering into an open ended financial commitment with very little knowledge.

I plan to look into all of this, but the first thing we noticed was the discrepancy between the service charge we were told and what it actually was, so I thought I'd come here for some advice. I think the difference is mostly weather based. The service charge includes gas, heating, and water.

loki20

Errata wrote: »

You haven't been mis-sold anything, you haven't bought it yet.

As I say, my terminology may be off here.

BitterAndTwisted

"The service charge includes gas, heating, and water" In which case £1900 per annum is dirt-cheap!
This is most unusual, what type of flat are you in the process of buying? Not an ex-Local Authority one I hope!

loki20

It is an ex-Local Authority, but it's quite a nice one.

Tinks32

loki20 wrote: »

It is an ex-Local Authority, but it's quite a nice one.

I that case I would definately advise not to go ahead
this might be useful http://www.southampton.gov.uk/Images/Thinking%20of%20Buying%20A%20Council%20Flat_tcm46-322067.pdf
Another thing to consider is how you will feel when your neighbours who are council tenants do not have to pay for the new double glazing that is costing you £5000, I have heard some real horror stories from people who have done what you are proposing to do! You also do not have most rights of normal leaseholders, ie I don't think you can form a RTM co, etc..

loki20

Hi,

The sellers have got back to us about us asking for a reduction based on the service charge being higher than they said. They were unaware that the service charge had gone up, and hadn't altered their standing order so are in arrears because of it.

They are saying that because it was an honest mistake, they feel it is unfair for us to ask for a price reduction. What are people's thoughts? I am sure it was an honest mistake, but it is an honest mistake at their end which is going to cost us.

princeofpounds

They are saying that because it was an honest mistake, they feel it is unfair for us to ask for a price reduction. What are people's thoughts? I am sure it was an honest mistake, but it is an honest mistake at their end which is going to cost us.

It may have been an honest mistake, but it's also the mistake you based your offer on. The motivation is not important, it's the fact that a mistake has been made that is. Their logic is screwed because they seem to be viewing it as some kind of moral judgment. It is not. It is purely economic.

How much is such a mistake worth? Well, it's an ongoing cost that you can presume will inflate over time. In that respect it's not entirely different to an ongoing rental cost.

I have no idea what a rental yield on your area is, but let's assume it's about 5%. Capitalising the £600 annual charge by 5% is 600 / 0.05 = £12 000.

Now it may not be that high - uplifts like this may not happen every year. But the cautionary tales that the other posters have put up about ex-council buildings are true; they can and sometimes do hit people with big upgrade bills which is something that is often easier to negotiate and contest when all the leaseholders are private, although it can happen in private leaseholds too.

As you can see, that's not an insignificant sum. Perhaps if you explain that mathematics to them they will understand. I suspect they will probably just treat it all emotionally though.

Their EA *should* understand capitalisation of income and expense streams though. It's a major facet of property valuation.

Errata

loki20 wrote: »

Hi,

The sellers have got back to us about us asking for a reduction based on the service charge being higher than they said. They were unaware that the service charge had gone up, and hadn't altered their standing order so are in arrears because of it.

They are saying that because it was an honest mistake, they feel it is unfair for us to ask for a price reduction. What are people's thoughts? I am sure it was an honest mistake, but it is an honest mistake at their end which is going to cost us.

It wasn't a mistake, honest or otherwise. If they were unaware the charge had increased, they told you what they knew and could do no more.

BitterAndTwisted

Do not buy this ex-LA property! It's going to cost you more than a £600 a year uplift in service-charges over the years. Once they start doing any substantial repairs or modernisations the owner-occupiers are going to be changed far in excess of their real percentage shares. My mother discovered this quite soon after she bought her ex-LA flat and was still in dispute with them when she died.