Buying flat with s20

dharm999

if it was me, I would walk away from this flat.  It sounds like your share will run to 5 figures, my opinion only, can you afford that?  Do you want to move in to something that will have major building work going on, potentially for months, and have all that disruption?  

LegallyLandlord

There will usually be some form of communication between the management company and the leaseholders to explain how the work will be paid for. Sometimes this is in the minutes of the annual meeting of the block/development. 

The works you outline sound expensive. How set are you on this property? You shouldn’t go ahead without knowing the size of your potential liability. It could be a money pit. There will be plenty of other flats to choose from. 

Is there a ground rent charge as well? What does the lease say about it increasing. 

Someone mentioned the pitfalls of leasehold. The problem is that you have little to no control over the service charge and it sounds like it will go up substantially with this level of work. 

Here’s a link to an explanation of what leasehold (ie flats and leasehold houses) really involves for property investors. It’s written for landlords, but it’s just as relevant for owner occupiers: 

https://theindependentlandlord.com/do-houses-or-flats-make-better-buy-to-lets/

pinkshoes

Why is the flat being sold? Is it possibly because of the S20 and the current owner knowing that it could be a hefty bill they can't afford hence getting rid of it?

I'd be asking your solicitor to do a LOT more research into the potential cost of this.

Jam1981

Thanks for the advice.

We'll definitely be doing more digging before getting anywhere near exchanging contracts etc.  The frustrating thing is that the EA actually mentioned the roof replacement and said to us that it was being covered and paid in full by Sanctuary Housing.  No one has mentioned a s20 since we had our offer accepted in first week of November until our solicitor finally received the management pack on 23rd Dec.

The breakdown of charges are - Service Charge: £106.08 Ground Rent: £2.49 Sinking Fund: £48.57 Total: £157.14 per quarter

The flat is being sold as the owner passed away in April so the sale is being handled by a local solicitor but has been through probate etc hence why we were expecting a straightforward purchase (even though nothing is ever straightforward!)

hazyjo

Yes they will pay - but they'll be claiming whatever % back from private owners. Agree with others, this sounds like a 5 figure job (to each flat) to me!

NameUnavailable

I would contact the HA and explain your position and ask them if they have any ballpark idea of costs at this stage (probably not but worth asking).

The sellers are going to have the same issue with any purchaser unless the price of the property already allows for a proportion of the costs taken into account.

You would have the benefit of the new roof/windows etc., so can't really expect the full cost to be covered although nobody is going to buy the flat knowing that there's a large bill on the horizon plus all the hassle of the works being carried out.

 

Bear in mind with any flat, the service charge covers 'usual' things like communal lighting, cleaning, insurance etc. Most other stuff will fall under major works where the cost is going to be more than £250 per leaseholder. Things to consider are communal areas (how often do they need repainting/reflooring), roof condition, exterior (does it also need repainting every X years etc).

herebeme

Do not exchange without knowing the full estimated cost. Note major works like these can be split across 2 financial years of service charges, so don’t assume an estimate for FY23/24 is all the cost. 

I’m a leaseholder in a council owned low-rise red-brick block of 30+ flats - and our latest s20 for window replacements, almost an entire new roof, new doors, stairway repairs and all the usual council management fee excesses means each leaseholder in a one bed flat is responsible for £18500 of the total bill. 

If you do go ahead you should find out what the payment terms are. My council at least offers a 4 year interest free loan (but it’s still a huge amount extra each month), but that’s only available to resident leaseholders, those renting out their flat have to pay in weeks from the due date. Every freeholder will have different payment terms, so make sure you know what they are (I’d get it in writing from Sanctuary). In fact, be really careful, if you exchange but aren’t on the council tax/electoral register when the major works bill is due, you may not be eligible for any extended payment terms, so make sure you are crystal clear on all T&Cs. 

I would also ask your solicitor to request information on any leaseholder challenges to previous major works, and any complaints (upheld or otherwise) on work quality. I’d ask to see their contractor list and google any issues with work quality. In fact, you said other buildings owned by the same company have had these works done….? Look on Zoopla for which have been sold (=leaseholder) and knock on doors and ask questions about the quality and any issues - many leaseholders will be only to happy to moan to anyone that will listen! There may be local residents association - if so, drop them an email and get any info you can. Look up planning permission notices on your building, that should give some idea what type of windows are going in for example - don’t assume a like for like replacement. 

The leaseholders in my block got the last lot of charges for major works (15 years ago) down to just payment for the windows due to poor quality work on the rest. Of course, then you are paying for the repairs thereafter anyway (as we have been - thousands over the years). Note (council) tenants don’t pay directly, only the leaseholders - but leaseholders only pay a proportion of total (usually based on size of flat or some other measure). 

We’re in the middle of paying for surveys and solicitor to challenge various aspects of the current proposed major works. With 5 leaseholders I’m still expecting at least another £1k to £5k or more I personally will have to pay in fees depending on if we get to tribunal or not. But hopefully we will save more by getting our bill reduced, but it’s a gamble. Either way you and the other leaseholder(s) should strongly consider paying to have your own surveyor do a pre, during and post works survey/visit. 

If you want the flat I’d drive a hard bargain and deduct from the asking price the full cost of the works (plus 10% contingency), and at least another £5k to £10k for surveyors and legal expenses. And probably deduct at least another £10k coz very few people are gonna want to buy a leasehold flat with major works about to happen. If I was in the middle of probate the last thing I would want is a flat with major works going on, so you could potentially get a bargain. 

Leaseholder advisory service, and the leaseholder association are both useful sources of info. 

Major works are an almost inevitable part of being a leaseholder, so you’ll have to deal with it eventually. Despite all I’ve outlined above, I would still move into my flat despite the major works issues, and I’d now be prepared to buy a (heavily discounted) flat with major works pending especially if you have evidence from other local properties that the works are done to a good standard. But until you’ve been through it it is daunting, and you need to be organised and have cash available if you want to challenge anything. 

If you decide to pull out and buy another leasehold flat, I strongly advise you to start saving for major works from day 1. It’s the best advice I was ever given and it’s made my current bill bearable.