Service charge wasn't accurate

keke129

HI, I am a FTB buying a 2-bed Victorian conversion in Tottenham, North London. I need your advice because I don't know what to do.

We were told by an agent that the service charge is £800 pa before we put an offer. It is quite high for the area average as most of the Victoria conversions don't have a service charge or charge a peanut around here. However, it wasn't a deal breaker and I decided to go for it.
I received a breakdown of service charge today. Turns out that the service charge is not £800, but £975 pa, on top of it, it doesn't include any maintenance fee, it is purely an insurance fee . Turns out that a freeholder is one of the nasty property management companies which is known for a high insurance premium. There is extra £120 pa ground rent which means that it is over £1100 pa fee in total for a Victorian conversion. There are only two flats in the house and it is not very well maintained!

I am worried that it is going to chase off lots of buyers when I resell it in 5 or 6 years (I wouldn't get involved if I knew it from the beginning) and I am not happy that either EA or seller lied to me about the service charge.
The house was on the market for more than 6 months, and now I know why....:(

I am considering to ask for £5k off (I have previously knocked off £9 from an asking price.) or to walk away. What are your thoughts? I would appreciate your advice because I am getting really worried.

Thank you.

hazyjo

Never trust what an EA says. Always get your solicitor to check the important things.


Are you sure there are no future major works planned?


Does it say there's a large admin fee for them sorting the insurance, etc? Can't work out why they'd choose to pay a company a large insurance premium otherwise if there was nothing to gain from it.


I suppose you and the other flat could try to buy the freehold later down the line. Not saying you'll be able to though, but it might be an option...

kirtondm

I once owned a flat where the name of the insurance company was in the leasehold may be a similar situation.

keke129

What it says on the paper is:
Terrorism and insurance premium tax: £971

The breakdown of insurance says:
Property damage- buildings: £765
Property owner's liability: £119
Terrorism: £86

Does it make sense?

The freeholder is a management company managing thousands of flats. Surely they make a profit out of it, I don't know how.

There is no major work planned, as far as I know....

hazyjo

Could that be the total which is split between both flats (presuming there are just 2 flats)?

SmashedAvacado

it sounds very high for buildings only insurance (as it would not include contents) but presumably does include the common parts if there are any. It could be high because there is a history of claims - that's something your lawyer ought to ask the freeholder. Otherwise, i wouldnt expect it to be anything like that amount

Smi1er

Also ask if there are any fees when ownership is changed. I know some management firms charge a £400 admin fee to the new owner, that's without the VAT!!

Personally I'd walk. Imagine what will be charged when they actually do work??

davidmcn

hazyjo wrote: »

Does it say there's a large admin fee for them sorting the insurance, etc? Can't work out why they'd choose to pay a company a large insurance premium otherwise if there was nothing to gain from it.

They probably get commission from the insurers (or have some other cosy relationship with them).

Teamocil

I'd back out. You're getting into bed with a freeholder you've already identified as being "nasty", and their rip-off will only go one way. The government has gone very quiet on this.

eddddy

keke129 wrote: »

What it says on the paper is:
Terrorism and insurance premium tax: £971

The breakdown of insurance says:
Property damage- buildings: £765
Property owner's liability: £119
Terrorism: £86

Does it make sense?

The freeholder is a management company managing thousands of flats. Surely they make a profit out of it, I don't know how.

There is no major work planned, as far as I know....

Are you sure that you are looking at an Annual Service Charge Statement (does it have the words "Annual Service Charge Statement" or similar on it?)

A Service Charge Statement from a managing agent would almost certainly list a "Management Fee" - otherwise the managing agent isn't getting paid.

And perhaps things like "Communal Electricity" as well.


As Hazyjo suggests, could you be looking at the Insurance Policy Schedule - of which maybe 50% would be payable by you.

keke129

To update you all, I went to speak to an owner of the other half of the house to see how serious this issue is. It turns out that the owner doesn't have the best relationship with a freeholder due to various maintenance issues and high service charge! Will think about it for a couple of days and try to find a solution just to be sure, but I am getting cold feet about it.

The lesson of the story is, that you should speak to neighbors before buying a property. Yep.

Anyways thank you so much for your advice guys, I can't believe that there are so many people replied within a couple of hours!