Buying leasehold flat & upcoming repairs

BubbleTea1

Hi all, I would highly appreciate your advice on this! First post ever so please be gentle! 

We are first time buyers and in the process of buying a flat in London, a leasehold property with a share of freehold. The survey shows that there is penetrating damp in the flat, and the possible causes are the roof (which the surveyor didn't have access to) and the external wall (he noted some perished mortar joints and poorly repaired spalled brickwork). The surveyor recommended an inspection to be carried out by a builder or roofer.

We've been discussing this with the EA who has in turn been liaising with the management company, and our issues right now are:

1) The supposed needed repairs (to the roof and the external wall) will have to be funded by all the freeholders (the flats in the building), and right now there are 2 flats that have not yet paid. Theoretically, they could refuse to pay or agree to the works if, say, their flats are not affected by the damp/will not benefit from the repairs - are we right in worrying about this? The works cannot start without everyone agreeing and paying. The EA said if the 2 flats refuse they will be in breach of their lease, but what help is that in fixing our damp issue? Does anyone have experience in dealing with issues to the common parts of a building that their leasehold property is in (particularly if there is disagreement among the 'sharers of the freehold'? 

2) We don't know how much it will cost to fix the above mentioned issues; the EA is suggesting either a retention or a reduction in price to be able to go forward, which we are fine with, but I guess we'll have to get an independent damp specialist in to inspect the roof and the outside wall to have an estimate of the costs. We're thinking of proposing a figure (based on the quote) which should cover the costs in the case that the other flats don't agree to contribute to the costs - is this a good idea? Though won't we still be left with the issue of getting their agreement to actually let the works happen (since there will be e.g. scaffolding, disruptions etc.)? 

Ultimately, what we don't want to happen is to exchange contracts to buy a flat we can't move in (but still have to pay the mortgage for) because the damp issue can't be fixed until the other leaseholders agree.

Appreciate your thoughts!

gwynlas

You need to know if the two flats in questiion have historically refused to pay their share of expenses. You also need to be aware of whether or not flats are owner occupied or rented out/ Ideally any repairs to be carried out need to be sorted out by the seller. Is there a sinking fund to pay for ongoing maintenance issues?. Share of freehold flats are fine when all leaseholders follow the rules but need a strong managing agent to keep all in line.

eddddy

BubbleTea1 said:

1) The supposed needed repairs (to the roof and the external wall) will have to be funded by all the freeholders (the flats in the building), and right now there are 2 flats that have not yet paid. Theoretically, they could refuse to pay or agree to the works if, say, their flats are not affected by the damp/will not benefit from the repairs - are we right in worrying about this? The works cannot start without everyone agreeing and paying. The EA said if the 2 flats refuse they will be in breach of their lease, but what help is that in fixing our damp issue? Does anyone have experience in dealing with issues to the common parts of a building that their leasehold property is in (particularly if there is disagreement among the 'sharers of the freehold'? 

This highlights the big potential problem with "shared freeholds".

If leases were being breached by non-payment of service charges, an independent freeholder would start the process of terminating the leases, repossessing the flats, and re-selling them in order to cover the repair bills. (And in reality, the leaseholders would pay rather than losing their flats.)

But joint freeholders aren't going to start proceedings to have their own flats repossessed.

So one option would be that, if you bought the flat, you would have to get a court order instructing the freeholders (including yourself) to do the repairs. The hassle, cost and 'bad feeling between neighbours' would probably all be huge.

Potentially, you could ask the other joint freeholders if they'll let you pay for the work and arrange it (they'd probably agree). But what happens when there's further, even more expensive repairs that need doing in the future, and the other leaseholders won't pay? Do you carry on paying their share as well?

If the other joint freeholders aren't taking their responsibilities seriously, perhaps you need to bite the bullet and walk away.

NameUnavailable

If there is a management company running the maintenance then they should be taking the necessary steps to enforce the terms of the lease, including taking the non-paying flats to court.

The other leaseholders cannot withhold payment for works because the problems don't affect their particular flats, again the management company should be on top of this, but clearly if there are issues with the building they're not doing what they're being paid for!

There is a legal process you can go down to force the freeholder to do the necessary work but you might want to think about looking for another property instead, as this could be a can of worms (there are probably other works required which are building up and one day you will get landed with a large bill to fix everything at once rather than the jobs being attended to over a period of time as they should be).

You also want to think about selling on in the future. If the condition keeps deteriorating you will find it hard to sell when you want to move on.

AlexMac

gwynlas said:

You need to know if the two flats in questiion have historically refused to pay their share of expenses. You also need to be aware of whether or not flats are owner occupied or rented out/ Ideally any repairs to be carried out need to be sorted out by the seller. Is there a sinking fund to pay for ongoing maintenance issues?. Share of freehold flats are fine when all leaseholders follow the rules but need a strong managing agent to keep all in line.

Spot on advice.  I've had three "shared freeholds" in older converted blocks of between 6-12 flats.  In practice, upkeep and finance was not a problem, but we used peer group pressure as well as the formal company membership structure (the usual; where each leaseholder is a Director or Member of the Freehold Company) and informal AGMs with tea, cake and wine to keep everyone on board.  I've also tended to go for "DIY or self-managed" companies where we assigned/shared roles (Chair, Treasurer, Company Secretary...) collected service charges, submitted the odd statutory return to Companies House, let and managed repairs contracts (new roof, external decorations...) ourselves rather than handing this over to an Agent who'd only be in it for profit.  Informal co-operation and DIY are therefore my preferences, so how far off side are the two leaseholders on the naughty step?

You don't say what type or size of block this is, how old it is, what shape the roof is in, how many flats there are, whether every leaseholder is a member of the freehold management company and what the practical day-to-day management arrangements are? 

For example do the company members/directors manage the property, its maintenance, any common area/grounds and the colection of service charges themselves, or is this outsourced to an Agent, who, if so, seem to be falling down on the job?  And is the building a purpose-built block or a conversion, is it 5 years or 100-years old? And is the roof nearing the end of its 50+ year life so likely to need replacement (£15k-£40K) and are there any other pending major cyclical jobs such as external painting (£8k-25k every 6-7 years for a block of 6-12 flats with timber windows; maybe less for a modern building)? 

I don't really need to know the answers, but they are things I'd be asking even if I did get a reduction or retention equivalent to the £2k-£5k cost of a fix (assuming a grand or two for scaffolding and anything from a few hundred quid for some pointing or a couple of grand for roof patching).   I'd hope that whether or not the two laggards pay up or pull their weight, that they'd represent a minority of the leasehold co-owners, and that they couldn't sabotage the running of the freehold company through their inactivity?  

So if you really love the flat, I'd take the risk, especially as you are prepared to put some effort into fixing the damp and establishing relationships.  But if your seller thinks it's such a badly maintained block, with such disfunctional management that they're prepared to drop the price a few grand to dump it, beware.   I walked a way from one purchase (admittedly not a shared freehold) after a bit of asking around and googling revealed a hostile Freeholder and a failed "Right to Manage" action.

But maybe I'm making too much of this; and maybe some people will put up with a few hundred quid a year cost not to have to take on DIY management and to leave it to an Agent (although all the blocks we owned had really top-notch maintenance, big sinking funds and lower than annual average service charges, despite being  in building dating from 1850 -1910)

BubbleTea1

Thank you all for your replies so far. To give more info on the situation (as we know it):

- The flat is in a period conversion, there are 7 flats in total although 6/7 are joint freeholders, the remaining flat opted not to take part. There is a management company (with whom the EA has been obtaining info from);
- There is a sinking fund, though as we understand 2 flats (plus the flat we're planning to buy) have yet to pay their share. The lady from the management company (using an @aol.com email address...) said that they could potentially get the other flats that have paid to put pressure on these 2;
- There are other planned works for the common areas (stairs, balconies, etc), not sure how long they've been planned for but works cannot start until everyone has paid, so this is perhaps not a good sign. To add to this, apparently the building can only use 1 company for building insurance as the number of 'water damage claims' has meant no other insurers 'will touch it with a barge pole' (in the words of the management company)!

I guess our issue with the risk of some of the joint freeholders not paying up/agreeing to the works to fix the damp is just the start; there could also be more works down the line that would undoubtedly be subject to the same risk? We know that ideally the seller would fix the damp before exchange but this is not something they're interested in (and they're already willing to consider a retention/reduction to allow exchange).

NameUnavailable

BubbleTea1 said:

Thank you all for your replies so far. To give more info on the situation (as we know it):

- The flat is in a period conversion, there are 7 flats in total although 6/7 are joint freeholders, the remaining flat opted not to take part. There is a management company (with whom the EA has been obtaining info from);
- There is a sinking fund, though as we understand 2 flats (plus the flat we're planning to buy) have yet to pay their share. The lady from the management company (using an @aol.com email address...) said that they could potentially get the other flats that have paid to put pressure on these 2;
- There are other planned works for the common areas (stairs, balconies, etc), not sure how long they've been planned for but works cannot start until everyone has paid, so this is perhaps not a good sign. To add to this, apparently the building can only use 1 company for building insurance as the number of 'water damage claims' has meant no other insurers 'will touch it with a barge pole' (in the words of the management company)!

I guess our issue with the risk of some of the joint freeholders not paying up/agreeing to the works to fix the damp is just the start; there could also be more works down the line that would undoubtedly be subject to the same risk? We know that ideally the seller would fix the damp before exchange but this is not something they're interested in (and they're already willing to consider a retention/reduction to allow exchange).

Management company don't seem to understand what their role in this is. Walk, no, RUN away from this one!!!!

eddddy

BubbleTea1 said:

Thank you all for your replies so far. To give more info on the situation (as we know it):

- The flat is in a period conversion, there are 7 flats in total although 6/7 are joint freeholders, the remaining flat opted not to take part. There is a management company (with whom the EA has been obtaining info from);
- There is a sinking fund, though as we understand 2 flats (plus the flat we're planning to buy) have yet to pay their share. The lady from the management company (using an @aol.com email address...) said that they could potentially get the other flats that have paid to put pressure on these 2;
- There are other planned works for the common areas (stairs, balconies, etc), not sure how long they've been planned for but works cannot start until everyone has paid, so this is perhaps not a good sign. To add to this, apparently the building can only use 1 company for building insurance as the number of 'water damage claims' has meant no other insurers 'will touch it with a barge pole' (in the words of the management company)!

I guess our issue with the risk of some of the joint freeholders not paying up/agreeing to the works to fix the damp is just the start; there could also be more works down the line that would undoubtedly be subject to the same risk? We know that ideally the seller would fix the damp before exchange but this is not something they're interested in (and they're already willing to consider a retention/reduction to allow exchange).

Essentially, it sounds like the 6 or 7 leaseholders / joint freeholders are incompetent amateurs.

• They don't understand the responsibilities of being joint freeholders (or leaseholders)

• They've made a large number of insurance claims, without understanding the impact. Find out the annual insurance premium. it's likely to be astronomical.

The management company can only do what their "bosses" (the joint freeholders) tell them to do. For example, if the management company is not being told to do anything about the non-payers, then they won't do anything.

It may even be that the management company is advising their "bosses" (the joint freeholders) what should be done, but the joint freeholders are taking no notice.

Or it could be that the management company are incompetent as well, which is adding to the problem.

The bottom line is that you are contemplating jointly owning a property with 5 or 6 other people. To me, they don't sound like the type of people I would want to own a property with.