Who's responsible for previous year's service charge deficit?

athel

Hi all,

We purchased a shared ownership flat in May 2014. A few months later the housing association sent us a letter that there was a service charge overspend of £561 in year 2013-14 that will be added to our service charges for year 2015-16. Upon contacting them about this, since we bought the property after that time, they said we should contact our solicitor who should have retained funds.
When we contacted our solicitor and after a lot of chasing to get a response, she said that fund retention is not what they normally do and that the hous. assoc. should contact the seller directly. The hous.assoc. said that our solicitor should liaise with the seller's solicitor to arrange for this money to be paid to us and that it is usual for fund retention to be set up to cover deficits. I asked our solicitor to contact the seller's solicitor, which she recently did. We haven't had a response since.

My questions are: what must we do if the seller refuses to cover this cost? Should our solicitor have retained funds, and if this was an oversight on her part, are we ultimately liable?

stator

I would say that yes, your solicitor should has asked the question about whether all service charges are paid up to date. If she did and the answer was "No" or "Don't Know" and your solicitor informed you about this, then it would be your fault. If the answer was "Yes" then the vendor misled you and you should pursue them for the money. If she didn't even ask the question, then she has not been as competant as she should have been.

Hoploz

I can see how this has happened. Presumably the seller had paid all that had been asked for. The overspend was only found out after they left - once the year's accounts were finalised. They would not have known that there was going to be a shortfall. Technically they should be responsible but this is a tricky one as it wasn't their fault and I wouldn't want to pay a year after I'd sold! Is it for large works they knew were being done?

mrschaucer

It's the previous owner's debt, not yours, but you will probably have difficulties convincing the managing agents not to simply add it to YOUR service charge bill as that's the easy way out for them, rather than trying to track down the previous owner. Some agreement should have been reached at the conveyancing stage, but obviously too late for that now.
(If there had been an underspend in 13-14 resulting in a credit on your service charge bill now, would you be trying to contact the vendors to give them the money back?)
£561 IS a lot of dosh though, and I think I would be claiming that it's not your debt and nothing to do with you. Might or might not work ...

athel

Thank you all for your help.
It was indeed the actual accounts for 2013-14 that were calculated at the end of year and sent to us in Sept-Oct 2014. I contacted the hous.assoc. and then the solicitor straight away, but after a lot of chasing and back and forth, the solicitor only last week contacted the seller's solicitor.
I'm still unclear as to whether our solicitor had enquired about this during the exchange. The only thing she told us recently is that it is not their standard practice to retain funds. Should we not have been made aware however that the actual accounts were not yet calculated at the point of sale?

We were first-time buyers, so had no previous experience in the process, and I do not recall any mention from either our solicitor or the housing association back then about the possibility of outstanding service charges. We assumed that hiring a solicitor is for the purpose of taking care of all associated legal and other matters and protecting our interests.

I guess I will give it a week to see if the seller responds, but am quite concerned as the new financial year is almost here, and we've already received the new bill for year 2015-16 (which is around £45 extra p/month!). I may be reporting back soon...

Thanks again...

PlutoinCapricorn

If you have never been involved with service charges in the past, you could not be expected to know about the estimates and the actuals. However, looking for outstanding bills should be routine for the people who deal with this all the time. Have you asked about pending major works?

athel

Thanks, PlutoinCapricorn. We personally did not ask about this as the building was only 8 years old at the point of sale and we did not consider this a possibility. I am not sure if the solicitor did.
Throughout the time we lived here, we haven't had any notification from the hous.assoc. about any major works, so I assume there are no such plans.

Hoploz

Just be aware that unless you can prove some sort of negligence on the part of your solicitor, they could start charging you for sorting this out. Which is likely to be something like a hundred pounds per hour.

You would be better off pursuing the management company and getting them to chase the previous owner. The management co who manage the accounts would have been contacted during the selling process to ensure bills were paid up to date. They should therefore have flagged the possibility of overspend, in my view. They can then take the previous owner to small claims court for very little cost if necessary.

Solicitors are a very expensive way of going about this. My advice would be if the management co will not accept it is not your debt, pay it and put it down to experience.

There may be a way you yourself can retrieve that money from your seller in the future (again, small claims process) but tbh I think it is easier to just get on with life.

PlutoinCapricorn

Do your service charges include a sinking fund?

athel

I think so, yes.

PlutoinCapricorn

You could argue that as the previous resident had the benefit of the day-to-day services for the year, they should pay the difference between the estimates and the actual. However, they will not be getting the benefits of future major works that might be done, so should they get a refund on unused contributions made to the sinking fund? Tricky!

This might be the first time that you have come across these issues, but the other side should be prepared for dealing with them.