Buying a flat with several Section 20 notices

Zuzi

Dear all,

I have had an offer accepted on a leasehold flat, and found out a few weeks ago that several Section 20 works have been announced on the building. Sellers have offered a discount just over the "estimated" costs of two of the S20s, with a third one due later in 2026 saying I should take care of that.

So far so understandable, I am aware that I need to contribute to the upkeep of the block. I am a FTB, what would you advise me to look at closely in this situation? Obviously I am glad I can get the property "for less", but this is making me wonder what other costs there will be that I will need to budget for.

Interestingly, a flat is up for auction in the same building and in the documents for that unit, questions about potential S20 notices were answered with No/Not Known. How suspicious is this? (I am still waiting for the legal / mgmt pack on my property, so tried to get some heads-up info by downloading the docs for the property that is about to be auctioned).

Thank you in advance for any tips you may have,
Zuzi

user1977

What sort of works are the notices for?

Zuzi

user1977 said:

What sort of works are the notices for?

1) Interior Redecoration to communal areas (there was water damage which may eventually be reimbursed from an insurance claim)

2) Lift Repairs - work required outside of warranty 

3) Planned external works (part of planned maintenance programme for mid/late 2026)

gm0

People do attempt to find the naive buyer and disclose as little as they can. Not very suspicious.

The fact a unit is up for auction - COULD suggest a level of issue with selling normally.  Either the nature of "known problems" or too much uncertainty about them and their cost is collapsing non-auction sales at this site.  Other recent sales not via auction are indicative of whether this auction is an outlier. Or if there are no such recent sales. Then it's not. 

Somebody needs to be out (pre-works) for personal reasons. And is trying the auction route.  If other flats sell normally. It's arguably less important that it's happening. But if they don't sell normally..... it is a canary in the coal mine. It's highly suspicious. 

Problems exist of sufficient magnitude which need to be properly dug out in due diligence. Before assigning the lease

Sales blight is a real thing. Buying through it could result in you buying a lemon with a decade of trouble and dispute ahead - on the hook for whatever comes - until you can sell the lease again. 
Or it could relatively speaking - be a well priced purchase - with some short term uncertainty and hassle (depressing values mildly now - but not so once resolved). So a sound buy.  You took risk where others would not.  Choice in an area - at a price you can cope with - also impacts what is best to do.  Swerve anything with these kind of problems or make a more considered judgement - best available.

Finding out what it goes for / remotely attending the auction may be sensible.  Alongside other data points.  Potential neighbour chats. Estate agent chats.  Gather intelligence on what is going on.

WIth Section 20 notices for works and sourcing of them (builder quotes). 

The estimate to actual costs can change.  

Once works start. The quotes and selected provider (inevitably based on assumptions) then discovers new facts once the building is opened up.  Neither the builder nor the manco own those new costs.  It's not how it works.  Freeholder continues with the required works arranged by manco and they end up on the bill to leaseholders.  

A risk you will carry post lease assigment.  

Nobody agrees to own ongoing open ended obligations post selling a lease.  Apportioned. Dated. At a price. Risk transferred. Lease assigned. Moving on.  

Rarely "Holdbacks" are agreed which are released, or not, when a bill is finalised within a short and known time frame so months to a couple of years.  Your solicitor could advise on situations (larger cost risk, very short term to conclude) where that could be appropriate vs price changes. Normally it isn't worth the trouble.  And people don't like it - and legal costs.  A price adjustment reflecting "part of the costs at risk" is simpler and equally effective if both parties agree to it. Clean edge.

So for simpler smaller things - if there is a risk that an estimated 5k bill in flight could be 10k.  Then you might lower your offer by 2.5k.  And either you both agree that.  Or you don't.  And you either come out 2.5k ahead. Or if the risk hits at that level. 2.5k behind.  And if it's 20k.  Well you lose and pay more later.  It's your lease now.  Or 2.5k is "noise" on the sale price and ignored.  But you get the idea  - in proportion to the size of the works. And the size of the overspending / scope creep risk.

Your seller is allowing for the position as known now. Not unfair as it goes. Probably thinks the price is low due to the works and uncertainty.  If they have provided all information "known" to them and that the manco has made available. 

It is VERY important that you understand what the real world problems for the Section 20s actually are - physically.  Cladding removal/replacement inside or outside government schemes.  Lift replacements. Fire break/wall ties.  Repair of flat roofs.  Windows.  Your conveyancer is no help here. Never visits site and wrong skills. Legal implications of documents yes.  Cost risks on works. Not so much.

Kind of works influences how "out of control" these costs could get.    Replacing low rise windows is one thing  (lower risk). New flat roofs on higher rise is quite another. Cladding and wall construction remediation is worse again as until opened up - the worst of it may not yet be known.

There are of course many things which are "normal for the age of a building which are just costs of maintaining it. And the "error bar" on them being correct is "building work" normal not trivial but still unlikely to be a terrible issue.  New doors. New windows. New lift.

A block run with section20s and no sinking fund contributions in the service charge budget to smooth them - will have more section20s than one run the other way paying for things in the first instance from a saved buffer fund.  

This is why the financial state of the development is important to validate well pre-exchange.  ManCos do packs for seller. And efficiency varies.  It can trail in late.  If they are surprising and bad. Then the lease is worth less. And that's not gazundering. It's just due diligence happening. Late. Due to seller/manco lack of focus.

If this place has 3 live cash calls.  It probably doesn't have a fund.  But if it did have one - and it has been assigned to one of these cash calls.  Then some of these works are "bigger than planned".  The key question is Why?  What happened.  Revised fire risk rules.  Premature failure of lifts?.  Roof leaks?  What?

Also the service charge has included (or not) saving up.  And if the savings are drained.  Do you think the charge will stay the same - go down. Or go up.  The next action - to rebuild funds for other known - planned works is obvious. 

fullyrendered

Perhaps a few bullet points to consider:

*is the flat mortgageable? Do you need a mortgage?
*if you pay less for the flat, do you have the money available to pay for the work?
OR
*is there a sinking fund, is it expected to cover the costs of the work? Sounds unlikely if you've been offered a price reduction.

*is it a complex building - how many floors? What sort of materials on the external walls? How old is it?
*what % of the costs of work would you have to pay? Lifts can be very expensive.

I wouldn't focus on the auction property, it could have been listed before the landlord's information has been obtained, or it could be probate or repossessed so the seller wouldn't know all the details. Auction properties, especially leasehold, should be left to experienced buyers who have done their due diligence.

Zuzi

thanks @gm0 & @fullyrendered

I will keep an eye on the auctioned flat. It was advertised normally beforehand but was probably overpriced, and I am curious what it will sell for in the end (I should know in 10 days or so). There are a few more flats in the building, it's not large, for the three S20 notices I am apparently due to pay 25% of each. 

The S20 works don't seem to concern any cladding issues but yeah one of them is lift repair.

I have been told the house does not have a sinking fund, and the service charge is relatively high (one of the things I am looking at, I do want to understand where the money is going!)

I have applied for a mortgage and the valuation for the bank is tomorrow, so I am curious about the outcome.

I should have some spare money but I was hoping to use most of that on mortgage overpayments, rather than unavoidable costs connected to my block I hope there is nothing "wrong" with the building or the way it has been managed... ETA the whole block is just 10 years old.

gm0

10 is pretty young for a lift replacement.  But not for a repair. Safety trips. Control boards. Can be awkward.

Sadly developers do not always buy "the best engineered one".  They but the cheapest thing they can with a chance to clear the warranty period.

It is not unusual for new builds/conversions to not have a sinking fund, nor indeed a cyclical maintenance plan in place for the first few years after construction.  It takes time for residents to get organised and to get the agent (initially freeholder/developer appointed) either sorted out to do it somewhat sensibly or just ejected.  Right To Manage etc.

Family lived in a place with multiple blocks and lifts and because of the design of structure one was different to the others. And did not make 20 years old.  Lots of attempted repairs and failures before biting the bullet and replacing. They were elderly and lived top floor of course.  Many stairs. But it was the guy in a wheelchair I really felt sorry for.  Trapped inside.  And outside his flat at various times.  Until it was addressed properly.