Flat owner exit sinking fund

Mich_kenny

I have lived in my flat which I love an own for nearly 11 years. I recently found out from the company that I pay service charge to an who own the lease of the building, that if I was to sell the flat I would owe them 0.5% of the price of sale for every year that I have lived there. The company have even said that many years ago solicitors were not pointing this out to homebuyers on initial purchase, an are only now making people aware this exists. 

As stated before I have lived in my flat for a number of years as I love it an have been told if I was to sell it for what I bought it for, I would owe the company roughly £9,400 on the exit sinking fund. 

I have recently just done my flat up thinking that the longer I stay the better my investment would be. However, now I have been here over 10 years I am loosing money an have also been told my flat has gone down it value. Therefore I am unable to sell as I would be down over £25,000. It has been raised to the company about them putting a cap on the sinking fund as a lot of us who purchased around the same time we’re not aware of the charge, but the company have stated that “ we are also bound by the terms of the lease and if your lease doesn’t stipulate a cap it is unlikely we would be able to introduce one”
As I was not aware of this exit fund when buying an now people are being made aware of it, an therefore not wanting to buy the flat I feel very trapped. An the longer I stay, the more trapped I become. 

Was just wondering on any advice how to proceed an if I should just jump ship now an cut my loses before I get into more debt.

davidmcn

Do you mean you're trapped because (taking this charge into account) you're in negative equity?

AdrianC

So what does the lease say?

Assuming it really is there, I'm not sure how the freeholder is to blame for your solicitor not pointing this clause out to you on purchase a decade ago.
Is the solicitor negligent for not doing so? Perhaps.

You won't be "down £25k", though, because of a £9.5k fee. You're down £9.5k on where you'd be without this fee.

So if 5.5% is £9,500, the flat must be worth around £170k. Half a percent per year means an additional £850 per year or so, assuming the value remains the same. It's not exactly a game-changer. 5% is the kind of negotiation that's likely to happen on asking price vs agreed offer.

Perhaps it's worth looking into the cost of a lease variation to remove this clause?

daveyjp

Lump sum sinking funds on sale are quite common on retirement flats.  

greatcrested

Please quote the lease.

Any advice here will be dependant on what it says, not on what you say, or what the freeholder tells you.

eddddy

If the scheme has been set up 'fairly' - it can actually be a good idea for leaseholders on limited incomes.


Essentially, it works as a 'deferred service charge'. i.e. you have been paying a reduced service charge each year, so you have to pay an extra chunk when you sell.

e.g. Maybe your service charge each year has been reduced by £1,000 per year for the past 10 years, so you pay £10,000 from the sales proceeds when you sell (which might be good if you're on a limited income, and can't afford that extra £1,000 per year)


You need to think about the people who have sold their flats during the last 11 years and before. They have all paid a chunk of sale proceeds money into the sinking fund. That sinking fund has been used towards repairing and maintaining the building. So your service charge has been lower, because of that sinking fund.   And you compensate by replenishing that sinking fund when you sell.


It's not a precise method - some people might lose a bit, and some might win a bit. But like I say, it can be a good idea for people on limited/low incomes - so it's often used with retirement properties.