Historic service charge shortfalls

Steve2455

Hi there – I sold a leasehold flat around a year ago and very recently out of the blue received a demand for balancing charges on the service charges for three separate years when I owned the property. The earliest of these dates back to 2019. The reason given was that the costs for these years came in over budget, but it’s not clear why this has only now been established, and there'd been no prior indication of a shortfall in these years. 

Alongside the demand, they also said that they are reviewing the 2022-23 period (I sold part-way through this) to ascertain if a balancing charge is due for that period. In the case of this period, it was known by all sides that there might be a shortfall and it was agreed that the buyer of my flat would cover any shortfall.

As I no longer own the flat, I’m unclear where this leave me. Given that I had paid all service charges that had been due when I sold and as there is no retainer in the contract for any shortfalls in the current year, I didn’t envisage further expenses coming my way. At the same time, it would feel quite unfair on the new owner if they were pursued for charges relating to periods that they didn’t own the property as they equally would have had no knowledge that this was coming.

Any views on the legal position and best next steps would be really appreciated. If it was a trivial amount, I might be inclined to just pay it and move on, but it’s quite a large sum being demanded... 

eddddy

It's a bit complex.

• Who sent you the service charge demand (bill) - your buyer or your ex-freeholder / management company? 

• What is the date that the service charge demand (the bill) was issued? 

• (i.e. not the dates the bill relates to such as 2019 etc, the date the bill was sent out.)

If the bill was issued after you'd completed the sale, you don't owe the money to the freeholder / management company. Your buyer owes it.


But normally, you would agree with the buyer that you will reimburse the buyer in these circumstances. That's what the 'Standard Conditions of Sale' say.

• i.e. The buyer has to pay the bill, then you pay the buyer

But you say...

Steve2455 said:

Alongside the demand, they also said that they are reviewing the 2022-23 period (I sold part-way through this) to ascertain if a balancing charge is due for that period. In the case of this period, it was known by all sides that there might be a shortfall and it was agreed that the buyer of my flat would cover any shortfall.

So it sounds like you had special terms in the contract that overrode the 'Standard Conditions of Sale'. So it depends whether those special terms also apply to 2019. You'd need to read your contract with the buyer to check what the special terms say.

Steve2455

Thanks very much Eddddy. 

The bill was sent to me by the managing company, not the owner, and the date it was issued was quote recent so almost a year after the completion date. 

I'll check to see what is specifically mentioned in the contract, but don't think they will cover earlier years as it wasn't something on any of our radars. 

eddddy

Steve2455 said:

The bill was sent to me by the managing company, not the owner, and the date it was issued was quote recent so almost a year after the completion date. 

So that suggests a few possibilities...

• Your buyer hasn't (successfully) notified the management company that they are the new leaseholder (but your buyer's solicitor should have dealt with that)

• The buyer has notified the management company - but somebody at the management company hasn't updated the details in their billing system

• The management company doesn't understand the law about service charges (but that would be very strange for a management company)

Whatever the contract says, you shouldn't owe this money to the management company - so it's probably best not to pay them, as that could cause confusion later. (But you might owe the money to the buyer.) 


Edit to add...

Maybe contact the management company, to ask why they've sent you the bill. Maybe they'll realise it was an error, and they'll send it to your buyer.