Budgeted Service Charge issues

tmkp

I purchased share of freehold flat in December 2023.  I have just been issued with a Service Charge Budget identifying a cost of c£2k for communal electric for the year.  This would be shared between 6 flats.  We are a 3 storey building with 6 flats.  This is an extortionate amount of money .  Where I lived before it was £250p.a..  It now appears that the Freeholder Company decided to dispute a bill in 2022/2023 (exact date unknown) and have not been paying the utility company since.  The Managing Agent has only recently been appointed and says "it occurred before his time" but is on the case.  My concern is that I was not told about this during the conveyancing process - all answers to questions relating to disputes or outstanding money were answered 'no'.  Surely I'm not liable for a debt that was incurred before my time of occupation? Or...if the lease stipulates that I am issued a Demand, I have to pay it..?  I firmly believe that the amount the Utility company is charging  contains the arrears of money not paid, but can't prove it. The Managing Agent is refusing to show me the last bill.   Has anyone had an issue like this.  I've just read something about paying under protest.  Any advice would be appreciated.  Contacting litigation Solicitors is an option but that will cost me £600 - which is more than my share of the extortionate bill/debt.

thank you  

eddddy

Based on what you say, it sounds like...

• You are liable to pay the management company

• You can claim the appropriate portion from the person who sold you the flat (that's usually what you and the seller agree in the standard sale contract).

Solicitors often keep a £250 retention in case this happens. i.e. The solicitor would have £250 of the seller's money, which you can claim for the previous owner's share of this bill.

If the previous owner's share is more than £250, you'd have to directly chase the previous owner for the rest.

Check with your solicitor about any £250 retention.

gm0

Lease defines a

Service charge obligation which has

Apportionment of same at lease assignment during conveyancing as a critical step - as liability and arrears is an issue with budgeted charges.

Liability (and retention) rules apply to that to provide a buffer for the buyer.

Annual service charge budgeting requires setting a payment in advance to capture next year's spending and any saving up that is going on to smooth out future lumpy repair costs - new lifts, roofs etc. Estimate of, based on last year's spending typically and a little inflation.

The Ukraine/Russia electricity price spike.  A price that normally drifts a few percent  (and is estimated in the budgeted service charge that way - suddenly doubles or trebles.  Generating in year arrears and a 3x line item for the next year. 

The amount the service charge rises will include the communal supply uplift.  It may (or may not) include recovering arrears from the year in which it happened and the estimate was wildly off when the service charge was set.  This depends on how the setup works at your place.  But its a real cost.  And you either have less funds on hand for other minor things before they get their own section 20 notice. Or it gets billed. Tick one.

Communal supplies owned by a freeholder of a building, or a share of freehold ltd (in turn owned by leaseholders) - are on commercial tariffs generally and not part of the energy price guarantee (cap) to protect domestic supplies from the full impact of the war/energy spike. 

Communal lighting *should* in most properties have gone LED by now albeit at a cost to leaseholders to flip it in older properties from halogen or something else.  There was an awful trend at one time circa 2000 to illuminate staircases, even garden fountains, paths, halls and atriums in modern style flats - with a multitude of halogens.
I dread to think what those places would have cost during the initial Ukraine war price spike.  If not switched to something sane.

The ROI for low energy lighting and motion sensors - will be a few years only - if it isn't already done. Waiting for life expiry / replace on fail may not be sensible on cost over the years - but it will be the default.  You need to persuade the other leaseholders to together press for a sensible change to happen. 

But to get a commercial tariff bill of around 2k during the Ukraine spike.  You only needed a communal bill about £400 to start with.  (At ~3x - 800 for arrears, 1.2k the next year = 2k demand - first approximation.  That's all it takes.

tmkp

gm0 said:

Lease defines a

Service charge obligation which has

Apportionment of same at lease assignment during conveyancing as a critical step - as liability and arrears is an issue with budgeted charges.

Liability (and retention) rules apply to that to provide a buffer for the buyer.

Annual service charge budgeting requires setting a payment in advance to capture next year's spending and any saving up that is going on to smooth out future lumpy repair costs - new lifts, roofs etc. Estimate of, based on last year's spending typically and a little inflation.

The Ukraine/Russia electricity price spike.  A price that normally drifts a few percent  (and is estimated in the budgeted service charge that way - suddenly doubles or trebles.  Generating in year arrears and a 3x line item for the next year. 

The amount the service charge rises will include the communal supply uplift.  It may (or may not) include recovering arrears from the year in which it happened and the estimate was wildly off when the service charge was set.  This depends on how the setup works at your place.  But its a real cost.  And you either have less funds on hand for other minor things before they get their own section 20 notice. Or it gets billed. Tick one.

Communal supplies owned by a freeholder of a building, or a share of freehold ltd (in turn owned by leaseholders) - are on commercial tariffs generally and not part of the energy price guarantee (cap) to protect domestic supplies from the full impact of the war/energy spike. 

Communal lighting *should* in most properties have gone LED by now albeit at a cost to leaseholders to flip it in older properties from halogen or something else.  There was an awful trend at one time circa 2000 to illuminate staircases, even garden fountains, paths, halls and atriums in modern style flats - with a multitude of halogens.
I dread to think what those places would have cost during the initial Ukraine war price spike.  If not switched to something sane.

The ROI for low energy lighting and motion sensors - will be a few years only - if it isn't already done. Waiting for life expiry / replace on fail may not be sensible on cost over the years - but it will be the default.  You need to persuade the other leaseholders to together press for a sensible change to happen. 

But to get a commercial tariff bill of around 2k during the Ukraine spike.  You only needed a communal bill about £400 to start with.  (At ~3x - 800 for arrears, 1.2k the next year = 2k demand - first approximation.  That's all it takes.

Thank you, that all makes sense.  I still feel aggrieved about paying for arrears though as I did not live here and the previous owner would have been party to making a decision to withhold payment.  There are no halogens here, the building is Victorian, but I do concede that they may not be the most efficient bulbs.  I will check with Sols though about any retention as suggested by @eddddy

AlexMac

Nothing much to add to the above advice, other than the personal experience that in future you might consider…

a)- Retentions; an imaginative solicitor might have ensured that the vendor’s solicitor kept a retention as suggested above; this saved me several hundred pounds when I bought a leasehold flat midway through the Service Charge year and got hit by an end- year top up bill… and more importantly…

b)- A DIY approach to Freehold Company Management; I’ve been happy with the Local Council’s competence as Freeholder of a couple of ordinary leasehold flats on big estates, but…

In the case of the two 19th Century Victorian leasehold flats I’ve owned (both co-incidentally six-flat conversions blocks, like yours), we saved megabucks by not having a “managing agent”. 

We shared the easy work of Company manage management; collecting Service Charges, submitting abbreviated accounts once a year to Companies House, shopping around for the best value Buildings Insurance etc. 

No fees to an Agent and no padded bills from their “favourite” contractors. Not only did we much have lower Service Charges than comparable local converted blocks, but we built up a healthy “sinking fund” towards occasional major jobs like external decorations or roof and gutter repairs.  

Pre-conveyancing solicitor’s enquiries are easy to knock out. And cos we had our finger on the pulse, we’d not have missed a ticking time bomb such as the utilities debt, which whoever completed the the pre-sale responses should have reported to your solicitor when you bought

Of course if you don’t have a “ Shared Freehold“, or if your Co-freeholder Company members are incompetent or idle, it’s a non runner.  But if not, it might be worth floating at the next Company AGM?

DullGreyGuy

We were fortunate and had the inverse of the problem... shortly after moving in there was a very large rebate from one of the utilities firm after they spotted a mistake. I got 100% of our units share despite the fact the issue had been going on for years and so was a refund of overpayments not only of the former leaseholder but at least the one before that too. 

This is the nature of property buying, if its not utilities it can be that the roof is found to have major issues shortly after you buy. This is why you do your due diligence before buying to ensure its in good condition (though in a block of flat a surveyor may be limited to what it can do on the broader building), there are no outstanding notices, charges are up to date etc. 

Solicitors can be creative, ours was the opposite saying we had to refund the seller the remaining 1/3 of the 6 month service charge they'd paid as we'd be the beneficiary of the remaining 2 months, on top of the sales price. Probably should have argued more on that one but on the surface it didnt seem too unreasonable and didnt want to delay completion until the end of the period just to avoid the cost or risk losing the purchase renegotiating. 

I'd be having a word with the conveyancer about it, certainly ours asked the seller and freeholder for copies of communications over a period of time (think 2 years), accounts etc which should have shown up the disputed debt.

tmkp

AlexMac said:

Nothing much to add to the above advice, other than the personal experience that in future you might consider…

a)- Retentions; an imaginative solicitor might have ensured that the vendor’s solicitor kept a retention as suggested above; this saved me several hundred pounds when I bought a leasehold flat midway through the Service Charge year and got hit by an end- year top up bill… and more importantly…

b)- A DIY approach to Freehold Company Management; I’ve been happy with the Local Council’s competence as Freeholder of a couple of ordinary leasehold flats on big estates, but…

In the case of the two 19th Century Victorian leasehold flats I’ve owned (both co-incidentally six-flat conversions blocks, like yours), we saved megabucks by not having a “managing agent”. 

We shared the easy work of Company manage management; collecting Service Charges, submitting abbreviated accounts once a year to Companies House, shopping around for the best value Buildings Insurance etc. 

No fees to an Agent and no padded bills from their “favourite” contractors. Not only did we much have lower Service Charges than comparable local converted blocks, but we built up a healthy “sinking fund” towards occasional major jobs like external decorations or roof and gutter repairs.  

Pre-conveyancing solicitor’s enquiries are easy to knock out. And cos we had our finger on the pulse, we’d not have missed a ticking time bomb such as the utilities debt, which whoever completed the the pre-sale responses should have reported to your solicitor when you bought

Of course if you don’t have a “ Shared Freehold“, or if your Co-freeholder Company members are incompetent or idle, it’s a non runner.  But if not, it might be worth floating at the next Company AGM?

Yeah.  actually, they did use to self manage (essentially repairing the outside which was quite dilapidated but not installing a fire alarm system) and have literally changed over the last year or so to using a Managing Agent.  Neither the vendor (who was a director) nor the Managing Agent told me about the disputed bill.  There also appears to be a dispute with one of the freeholders, who is a Shareholder and not a Director - so a whole bunch of worms actually.  Obviously, it doesn't help if people lie on conveyancing forms.  This is my last move, so I'm going to have to lump it I think.  I thought the other freeholders were competent, sane, solvent people, but sadly they are not.

tmkp

DullGreyGuy said:

We were fortunate and had the inverse of the problem... shortly after moving in there was a very large rebate from one of the utilities firm after they spotted a mistake. I got 100% of our units share despite the fact the issue had been going on for years and so was a refund of overpayments not only of the former leaseholder but at least the one before that too. 

This is the nature of property buying, if its not utilities it can be that the roof is found to have major issues shortly after you buy. This is why you do your due diligence before buying to ensure its in good condition (though in a block of flat a surveyor may be limited to what it can do on the broader building), there are no outstanding notices, charges are up to date etc. 

Solicitors can be creative, ours was the opposite saying we had to refund the seller the remaining 1/3 of the 6 month service charge they'd paid as we'd be the beneficiary of the remaining 2 months, on top of the sales price. Probably should have argued more on that one but on the surface it didnt seem too unreasonable and didnt want to delay completion until the end of the period just to avoid the cost or risk losing the purchase renegotiating. 

I'd be having a word with the conveyancer about it, certainly ours asked the seller and freeholder for copies of communications over a period of time (think 2 years), accounts etc which should have shown up the disputed debt.

Oh yes, I guess it works both ways!  I had copies of a Trial Balance, (which  had an amount on it, which I thought was an annual amount - it wasn't) and strange spreadsheets, showing the freeholders paying service charge monthly, but there are no audited accounts at all.  Nor have there been any Minutes of Meetings in the last 3 years.  I think I know why now!  Now there is a Managing Agent, the Accounts for 23/24 will have to show the debt, but who knows when I'll get them.