Service charge arrears on a repossessed property

alexbray

Hi there,

I've been trying to purchase repossessed flat over the past few months and to say the process has been slow is an understatement. However, after lots of waiting I may be nearing completion.

The one thing that concerns me is that I've had no details of how much the service charge arrears are. Initially my solicitor had suggested a retention but it looks like the seller's solicitor won't agree to this. As the accounts for the relevant year haven't been finalised there's no way I'll know the balance before completion. Is there any way around this? My concern is that the arrears could be quite a lot...

anna42hmr

I would have thought that the management company collecting the charges would still be able to confirm how much has or hasn't been paid whilst waiting on the final accounts from the bank statements.

Whilst it won't be an official final amount could give an idea if they are prepared to confirm this. For example the company who manage and collect the service charges for the flat i own are happy to confirm if they have received my standing order for payment (for instance i asked them to check that they had received it after i switched bank accounts and wanted to check set up ok) They also issue 6 monthly update notices confirming status as well which are posted through my door, if they too do this then that would give you the 6 month figure at least.

Alternatively, you would be able to find out if there are arrears for previous years from the accounts already completed, and then go on a worse case scenario basis and assume and budget for no service charges being paid for the year without the accounts. Therefore if they have had some payments, then you will have additional funds left over.

moneyistooshorttomention

Good idea.

Would it be wise to add a corollary of getting this management company to add in a phrase to the effect of "...and £x will be deemed to be in full and final settlement" or words to that effect. That way they couldn't come back for more if they found they hadn't totally got their accounts worked out right later and wanted to ask for some more.

eddddy

moneyistooshorttomention wrote: »

Good idea.

Would it be wise to add a corollary of getting this management company to add in a phrase to the effect of "...and £x will be deemed to be in full and final settlement" or words to that effect. That way they couldn't come back for more if they found they hadn't totally got their accounts worked out right later and wanted to ask for some more.

Realistically, the management company is unlikely to do that because there's no benefit to them in doing so.

In general, there are extra risks associated with buying a repo, and this is one of them. You have the risk of service charge arrears etc, and you just have to judge that risk when deciding how much to offer.

silvercar

moneyistooshorttomention wrote: »

Good idea.

Would it be wise to add a corollary of getting this management company to add in a phrase to the effect of "...and £x will be deemed to be in full and final settlement" or words to that effect. That way they couldn't come back for more if they found they hadn't totally got their accounts worked out right later and wanted to ask for some more.

Can't happen because it would put an unfair burden on the other flats. The other flats aren't obliged to pay the share for repossessed properties with money owing, their lease will only require them to pay their share.

Freecall

Is there a confusion between any service charge account arrears and any balancing charges which might be needed after the end of the accounting period?

If the lease says that a service charge is to be paid for the 1st of January for example, then it will be in arrears if not paid by that date. The management company should be able to tell you (or your solicitor) whether that is the situation with ease.

On the other hand any balancing charges required at the end of the accounting period (which by definition won't be known in full until the accounts are completed) will only fall due when invoiced.

Your contract will set out how these are handled but it is common for them to be apportioned by period of ownership between the buyer and seller. Your solicitor may advise a retention if this is the case but ultimately it is up to you.

silvercar

Retention is normal.

We've just completed on a leasehold flat and the seller lives abroad. My solicitor insisted on a retention.

eddddy

silvercar wrote: »

Retention is normal.

We've just completed on a leasehold flat and the seller lives abroad. My solicitor insisted on a retention.

Probably not normal for a repossession.

The bank will want certainty about how much the mortgagor owes them. A retention which they may/may not get back in 6 or 9 or 12 months will mean they can't 'close the books'.

The most realistic option for the OP is to try reducing their offer, to take account of the uncertainty.

alexbray

Thank you all for the feedback. I think I need to have another chat with my solicitor and clarify the situation.