Service Charge misquoted - should I pull out of purchase?

paulandchain

Hi everyone, thanks in advance for your help here.

I’m a FTB in the middle of purchasing a leasehold flat in a large 1930s Art Deco block in South London. Things were on track to exchange / complete some time in Feb.

Before I made an offer, I asked the estate agent to check & confirm the Service Charge in writing. They emailed quoting “£1,064 for the year”.  

Now my solicitor has found it’s more like £3,600 / year!!! What they quoted is due every 6 months. It’s also gone up 20% since then, and they missed a Reserve Fund payment on top. 

From the budget documents, about £600 covers buildings insurance, £800 for heating & hot water, and £1,000 for the Reserve fund (with 110 flats, that’s a hefty £110k Reserve Fund every year on top of a hefty building insurance). The rest is general maintenance / repairs. 

But I’d seriously worry about selling in the future. Without a fancy gym, concierge or swimming pool, that massive service charge would put off a lot of buyers and it’s only going to increase in the coming years.

I feel like there was a serious misrepresentation here. I wouldn’t have made an offer if the estate agent had told me the correct service charge!! If I pull out, I’d lose about £750 in legal fees. There are also huge costs for the seller, including a lease extension from 53 to 143 years on completion.

I’m really not sure what to do. Thanks again for reading!

74jax

paulandchain said:

Hi everyone, thanks in advance for your help here.

I’m a FTB in the middle of purchasing a leasehold flat in a large 1930s Art Deco block in South London. Things were on track to exchange / complete some time in Feb.

Before I made an offer, I asked the estate agent to check & confirm the Service Charge in writing. They emailed quoting “£1,064 for the year”.  

Now my solicitor has found it’s more like £3,600 / year!!! What they quoted is due every 6 months. It’s also gone up 20% since then, and they missed a Reserve Fund payment on top. 

From the budget documents, about £600 covers buildings insurance, £800 for heating & hot water, and £1,000 for the Reserve fund (with 110 flats, that’s a hefty £110k Reserve Fund every year on top of a hefty building insurance). The rest is general maintenance / repairs. 

But I’d seriously worry about selling in the future. Without a fancy gym, concierge or swimming pool, that massive service charge would put off a lot of buyers and it’s only going to increase in the coming years.

I feel like there was a serious misrepresentation here. I wouldn’t have made an offer if the estate agent had told me the correct service charge!! If I pull out, I’d lose about £750 in legal fees. There are also huge costs for the seller, including a lease extension from 53 to 143 years on completion.

I’m really not sure what to do. Thanks again for reading!

If you would never have offered knowing the actual costs, then now you do know them it makes sense to withdraw your offer.
If you would still have gone ahead with the actual costs, that's different. But if you would never have offered at that service price, then just withdraw. 

canaldumidi

First off, EAs rely on what the seller tells them (if anything) so  they are always a pretty unreliable source of info. I wouldn't blame the EA for this. That's why during conveyancing your solicitor checks and lets you know.

Yes, it's a worryingly high charge, but there again it includes heating and hot water, so I assume you'll have no gas (or electric?) bills. That's a pretty big saving!

It also includes the reserve fund. There are pros and cons to Reserve funds. If you sell, before it's used on major works, you get no benefit from the money you've paid in as it's effectively passed on to your buyer.On the other hand it avoids any nasty sudden big bills when major works are needed.

I'd be looking at the condition of the building; whether major works are likely; how large the RF currently is (ie is it adequate for the 1st 2 questions!);

Does this building fall into the category of "Help! Cladding!".

Mahsroh

Sounds like your mind is made up if you're saying you wouldn't have offered in the first place knowing what you now know.

Alternatively you could try and renegotiate the price based on this new information which the vendor may accept or may not. Without knowing the specifics but I suspect the vendor will probably remarket and sell at the same price to somebody else with the correct service charge known from the off, in the current market.

Also ask yourself if the property is priced well relative to similar properties in the area and what are the service charges on other properties? Is it comparable even though you're not quite getting the deal you originally thought you were? There is no point cutting your nose off to spite your own face by pulling out if you won't be able to find a similar property for the same price / lower service charge. 

Mahsroh

canaldumidi said:

but there again it includes heating and hot water, so I assume you'll have no gas (or electric?) bills. That's a pretty big saving!

I assumed (maybe incorrectly) that this is for communal areas of the building? 

canaldumidi

Mahsroh said:

canaldumidi said:

but there again it includes heating and hot water, so I assume you'll have no gas (or electric?) bills. That's a pretty big saving!

I assumed (maybe incorrectly) that this is for communal areas of the building? 

I have no idea, but relying on an assumption is, well, xxxx!

Some buildings provide heating/hot water to all flats from a single central source/boiler.

Mahsroh

canaldumidi said:

Mahsroh said:

canaldumidi said:

but there again it includes heating and hot water, so I assume you'll have no gas (or electric?) bills. That's a pretty big saving!

I assumed (maybe incorrectly) that this is for communal areas of the building? 

I have no idea, but relying on an assumption is, well, xxxx!

Some buildings provide heating/hot water to all flats from a single central source/boiler.

Maybe then. Only reason I ask is because, as you rightly say, if those costs in relation to the flat itself are included in the service charge then that makes the circa £2.5k increase significantly more palatable! Hopefully the OP can clarify. 

paulandchain

Thanks for your responses so far. 

Heating and water is for the flat itself, so no gas bill which does indeed make it more palatable.
But it feels a bit out of my control, with other flats using it to excess because they don’t see it as an extra outgoing and driving the cost up for everyone.

Other flats in other buildings I saw in the area had a service charge around what I was originally quoted (although the buildings weren’t as nice, and didn’t have a communal garden).

Speaking to friends who live in equally desirable areas of London, the highest service charge I’ve heard is about £180 / month, but those are new builds which feel like fancy hotels! I’m guessing no heating and hot water though, and not sure about a reserve fund.

With regards to the reserve fund, there are works due this year in replacing fire doors and an internal redecoration.

When I made an offer, I saw a good few 1 bed flats in the building that sold for £10-12k more than mine in the last 3-4 years (mine is being sold by a landlord, so felt like a decent price as it needs a little bit of love after tenants). 

However, since then another flat came on the market and was taken off again (maybe due to low interest?). Another has come on for £5k less than the seller paid for it 5 years ago. Another sold for £20k less than the seller paid for it 5 years ago. FTB cold feet / anxiety isn’t helping here but that’s a massive red flag for me in terms of marketability later on. When I saw those I thought maybe sellers were getting divorced!! But makes a bit more sense with that service charge.

MysteryMe

Service charges are only going to go one way so if you are wary of what level they are presently, now is the time to pull out. I would rather be the master of my own destiny when it came to fuel bills.  

daveyjp

Almost 100 year old property (is it listed, could it be one day?) with a central hot water and heating system has potential for substantial repair and renewal costs.

I wouldn't want to spend £3,600 (£10 a day) on service charges.

eddddy

paulandchain said:

Speaking to friends who live in equally desirable areas of London, the highest service charge I’ve heard is about £180 / month, but those are new builds which feel like fancy hotels! I’m guessing no heating and hot water though, and not sure about a reserve fund.

New builds will have relatively low service charges initially - because everything is new, so not much repairs and maintenance are required.

The bills will escalate when the carpets in the communal areas wear-out, the communal areas need redecorating, the windows need repainting, and the lift needs refurbishing.


A 1930s Art Deco block will be much more expensive to repair and maintain. Sometimes flats are cheaper to buy for that reason - or sometimes not, if people think they're stylish and prestigious.

It would be the same if you were buying a freehold house. A new build house would need less spent on repairs and maintenance than a 1930s art deco house.


But I strongly agree that unmetered hot water and heating supply is worrying - because there's little incentive for others to keep their usage down. (Presumably you've checked that it isn't metered.)