Should I buy a flat with increasing Service Charges?

Ash_29

I am in the process of buying a flat which has had rising service charge by about £300 per year since 2018. 

The building was released as part of the Help To Buy scheme in 2015 and is currently managed by Network Homes in London. Since release in 2015 the service charge has increased by about £650 total.

Currently the service charge stands at £2050 for 2020 - 2021. The sellers claim that all leaseholders challenge the service charge every year and they get reimbursed small amount of the costs. 

Also the seller's conveyancer has told us that service charges are anticipated to rise further in the next 2 years due to Section 20 works which are still being defined.  

I fear that service charges will keep rising to the point where the flat becomes undesirable and unsellable... To all leaseholders out there, have you been in this position before? Is this normal?

AdrianC

Do you mean service charges? Not ground rent...?

The service charge is what's spent on managing and maintaining the fabric of the building. I presume the managers have provided you with annual accounts...? Are there any particular jobs or sums that you object to or wish to query?

numbercruncher8

The real question is why is it challenged every year? I can bet it will be something like the company billing massive amounts for very few visible effects, such as thousands for landscaping. Yet if it is a big enough block or with a lot of absentee landlords it is going to be difficult for residents to get together and manage it themselves.

I would take what the sellers say with a pinch of salt and presume nothing is reimbursed, or that anything that is, is eaten up by increases.

To be fair c.£2k is not particularly eye-raising for this type of flat in London. But if you're worried about the it becoming an issue then may be look for another place. There are a few blocks I know in London with costs way beyond the average, but this then affects their value. 

eddddy

Ash_29 said:

I am in the process of buying a flat which has had rising service charge by about £300 per year since 2018. 

The building was released as part of the Help To Buy scheme in 2015 and is currently managed by Network Homes in London. Since release in 2015 the service charge has increased by about £650 total.

Service charge is your share of the costs of

• managing the building (and grounds),
• maintaining/repairing the building (and grounds)
• insuring the building
• admin fees

These costs increase with inflation. They will also increase if more maintenance needs doing. The insurance premium will also increase if there are lots of claims.

Ash_29 said:

Currently the service charge stands at £2050 for 2020 - 2021. The sellers claim that all leaseholders challenge the service charge every year and they get reimbursed small amount of the costs. 

That sounds a little unlikely - but I guess it's possible. It's more likely that it's adjustments because less was spent than expected.

Ash_29 said:

Also the seller's conveyancer has told us that service charges are anticipated to rise further in the next 2 years due to Section 20 works which are still being defined.  

Section 20 works means major works - for example, repainting the outside of the building. Every leaseholder has to pay a share of this.

Ash_29 said:

I fear that service charges will keep rising to the point where the flat becomes undesirable and unsellable... To all leaseholders out there, have you been in this position before? Is this normal?

It depends how much maintenance/repair work is needed in the future, plus whether there are things like lifts, gardens, concierges, communal gyms etc, that need to be paid for.

[Deleted User]

How much is the property worth?  And what do you get for the £2000 a year? 

FaceHead

It's natural that on a new building the service charge will rise. Initially everything is brand new and needs little spent on it. After 5,10,15 years things like lifts start to need work, the building needs repainting, the communal areas need redecorating etc. Soon the service charges should settle at the real cost of maintaining the building, which is a lot less than the amount spent in year 1.

Whether £2050 is a sensible service charge depends on the particulars of the flat.

Personally I'd avoid being at the mercy of a management company and look for flats with share of freehold, or compromise on location to get a house. 

bouicca21

£2000 strikes me as a lot even for London, but it all depends on what you get for that.  Maintaining lifts is expensive so having lifts in the building might explain the high charge.  Why not ask the vendor to show you the accounts?  

If the place was built 5 years ago what is the section 20 for?  Is it for decorating the outside and communal areas rather than major repairs?  If so great, keeps the place looking good.

AlexMac

https://uk.trustpilot.com/review/www.networkhomes.org.uk   Even worse on Google Reviews based on almost 200 inputs
...alarm bells?

The most I've ever paid in Service Charges after owning 5 leasehold flats over the years is £1,300 p.a.  And that was for a 150-year old maintenance-intensive property, and included a significant  "sinking fund" contribution so that when major cyclical jobs such as external decoration came round every 5-10 years there was usually enough in the kitty for us not to have to levy a big top-up.  Although that it was a shared freehold which we managed ourselves, so no fat agent fees or padded repairs bills.  
Even the Local Authority freeholders of my two ex-Council BTLs only charge on average £800-900 p.a. with detailed accounts to justify these, plus, on average, another £4k every 10 years for big jobs like decorations or new windows. 

So a lot cheaper than the one you're considering, unless that includes lavish landscaping and estate roads, a Concierge Service or Gym (my mates used to pay £5k-6k p.a for that package in a riverside flat; I thought they were mad, as that was several time my annual mortgage!)

Ash_29

AdrianC said:

Do you mean service charges? Not ground rent...?

The service charge is what's spent on managing and maintaining the fabric of the building. I presume the managers have provided you with annual accounts...? Are there any particular jobs or sums that you object to or wish to query?

Yes service charge. I get the cost per category such as cleaning, fire safety, lift maintenance etc. Cleaning and fire safety seem to have tripled but management company wont comment. 

XoCAlop

Ash_29 said:

I am in the process of buying a flat which has had rising service charge by about £300 per year since 2018. 

The building was released as part of the Help To Buy scheme in 2015 and is currently managed by Network Homes in London. Since release in 2015 the service charge has increased by about £650 total.

Currently the service charge stands at £2050 for 2020 - 2021. The sellers claim that all leaseholders challenge the service charge every year and they get reimbursed small amount of the costs. 

Also the seller's conveyancer has told us that service charges are anticipated to rise further in the next 2 years due to Section 20 works which are still being defined.  

I fear that service charges will keep rising to the point where the flat becomes undesirable and unsellable... To all leaseholders out there, have you been in this position before? Is this normal?

Please don’t waste your time. In the end it will end In a plava with the tenants if / when you want them out . 

Go put your money into something more interesting instead of having the hassle of tenants 

Ash_29

bouicca21 @AlexMac @FaceHead @numbercruncher8
I have added an image displaying the expected costs for this year:
Obviously the below is a monthly charge. The estate looks quite clean as with all new-ish builds. It is a high rise so has a lift, clean grounds, estate roads and underground parking.

My concern isn't the current service charge but it is the future service charge. The estate agents are saying that £200 annual rise of service charge is normal for well maintained buildings. I fear that in 5 years the service charge will hit £3000, but for some reason the estate agents and sellers seem to think it won't go that high... I'm not sure what to believe...

As for the Section 20s I wasn't told what the anticipated ones are but the ones currently issued are contracts for roofing, lift maintenance, maintenance and fitting of fire alarms etc... The sellers claim that these are not "new major works" but that they are only "renewing existing contracts".