Buying our first flat - Questions

paul_mx

Hi everyone,

We've reserved a new build with Berkeley Homes and while we love the flat we are starting to have questions.

During reservation it was stated (written) what the Service charge would be, however it appears the service charge is in fact 10% more than what was originally stated. I have raised this with our independent solicitor who told me the reservation figure is not binding. Can I request this to be reviewed as the conditions have changed?

More importantly, the ground rent is £300 followed by RPI increase every 10 years. The property is outside London which means it's already above the £250 for Assured Tenancies. Our solicitor mentioned that they will need to contact our lender to disclose the ground rent charges and only once the lender has agreed we should exchange contracts.

Should we be walking away from a property where the Ground Rent is already above AT? Is this normal?

Thanks in advance

InterestedParty2018

I don't know enough about ground rent to comment - but as for service charges, these are always variable.
I wouldn't have thought any vendor/developer would put in writing that the service charge was fixed, especially in a new build.

They will often be referred to as "current service charge is XYZ...." . Thus declaring what IS being billed at the moment, but does not mean there will a surplus or deficit at the end of the service charge year, or if the service charge will increase/decrease in further years.

They may refer to it as "budgeted annual service charges will be XYZ", again, not making any commitment to it being fixed.

My opinion is that developers need to keep the service charge levels as low as possible to not scare off potential buyers, but equally they need to be reasonable to ensure no massive fluctuations as it could be construed as deceptive.
Having said this, it must be very difficult to draft budget service charges in advance of the construction being complete. Yes, some figures can be calculated based on experience and knowledge, but they also have to try build in inflationary increases between the date of collating the data, and the projected occupancy dates, which could vary significantly depending on the size of the development.

Also, "year 1-2" may see a lot of items covered under warranties etc (entryphones, lifts, plant equipment) therefore no maintenance costs, thereafter, it would be necessary/prudent to get maintenance contracts in place... increasing the service charges.)

Most importantly (in my opinion), until a building is "lived in", and a trail/history is created, it is very difficult to predict what the service charges will be.

sal_III

As long as you are paying the ground rent on time, the AT angle is a non-issue. Meanwhile I have yet to hear about someone being "evicted" for this, but I guess it will have to happen to someone to cause the unholy uproar for the Gov to their fat lazy butts and fix the legislation to close the ridiculous loophole.

Service charge fluctuates year on year and it's likely you got the previous year number initially, that was later updated. You have almost zero chance to renegotiate the service charge as the lease is likely uniform for all properties. So it's take it or leave it kind of deal.

eddddy

paul_mx wrote: »

During reservation it was stated (written) what the Service charge would be, however it appears the service charge is in fact 10% more than what was originally stated. I have raised this with our independent solicitor who told me the reservation figure is not binding. Can I request this to be reviewed as the conditions have changed?

Anything and everything the developer says or writes will be 'subject to contract' - so none of it is binding on your property sale/purchase contract.

(In order to be binding, your solicitor would have to get it written into the sale/purchase contract.)

However, this might be sufficient grounds to cancel your reservation and get your full reservation fee back - if that's what you want to do.


Regarding the £300 ground rent... there are a few smaller lenders who explicitly refuse to lend (or require indemnity insurance) ...

Principality Building Society

... Any ground rent which is currently at a level or, may reach a level referred to within the Housing Act 1988 (hence allowing a long lease to be treated as an AST) is NOT acceptable unless the Lease is varied or a suitable indemnity policy is put in place to protect us. The applicable legislation relates to leases with an annual ground rent of more than £250 (or over £1,000 for properties in London)....

https://www.cml.org.uk/lenders-handbook/englandandwales/question-list/1852/

The risk is that other bigger lenders might start doing this, so when you come to sell, your buyers find it difficult to get a mortgage.

BUT... there is discussion about the Housing Act 1988 being updated to remove this issue.