Limited Sinking Fund for Leasehold Property

IcePigeon

I’m in the process of buying (FTB) a leasehold property (1 flat in a building of 2 flats in London, not a new build) and just received the management pack. Up until last year there was no reserve or sinking fund, from last years payments there’s now a fund of just over £1000 and the same planned to be added this year. The service charge for the insurance, maintenance and the sinking fund is 150pcm.

The most recent letter informs there are plans for a full building survey in preparation for major works. My own survey had concerns about the external appearance and lack of general maintenance of the building, but couldn’t access the roof as I’m buying the ground floor flat.

My offer was 2.5% above the asking price and felt happy that’s what the flat was worth and the mortgage company agreed. I’m concerned that major works will be needed and I’ll be left with half the bill as there’s been no thoughts about a sinking fund until last year.

Is a lack of a sinking fund grounds to ask for a price reduction?

need_an_answer

That's quite a question to answer...
In some ways I see no reason in asking for a reduction,it wasn't your fault that no one made provision for general repairs,although whether the vendor will see it that way is another matter.

I guess they may not want to pay as they wont get the benefit of the work that's due to be carried out,eventhough they have had the benefit of not contributing in the past whilst living there.


Do you have any proposed figures for costings on what work is to be carried out in the next 12 months ?..or even a time frame?

Just because a survey is to be conducted it may be several years before full refurb starts...that's difficult to factor in with a leaving leaseholder.



On the flip side if your mortgage valuation and survey felt the price you were paying was fair then you do lose some bargaining power and whilst you may find you have bills to pay half of in the future you are investing in the maintenance and repair of the property going forward.

Its positive that there is now something in place by way of a sinking fund and its worthwhile keeping that going....many smaller developments don't have funds available for even incidental work let alone planned items.

eddddy

IcePigeon wrote: »

The most recent letter informs there are plans for a full building survey in preparation for major works.

In leasehold terms, 'Major Works' means anything that will cost you more than £250 - but obviously, it may be much more than that.


You need to assess how much you're likely to have to pay for the work, and decide whether you want to reduce your offer (and whether the seller is likely to accept a reduced offer).

There are 2 (or more) sides to this...

• There is a chunk of expenditure which you hadn't anticipated when you made your offer. (An argument for reducing your offer.)

• After the work is done, your building may be nicer, and your flat will be worth more. (An argument for not reducing your offer.)

SmashedAvacado

you can argue sinking fund both ways
why should a seller pre-fund works that are going to benefit you and not them?
or
if there are works we all know about, that's going to be a bit of a hit on the buyer which is more than they might have to spend in buying elsewhere

comes down to your commercial negotiating position and the state of repair of the building and any likely / planned works. Sinking funds are not particularly usual or unusual - lots of leases have the provision for them but many dont actually maintain a fund.

davidmcn

Not sure that the sinking fund in itself is grounds for a price reduction, but I'd want to know more about the major works anyway.

IcePigeon

Thanks already for your quick replies and helpful advice/opinions on this. I can definitely see both sides of it, a reduction in price wouldn’t really have a big impact on my monthly mortgage payment or my deposit so I’m going to have a bit of a think about it but I think from what I’ve read it doesn’t immediately warrant a reduction in price! I’ll dig a bit more about the major works

Tom99

Use the same logic as buying a house, if it in poor repair you would discount your offer but adjust for your share of any sinking fund being handed over..