Outstanding service charges after completion?!

ce5656

Our flat purchase was completed last month and we were told by our solicitor to pay for our portion of the Q2 service charges on the day of completion...all was good except the management company informed me today when I was trying to pay for the third quarter service charges that the first quarter service charges are still outstanding?!!

I have just emailed my solicitor to ask as I assume it was her job to check that there were no arrears surely? What should I expect next? Am I liable to pay if it's indeed outstanding?

Any comment is much appreciated.

user1977

I would think it primarily your job to pay the service charge while you were still the owner - do you think you had paid it? Have you checked?

ce5656

user1977 said:

I would think it primarily your job to pay the service charge while you were still the owner - do you think you had paid it? Have you checked?

Sorry I wasn't clear - it's the previous owners that didn't pay for the Q1 service charges. They owned it from Jan to Apr this year and also part of May. It's only changed to our names last month and we have already paid for our portion of Q2 (part of May and June). Now it's time to pay for Q3 and suddenly the management company told me that Q1 hasn't been paid for!

I assume that my solicitor should have checked if anything is outstanding before completion?

eddddy

Yes, your solicitor should have checked the situation with service charges - but it's possible they did, and kept a retention (or made some other kind of adjustment).

This is potentially a complex issue that might depend on a lot of different documents etc. It might be worth asking your solicitor what to do about the bill, as they had all the paperwork, and did the calculation, and they might have arranged a retention.


Otherwise, some of the considerations include...

• Is the Q1 service charge bill really not paid? The Q1 service charge bill might have been paid by the seller's solicitor on completion (so it might not have had the usual payment reference). Might the freeholder have allocated it to the wrong account?

• What does your purchase contract actually say about outstanding service charges, etc?

• Is the Q1 bill you've received definitely the full service charge for Q1 - and not an adjustment for overspending in Q1? 

• Does the lease say that the service charge is paid quarterly? (If it does, that's unusual.) Or does it say it's payable annually (or 6 monthly), but the freeholder offers a quarterly payment scheme - which is a different agreement, and not part of the lease?

• Was the Q1 service charge bill actually sent out before completion to the previous owner? 

ce5656

eddddy said:

Yes, your solicitor should have checked the situation with service charges - but it's possible they did, and kept a retention (or made some other kind of adjustment).

This is potentially a complex issue that might depend on a lot of different documents etc. It might be worth asking your solicitor what to do about the bill, as they had all the paperwork, and did the calculation, and they might have arranged a retention.


Otherwise, some of the considerations include...

• Is the Q1 service charge bill really not paid? The Q1 service charge bill might have been paid by the seller's solicitor on completion (so it might not have had the usual payment reference). Might the freeholder have allocated it to the wrong account?

• What does your purchase contract actually say about outstanding service charges, etc?

• Is the Q1 bill you've received definitely the full service charge for Q1 - and not an adjustment for overspending in Q1? 

• Does the lease say that the service charge is paid quarterly? (If it does, that's unusual.) Or does it say it's payable annually (or 6 monthly), but the freeholder offers a quarterly payment scheme - which is a different agreement, and not part of the lease?

• Was the Q1 service charge bill actually sent out before completion to the previous owner? 

Hi, thank you so much for taking the time to answer my question!

Is the Q1 service charge bill really not paid? I think it's totally possible that the management company messed it up as they previously lost the Notice of Transfer letter (and refused to admit it until my solicitor pointed it out that they had cashed the cheque posted together with the notice of transfer...) My solicitor would have to find evidence to prove it otherwise though.

What does your purchase contract actually say about outstanding service charges, etc? I just checked the contract, it doesn't mention service charge anywhere. In the leasehold report it says "Please note it is usual to make apportionments in addition to the purchase price of the property on completion, to take into account underpayments or overpayments of ground rent and or service charge which the seller has made up to that date. We will let you know as soon as we have precise figures. It is important to factor these costs into your financial budget as it is usual for service charges to be collected monthly. Only upon the day of completion does the responsibility of the service charge and ground rent payments transfer to you."

I can see that in the LPE1 form which was issued in February, the previous owners were already in arrears of a few hundred pounds which is roughly proportional to the number of days into the quarter. The form also says that they've paid all their service charges for 2021. The management company demands service charge on a quarterly basis as per their invoice to us.

I know that my solicitor asked for "a retention of £500 pending the year ending 2022 service charge accounts to cover any shortfall during the sellers period of ownership" as one of the enquiries which the sellers' solicitor has agreed. But that's not enough to cover Q1 unfortunately. Also the sellers should know very well that the management company demands for service charges in advance - i.e. they should have paid for Q1 2022 by 31 Dec 2021 rather than waiting till May surely!

Megaross

Did you do apportionments?

Unless you changed over seamlessly if you didn't do apportionments then your solicitor didn't do their job correctly most likely.

eddddy

Megaross said:

Did you do apportionments?

Unless you changed over seamlessly if you didn't do apportionments then your solicitor didn't do their job correctly most likely.

The OP has said that their solicitor did apportionments:

ce5656 said:

Our flat purchase was completed last month and we were told by our solicitor to pay for our portion of the Q2 service charges on the day of completion...

The question is about an earlier service charge bill.

eddddy

It's really hard to make any definitive comments without fully knowing exactly what happened, exactly what was agreed, etc. So here are some general comments:

The situation between the leaseholder and the freeholder:

• The date that the bill is issued is important. (For example, the bill is for Q1 - but was the bill first issued before or after completion?)

• If the bill was issued before completion - the seller owes that money to the freeholder, and the freeholder should be chasing the seller for it.

• If the bill was issued after completion - you owe that money to the freeholder, and the freeholder should be chasing you for it.

• (And as mentioned, it's possible that the bill has been paid - and the freeholder has made a mistake.)

• (But there's a major anomaly - even if the seller owes the money, the freeholder can forfeit the lease. i.e. they can repossess your flat.) 

The situation between seller and buyer:

• Your solicitor would normally ask the seller about any service charge arrears, and receive a statement from the freeholder showing any arrears 

• Your solicitor should have made sure that any service charge arrears were paid off on completion

• So was your solicitor given wrong information (and/or did the seller fib)? Or did your solicitor fail to check properly?

So you need to do some investigation, to find out what's gone wrong.

TripleH

Agree again with @edddy, go to your solicitor and get them to clarify as this sounds like due diligence that would form part of your purchase.

You may well have to pay to protect your flat and have the painful chase to recover funds from your seller.