Buying a Flat- service charge doubled in the last 4 years

masisu

Hi and great to find you again.

Decided I would like to buy a flat(as a house is out of budget).
Viewed 5:
A) 2 flats with 78/81 yrs of lease(ex council)
3 flats with +900 yrs left on lease
I'm interested in as more years on lease , plus better environment , peace and quiet, as opposed to council blocks(where very few are owners and/or working).
All the flat are small 1 bedroom.
One "tiny" issue, as it usual is with leases..the service charge has doubled(or gone up 90%-95%) in the past 4 years..e.g from £400(in 2014) to £800(in 2018). This is £100/year - meaning in 10 years time it could be well over £1800(considering inflation too).
There is no sinking fund in none of the flats.
I've check on all 3 flats from point .
Beside the fact that it was difficult (many calls, emails and time 5-6 weeks)to obtain the information above from the management companies.
Could you advise me as in what should I do, is it a good idea to buy something like this? Thinking of the future repairs which aren't included in the service charge.
PS I could show some of the annual accounts for the service charges if anyone interested.
Thank you

[Deleted User]

Personally I wouldn't buy a property without a share of freehold as pure leasehold means you are at the mercy of Freeholders / Managing agents for works / costs etc.

eddddy

masisu wrote: »

.
One "tiny" issue, as it usual is with leases..the service charge has doubled(or gone up 90%-95%) in the past 4 years..e.g from £400(in 2014) to £800(in 2018). This is £100/year - meaning in 10 years time it could be well over £1800(considering inflation too).

It doesn't really work like that.

If you're interested in the flat, look into the service charge in more detail - to see what it's being spent on.

For example, a major roof repair/renovation might be planned for 2018 - hence a high service charge of £800.

But once the roof repair/renovation is done, it might last 20 years - so, hopefully, no more roof repair costs in the service charges for the next 20 years.

Alternatively, escalating service charges might be an indication of a previously poorly maintained building that's now needing more and more work done on it.


You can also see if things like managing agents fees and insurance premium have been significantly increased.

masisu

Thank you for your replies. My apologies in advance, I'm typing from my phone(hopefully isn't too messy). Forgot to mention the area - Cornwall
Below there's some information of how they spent the money..here we go:
2014 / 2015 / 2016
Accountancy fees £350 / £290 / £300
Bank charges £ 44.5 / - / -
Building insurance & terror cover £1030 / £1120 / £1202
Common parts cleaning £282 / £676 / £719
Common parts electricity £361 / £740 / £133
Electrical repairs £60 / £71 / -
Fire safety £255 / £266 / £241
Health & safety - / £175 / -
General repairs & maintenance - / - / -
Management fees £1389 / £1620 / £1674
Total expenditure for the year £4179 / £4728 / £4445

For 2018(they haven't updated me about 2017):
Audit fees £370
Cleaning £875
Electricity. £600
Fire alarm £250
Gen maintenance £500
Health & safety £175
Insurance £1535
Management fee £1765
Terrorism insurance £50
Water £1000
Total budgeted £7120

I'm yet to find out(they won't tell me;))why is there a charge for water(no outside tap, although a tiny cemented yard approx 5x20 feet for 9 flats), and why the electricity and cleaning so high as well.
PS I've got some pdf's or screen shots with the budgets and expenses, but don't know how to post them

masisu

Forgot to mention- flats are pretty new.
It is a converted building(either from a warehouse, or an ex builders building). It is not older than 10 years- part granite , part brick(no info about proportions given)

Norman_Castle

Are the water rates paid through the service charge instead of billing individual properties?

Tom99

The management fees seem very high varying from 30% to 60% of the costs

cybervic

I might be wrong, but I thought flats with 900+ years lease are usually with share of freehold? If so then you would be able to influence the budget once you owned the place.

£400/pa service charge seem quite low, probably because the flats are new and nothing much to do. Try to find out if the cleaning/electricity/water are going to be permanent items or one off on the budget list. The carpet might need a good clean, or they may decide to hire a cleaner on a regular basis. Which ever way it is, £800 doesn't sound too expansive if the whole building is well looked after.

masisu

Guys thank you so much for your help.
I've just received an email reply from the management company...

I have few queries regarding of how these properties are being charged for services by your management company.
I have seen the accounts for 2015, 2016 and 2018.
The issues with this:
- management fees seem to vary 30%-60% of the total fees -In 4 years the service charge has doubled

I checked the Management fee and its still around the 30% and for 2018 its 25%, the SC expenses increase is according to the cost increase in general in the UK

- there is no garden area, therefore gardening as charge it is not justified;

I didn!!!8217;t see in the budget any cost for gardening

- water charge for 2018 is £1000- are the water rates paid through the service charge instead of billing individual properties?

Yes usually when you have one meter for a few flats the water company will send to the property management one bill and they will have to charge the flats

- electricity of £900, for 4 lighting bulbs

You have 2 meters LL Supply and the budget was according to the bills we received I will forward to the property manager to check if we have other thinks beside the bulbs anyway for 2018 the budget is £600

- there is no sinking fund. If there is, then it's not clearly outlined, as how much and for what period of time it has been accrued.

The plus in the accounts is auto going to a sinking fund

Now my questions to you kind people are:
- gardening(I should've say cleaning) but nevertheless £800 it's alot
- is the water bill of £1000 covering 9 flats, as it seems quite low for a yearly figure?
- there is a budget(which I couldn't type the info about as it would've take me over an hour to post it here). 2014-2018 it has been accrued a total of £1900( £400-£500 each year). Shouldn't those money return to owners, as money lose some value in time if not used?
Thank you

Norman_Castle

- electricity of £900, for 4 lighting bulbs

I'm assuming thats a question you asked. Editing your quote with Q and A would make it clearer.

Likely to be more than 4 bulbs for 9 flats. Communal internal and external lighting? Smoke alarms? Fire alarm? Communal aerial? I believe this would also be business rates which I believe are higher. Would be useful to know if the management company have found the best deal or even if they are actively monitoring prices. No idea how competitive business suppliers are.

£800 for cleaning depends on the area covered and what is done. Less than £100 per year per flat isn't expensive.

The £1900 could be held against future costs but hopefully there's a cap on how much is held. This could be used to reduce future bills.

that

Service charges and management fees can be bad and often you have no control.

My average yearly service charge is £2600, however 4 years ago they did major works which cost £238?? - say £24000. Then had another letter of emergency boiler replacement and an unknown amount. Also yesterday got another letter regarding re-roofing and drainage tenders, fire protection, and metal work repair.

You often have no say in what is being fixed, and in some cases like electrical communal distribution box which no longer conformed to code was replaced, rather than an extra circuit breaker.

[Edit:] On my way home tonight met another tenant. We have a slatted wooden fence. The got so old guy to paint it on a part time basis with a brush. the cheap spray fun broke down. There is about 75m of this wood fence and it cost us £7000 to paint.

The Agent need not choose the cheapest value company, but one that offers the best "value". Some companies are known to bill, then give cash-backs. Also the more expensive the quote, the more money the Agent earns.

Some agents even have their own companies and hire them to do the work, so collecting profit twice.

Councils where once better than Private Landlords. The council in NW London is fairly cost effective in works, but the one in South London just make it feel like it is a never ending money pit.

You may want to know what I got for my £24000? No, not a BMW, but 8 double glazed windows and a door. the windows are rated for 15 years... I will start saving now for 15 years time.

Also besides paying an agent, the agent pays professional fee to someone to do an evaluation, then consultation fees for professional advice, only then the proposed work. We are not flying a man to the moon here, just replacing what is already there but takes 3 people plus the service agent to do the job.

Would advise to own outright, or at worse shared freehold.

Terrorism insurance £50
Water £1000

Terrorist in Cornwall? the Coalition of Clotted cream criminals of Cornwall?

I found this post while doing a search on 'water rates', as mine is high for a 2 bed flat £484.15 Yours is £1000??? - Really???

I think they are taking people for a ride, but if there is an indoor swimming pool, and water fountains possibly not.