no sinking fund for leasehold property...scaring me!

aliens_vs_creditor

Hi,

I am considering buying a 1 bed shared equity property in a block of around 20 odd flats after being accepted on the scheme.

The pro's are that the mortgage will be affordable, its in great condition and will get me on the housing ladder after lots of struggles (even struggling to rent anywhere!)

The con is that the building has no sinking fund and of course leaseholders are liable for contributions to major works costs.  I am quite scared by the thought of being hit with a 10k bill for example which negates any profit I might make after making sacrifices over the years to get my deposit together.

The flat ha changed hands a few times so I believe its saleable.  I am aware that the buildings next door will be demolished soon and result in a few years work so this could also disturb me or put off future buyers dependent on when/ if it ever happens.

Any advice/ experience would be greatly recieved  

user1977

If you know it's in "great condition", what would the £10k bill be for?

aliens_vs_creditor

I mean the interior of the flat itself  - it would be a nice place to live

I have no idea about the condition of the roof, lift etc and I dont have any info about scheduled works at the moment as the LPE1 has not been requested.  The building is only about 10 years old.

Communal areas are in good condition to - obviously a coat of pain is a bit different to structural repairs though

aliens_vs_creditor

coat of PAINT haha

user1977

aliens_vs_creditor said:

I mean the interior of the flat itself  - it would be a nice place to live

I have no idea about the condition of the roof, lift etc and I dont have any info about scheduled works at the moment as the LPE1 has not been requested.  The building is only about 10 years old.

Communal areas are in good condition to - obviously a coat of pain is a bit different to structural repairs though

If the building is only 10 years old and needs structural (or any other major) repairs, you'd be walking away even if there was a sinking fund...

eddddy

You probably need to look at this more broadly.

If there is no sinking fund - it may be because no major work is planned/foreseen.

Management Cos have to justify their reasons for building up a sinking fund - they can't ask a leaseholder to build-up a £10k fund for no particular reason.


So see what the LPE1 says, and consider instructing a surveyor to check the condition of the building.


In simple terms, if the LPE1 and/or surveyor suggests that you'll have a £10k repair bill soon, and there is no sinking fund, you can consider whether you want to reduce your offer by £10k instead.

aliens_vs_creditor

thanks! that makes sense

propertyhunter

We had no sinking fund at our block of flats - there was nothing really wrong with the building structure, it was just that the lifts were constantly playing up and the buildings insurance had increased and we couldn't do anything about it. Once you get the LPE1 and review the management company accounts, you'll be able to understand where the money has been going. 

If there is no sinking fund, be prepared for a service charge increase. Or at least ask about whether one is coming up.

aliens_vs_creditor

thanks! thats also useful to think about!

daveyjp

Even new properties should have a sinking fund to pay for depreciating assets.  It may start at a low figure, but it should be based on an estimate of how many years it is likely to be before major expense is required.

It ensures everyone who occupies the properties contributes to the long term replacement costs of fixtures and fittings they have benfitted from during their occupation, otherwise residents at the time of replacement foot the bill for decades of previous use.

Mildreds_Earrings

aliens_vs_creditor said: I dont have any info about scheduled works at the moment as the LPE1 has not been requested. 

I realise the building is only 10 years old but the fact that you're worried about the possibility of large repair bills, you should insist on the LPE1 Form being completed. Then rather than speculate on £10k bills, you will see if there are any major works planned in the next 2-5 years. All the best.