Please help FTB getting cold feet. Leasehold with no service charge or sink fund?!

alittlejam

I'm really hoping that someone in this forum can offer some advice as my partner and I are beginning to get cold feet and seriously considering walking away from this property, which would mean loosing money.

We just completed a full Building Survey for a first floor flat of a converted terraced house.  It has identified the need for urgent repointing of the chimney and brickwork at the front and rear of the property, plus replacement of soffit board at an estimated cost around £5K. We think this work will cost significantly more than what is indicated by the survey, especially if you take into consideration the current issues with finding labour and rising demand increasing prices. Good news is that internally the property is in good condition and the vendor completed a refurbishment throughout to good standard.

We intend to use all this to renegotiate the property price however we need to wait until we have actual quotations from builders and this could take a while.

The management company which holds the freehold only charges £10 per year in ground rent.  They are no service charges or sink fund.   According to the conditions of the lease we are entitled to demand half the costs of repair/maintenance costs from the owners of the downstairs flat.   We are due to speak to the owners of the downstairs flat later this week for the first time, which will hopefully give us an idea of how open they will be to contributing to this work.

We are realising that the conditions and responsibilities set out in the leasehold contract hasn't been upheld.  According to the records provided by the vendor, there have been no maintenance or repairs done on the external building structure in the last 7 years.

We cannot avoid undertaking the maintenance and repair work identified.  Unfortunately, we don't have very much confidence that the cost of this work will be easily shared and could require complicated negotiations with the downstairs owners.  Would this put most people off from proceeding?  

Any advice or comments very welcome!

canaldumidi

It's not uncommon - my brother's 3 flat convertion has no service charge or sinking fund, so repairs etc are done as an when and charged to the leaseholders. A lot depends on the freeholder actually instigating repairs and billing the leaseholders. How active and involved is the freeholder?

£5K, or even 6-7K, is not huge divided by two. Something to budget for and/or negotiate in theprice. Depends really how well prced the property is to start with and how much you want it.

If it's otherwise the perfect property, and you can afford the price, don't be put off. Otherwise withdraw and hope to find a similar property at a similar price in a tip-top condition.

eddddy

Just to clarify...

According to the lease, who is responsible for repairs and maintenance of the building? (And who is responsible for insurance?)

Who is the freeholder? How many flats are in the building?

Most leases (but not all) make the freeholder responsible for repairs and maintenance (and insurance), and the leases give the freeholder the right to recover the costs from the freeholder. leaseholders.

It's usually easiest and best to follow the 'route' and 'rules' specified in the lease - because they can be enforced by law.


If you want to do something different from what the lease says - it can get problematic. For example:

• You can't force the other leaseholder(s) to pay you part of the cost
• You might be repairing somebody else's property (i.e. the freeholders). Technically, they could take action against you for interfering with their property - especially if they think the repair is bad. 

But there are some 'exotic' leases that work differently - often for purpose built maisonettes. Maybe your lease is like those.

LeaseExpert

The answer ... as always ... is READ THE LEASE. Find out who is legally responsible - contact that person/company and push them to get the works done.

If you don't understand your lease - send it over to me and I'll translate it for you.

canaldumidi

eddddy said:

Just to clarify...

According to the lease, who is responsible for repairs and maintenance of the building? (And who is responsible for insurance?)

Who is the freeholder? How many flats are in the building?

Most leases (but not all) make the freeholder responsible for repairs and maintenance (and insurance), and the leases give the freeholder the right to recover the costs from the freeholder. leaseholders.

....

Just to correct your typo!

Crashy_Time

Run away  

princeofpounds

alittlejam said:

It has identified the need for urgent repointing of the chimney and brickwork at the front and rear of the property, plus replacement of soffit board at an estimated cost around £5K. 

There is urgent and there is urgent. Most likely this is the former, unless the brickwork joins are visibly crumbling. Except perhaps the soffit if that is rotting, as that is more vulnerable to water damage.  

These costs should be divided by two. It is not small money but it is not big money for maintenance either; you will get bills like this with ownership. I suspect the cost will not be as bad as you think, but the quotes should resolve that.

alittlejam said:

The management company which holds the freehold only charges £10 per year in ground rent.  They are no service charges or sink fund.   According to the conditions of the lease we are entitled to demand half the costs of repair/maintenance costs from the owners of the downstairs flat.   We are due to speak to the owners of the downstairs flat later this week for the first time, which will hopefully give us an idea of how open they will be to contributing to this work.

We are realising that the conditions and responsibilities set out in the leasehold contract hasn't been upheld.  According to the records provided by the vendor, there have been no maintenance or repairs done on the external building structure in the last 7 years.

The ground rent is defined in the lease. It is a totally arbitrary number, and is not a fee for management or any services. 

The fact that there is no sinking fund is not at all unusual in a small property. It does mean that any bill for major works would not be smoothed out over time, but you should now have a fairly good idea of what works are likely to be needed soon. Anything in the long term - you create your own sinking fund by saving.

It's quite possible that absolutely no maintenance has been required in the last 7 years. With the possible exception of the soffit, which may have been missed simply by not being reported. For such a piddly little freehold (which probably has little financial worth to the freeholder - especially if there is no provision for management fees in the lease), the freeholder is not going to come over and do inspections and be pro-active. In fact they probably do as little as possible and hope that if anything needs sorting the leaseholders just do it themselves.

And if there hasn't been any services performed, there is no need for a service charge to be levied, so the absence of that is not something concerning given the circumstances.

One of your biggest potential risks here is a freeholder that isn't interested in doing their job even when it is needed and requested. If the other leaseholder is co-operative, you can often just get things done anyway. 

With only one other leaseholder, you may also find you want to cut the third party freeholder out of the mix and pursue collective enfranchisement (buying the freehold). With little ground rent and presumably long leases this would not be very expensive. This brings the other big future risk worth highlighting - two-leaseholder properties can be more problematic if one leaseholder is a crank, because they can't be outvoted if you share the freehold. So having sensible neighbours is important and you are doing the right things by speaking to them. 

The part that confuses me here is that '[you are] entitled to demand half the repair/maintenance costs from the owners of the downstairs flat'. If you have an external freeholder it's not likely at all it works that way. They other leaseholder would normally have a liability to the freeholder, not to you as another leaseholder. Perhaps you have just expressed it imprecisely.

So overall, I think you are worrying too much about some of these issues, but you are doing the right due diligence on the costs and the neighbour. 

Crashy_Time

Take your time, plenty more properties out there.