Help with service charge 'retention' issue...

lombrozo

Can anyone decipher what is meant by this letter sent to me by my solicitors regarding a flat I'm about to buy:

Retention:
You will note from the Leasehold Pack that it is recommended that a retention be agreed in order to cover any potential deficit or balancing charge in respect of the service charge accounts that have not yet been finalised.

A retention is recommended because the Freeholder is unable to confirm at this stage whether the budget for the service charge account will be sufficient to cover the actual expenditure incurred over the duration of the accounting year. There is a possibility therefore that you may receive an invoice for service charges incurred during the period when you did not own the property.

Please refer to the information provided in the Leasehold Pack for details for any previous deficits or balancing charges recovered from the current owner.

In order for a retention to be agreed a figure needs to be negotiated with the seller's solicitors and a clause inserted into the Contract to regulate the terms of the retention. It is common practice for the seller's solicitors to hold the retention funds until such time as the purchaser is able to produce evidence from the Freeholder that a deficit or balancing charge is being requested.

We would estimate our legal fees at £250 + VAT for negotiating the retention, drafting and agreeing a suitable clause for the Contract and dealing with the administration of the retention after completion.

Thanks

bouicca21

The seller doesn't know what the service charge for the period up to the sale is yet because he hasn't had the bill. If you pay full whack you will get the bill and have to pay it on top of the purchase price.

Your solicitor is trying to protect you from this by negotiating a retention - a bit of the purchase price that won't go into the seller's pocket but will be used to pay the bill when it turns up, with any surplus going to the seller.

It's going to cost you £250 plus vat to set it up.

lombrozo

bouicca21 wrote: »

The seller doesn't know what the service charge for the period up to the sale is yet because he hasn't had the bill. If you pay full whack you will get the bill and have to pay it on top of the purchase price.

Your solicitor is trying to protect you from this by negotiating a retention - a bit of the purchase price that won't go into the seller's pocket but will be used to pay the bill when it turns up, with any surplus going to the seller.

It's going to cost you £250 plus vat to set it up.

I see, thanks!

I thought the service charge is paid monthly though?

eddddy

This is a standard part of a leasehold purchase. My solicitor allows for this in his standard fixed quote. (And £250 seems a very steep fee.)

In fact, for the last flat I bought the retention for excess service charges was only £250 anyway, so it would have been nonsensical to pay a legal fee of £250 in order to maybe get up to £250 back from the seller.

Out of interest, are you using a super-cheap conveyancing deal, or perhaps a solicitor recommended by an Estate Agent?


(...and service charges are normally paid quarterly.)

Snakey

I had this clause in my contract, and nobody charged me anything for it. My solicitor is sitting on £250 of the seller's money until the final service charge bill for the year to March 2014 comes through, at which point they'll give it back if it's not needed.

If it was going to cost me £250 plus VAT I wouldn't have bothered! I'm not actually expecting to need to take any of the retention, a few quid at most I would have thought.

The more threads I read on here, the more I realise how lucky I got with my choice of solicitor.

bouicca21

I'd suggest asking the seller what sort of payment he has made so far. And if any extraordinary works have been carried out that are likely to exceed the regular payments.

If he is not in arrears, then you have to gamble about the likely amount of the excess versus the cost of the retention arrangement. It does seem pricey to me.

user1168934

Negotiating and retention are both normal for leasehold but fixed fees solicitors dont charge extra for it. £250 in fees sounds too much in any case.I think you need to be careful with your solicitor.

lombrozo

eddddy wrote: »

This is a standard part of a leasehold purchase. My solicitor allows for this in his standard fixed quote. (And £250 seems a very steep fee.)

In fact, for the last flat I bought the retention for excess service charges was only £250 anyway, so it would have been nonsensical to pay a legal fee of £250 in order to maybe get up to £250 back from the seller.

Out of interest, are you using a super-cheap conveyancing deal, or perhaps a solicitor recommended by an Estate Agent?


(...and service charges are normally paid quarterly.)

I'm using RMNJ, online, and yes, they were one of the cheaper options... guess I have to decide if the fee outweighs the likely deficit...

davidmcn

Presumably the seller remains liable for any sums due, even if you choose not to pay your solicitor an outrageous fee to administer the retention? So all you're avoiding is the risk of having to find the seller and extract the money from them.

lombrozo

So what is the retention for? If the service charge payments are quarterly, presumably the retention is for the last quarter only?

Or is it that the **current** amount the seller is paying is only an estimate, and the **actual** amount will be calculated at the end of the financial year, at which point the difference will be due (or refunded)...?

eddddy

Hi lombrozo

Typically, it's what you describe here:

lombrozo wrote: »

...
Or is it that the **current** amount the seller is paying is only an estimate, and the **actual** amount will be calculated at the end of the financial year, at which point the difference will be due (or refunded)...?

But check what it says in the lease, and check what the managing agent has done in the past.

Some agents are good at estimating costs others aren't. And things like unexpected increases in energy costs and unexpected repairs can cause a service charge deficit.


The usual retention period is 12 months from completion. But in general, the managing agent has up to 18 months to levy a charge - so you can still be caught out, if the managing agent is sloppy.

(But the retention clause I had only talked about using the retention to cover a service charge deficit. It made no mention of a service charge surplus. So I got a refund, but I didn't have to give any of it back to the seller. But it was only £40 anyway!)