Buying a flat with ongoing cladding replacement

PlsProvideAName

Hello all,

I recently viewed a decent flat in a building which is unfortunately undergoing cladding replacement work.  It is scheduled to complete in late August / early September (apparently pushed back from July), and I've been told by the seller that it is fully financed so won't require any additional fees in the future.

Does anyone know if it's a good or bad idea to try to purchase such a property?  My gut feeling is that most lenders wouldn't approve a mortgage for it prior to the actual completion of the work, but obviously I could be wrong.  I'm also mildly concerned that there could be more delays but again, I don't know how often that happens when the work is close to the scheduled completion.

Thanks!

ReadySteadyPop

PlsProvideAName said:

Hello all,

I recently viewed a decent flat in a building which is unfortunately undergoing cladding replacement work.  It is scheduled to complete in late August / early September (apparently pushed back from July), and I've been told by the seller that it is fully financed so won't require any additional fees in the future.

Does anyone know if it's a good or bad idea to try to purchase such a property?  My gut feeling is that most lenders wouldn't approve a mortgage for it prior to the actual completion of the work, but obviously I could be wrong.  I'm also mildly concerned that there could be more delays but again, I don't know how often that happens when the work is close to the scheduled completion.

Thanks!

Did they say why they were selling?

DullGreyGuy

PlsProvideAName said:

I recently viewed a decent flat in a building which is unfortunately undergoing cladding replacement work.  It is scheduled to complete in late August / early September (apparently pushed back from July), and I've been told by the seller that it is fully financed so won't require any additional fees in the future.

Does anyone know if it's a good or bad idea to try to purchase such a property?  My gut feeling is that most lenders wouldn't approve a mortgage for it prior to the actual completion of the work, but obviously I could be wrong.  I'm also mildly concerned that there could be more delays but again, I don't know how often that happens when the work is close to the scheduled completion.

Speak to your mortgage broker about if there will be a problem with remedial work ongoing

Speak to your conveyancer about concerns of cost overrun; it's possible to withhold a certain amount of the purchase price to cover such eventualities.

Its presumably a leasehold property in which case exchange may not even have happened by late August and so in principle you could proceed but not exchange until works are completed; that won't instantly solve the risk that the project has exceeded the finances though.  

PlsProvideAName

Thank you @DullGreyGuy.  

I don't think I'll be moving until maybe November at the earliest anyway, so that should give plenty of time for the works to complete if they are on schedule.  But it's good to know there are options such as withholding part of the purchase price to cover certain eventualities.  Right now I'm mostly just trying to avoid starting any purchasing process (making an offer etc.) that might go seriously wrong later if possible.

@ReadySteadyPop I'm not sure I was provided with a reason - I will ask about this.  I do know that the property has been on the market for a while and that the building had another one for sale as well.

ReadySteadyPop

The fact that the flats are not really selling should be a red flag.

gm0

Situations like this.  Major works.  Cladding.  Roofs.  Causes a big cloud of uncertainty which inhibits price discovery and sales - right up until the work completes.   And the out turn on costs of the work is often not clear until very late in (or after) the physical process.  Nobody can or will (or should) make binding promises based on the estimate - before the works.  So beware.   At which point there is often an oversupply of properties which have been waiting to be sold.  From sellers not willing to take a heavily discounted number (max uncertainty).  They would always be saleable. But not at par for size/location.  People hang on willingly or not.

The seller's understanding may be wrong and words are basically worthless (honestly or dishonestly).  Written representations at conveyancing matter more.  But in cases like this you need to understand the situation, see the existing correspondence (pre-exchange or upon visiting) and verify financials with the management pack etc.  What happened. Why.  Solution.  Project cost. Shared across what parties in what proportions. One off. Or levy. From when to when.  All that.  If the seller won't share what they already have been sent as leaseholder then that is a massive RED flag.  There will have been meetings and letters about it.  So if they do not share. They do not sell.  If you get blanked.  Save your time and just walk.  And poison the well at the estate agents when you loop back.  Timewaster seller.  Or if it was a death/probate etc. And so someone is unavailable and house cleared or who frankly wasn't following what was going on - old and ill.  Neighbours, agents, residents association block rep (if present) and the MA may need to be researched to learn enough.

As a leaseholder seller I wouldn't entertain material holdback "just in case" of future non-specific surprises years later. e.g. the agent discovers they screwed up the accounts two years on.  Or a lift breaks.  Your lease. Your risk. Price now.  Deal over.  We both move on.  I'd want the service charges apportioned for the year we do it..  And If I'd paid my Section 20 one off charges as asked.  I'm done and gone.   

And if there is a "service charge levy" running for several years to pay back debt finance of big works.  Then I'd paid mine (prior years of it if already running). You will now pay yours (future years of it while it runs via service charge) - and the "price" you pay me for the lease assignment should reflect the age, condition, *liabilities* etc.   In fact by agreeing a price to assign the lease.  We agree that it does.  If you overpay me for the lease - that's on you.  As a bad decision you made.

The flat is INDEED worth less if it has £3k per year for the next five years to pay back a loan to remediate cladding (not naturally life expired) - 15k less or apply discount rate of choice.   Early for fire safety due to a reinterpreation/build defect not recoverable in full from a developer. And now paid for by leaseholders.  

So what is/was done, for how much, shared over how many and financed how and when - are all key questions.  What is a flat this size in a similarly good location worth.  

And you take a look at chunky liabilities beyond "normal" stuff at normal ages - based on the age of the place and the state of the financials overall.

This REALLY is not that different from looking sceptically at lifts, roofs, windows etc. 

And it is all connected - have they for 20 years saved money (sinking fund) for roofs, lifts and the rest. Or is it empty (After a cladding crisis - it could be empty).  A decision was made to lower the current leaseholder immediate costs or costs of credit by draining the kitty.  It happens.

Yet the lifts did not magically get younger.  So saving up will be over fewer years.  Or full cost will drop.  This kind of issue should and does affect flat lease resale value.  As the service charge forward curve has changed shape.

Upon assignment the current long leaseholder very often assumes the maintenance liability to fund a lot of these things (which don't last 999 years).  

If I sell you a house in poorer condition - you won't want to overpay for a doer upper vs a fresh refurb.  This is the same but the mechanism has more moving parts.

You as buyer need to be confident in the situation as presented.  What has been done. How is it paid for.  How does that relate to the current and planned service charges.  Is the situation understood and financially stable.  What are the reserves, sinking fund.  Does the budget look professional and sensible.  
A lot more important 25-45 years than 0-20.

PlsProvideAName

@gm0 - thank you for your extensive comment.  For now I think I won't pursue this property any further as the cladding issue just adds too much uncertainty.  I can always change my mind in the future as long as it's on the market, and I suspect it will stay that way.

@ReadySteadyPop - I agree that property staying on the market for a while can be a red flag.  I just attributed it to the cladding problem, an excessive asking price and the fact that flats don't seem to sell that quickly a lot of the time.

ReadySteadyPop

PlsProvideAName said:

@gm0 - thank you for your extensive comment.  For now I think I won't pursue this property any further as the cladding issue just adds too much uncertainty.  I can always change my mind in the future as long as it's on the market, and I suspect it will stay that way.

@ReadySteadyPop - I agree that property staying on the market for a while can be a red flag.  I just attributed it to the cladding problem, an excessive asking price and the fact that flats don't seem to sell that quickly a lot of the time.

As you say, there will always be plenty of flats to choose from, sellers asking too much just sit unsold for a long time.