Query with freehold service charge

Emmy83

I currently own 50% of my house but am stair-casing and selling as 100% and therefore freehold.

I pay £96 a month service charge for items such as ground maintenance, block maintenance, a reserve fund, fire, audit, management fees and health and safety. The service charge has gone from £20 a month to £96 a month in 3 years (the increase seems to have come from the sudden introduction of ‘block charges’ and a reserve fund). 

The management company have confirmed that once freehold the service charge will remain at £96 a month. 

Within my lease it states that any service charges should cease once the road is adopted by the local council. The road was adopted by the council in 1993, and they maintain the roads and bushes. I’m assuming the management company still maintain the flats (there are no other common areas on the road). 

The other half of my house (I’m in a semi) used to be leasehold but they bought the freehold around 15 years ago. They only pay £20 a month service charge. Another freehold property pays nothing, and another pays the full £96. 

Am I wrong in thinking it doesn’t seem correct that these charges will still apply once freehold, given what my lease says? I’ve asked the management company for a breakdown of what they have spent this financial year and have been ignored. They have also ignored all the emails I have sent querying this huge jump in service charge. 

loubel

If your lease states that the only service charges you are liable for are for road maintenance then it does sound like something isn't right. You'll need to check the exact wording of the lease though - although, as you are selling, presumably it will be your buyer who wants to know what they will be paying for? 

Emmy83

loubel said:

If your lease states that the only service charges you are liable for are for road maintenance then it does sound like something isn't right. You'll need to check the exact wording of the lease though - although, as you are selling, presumably it will be your buyer who wants to know what they will be paying for? 

Yes that's correct - my buyer understandably doesn't want to be paying the full service charge on a freehold house! 

eddddy

In general, the Service Charge terms probably won't change as a result of buying the freehold.

In simplified terms:

• If the Service Charge is currently being correctly charged at £96 per month, it will probably continue at £96 per month after getting the freehold

• If the Service Charge  is currently wrongly being charged at £96 per month, it should be corrected now - and the corrected amount will continue after getting the freehold

Except that...

• Probably the freeholder (Housing Association?) pays for buildings insurance - and adds the cost to the Service Charge. But after getting the freehold, the homeowner will normally arrange and pay for their own buildings insurance. So the service charge might go down a bit, but there will be an insurance bill to pay instead.

• Service Charges are usually variable - so it might be £96 per month this year,  but it could be more or less next year

So the key thing to investigate is whether the current Service Charge of £96 is correct. And as @loubel says, if all you are liable for is road maintenance, perhaps £96 per month seems high.

But it's possible that the road (and/or car park and/or pavements) will need repairing or resurfacing soon - hence the high charge.

And/or the street lights need updating / replacing, or the road's drainage needs some work done, etc.

m0bov

Does your lease allow for a reserve fund? Not all do.

Emmy83

eddddy said:

In general, the Service Charge terms probably won't change as a result of buying the freehold.

In simplified terms:

• If the Service Charge is currently being correctly charged at £96 per month, it will probably continue at £96 per month after getting the freehold

• If the Service Charge  is currently wrongly being charged at £96 per month, it should be corrected now - and the corrected amount will continue after getting the freehold

Except that...

• Probably the freeholder (Housing Association?) pays for buildings insurance - and adds the cost to the Service Charge. But after getting the freehold, the homeowner will normally arrange and pay for their own buildings insurance. So the service charge might go down a bit, but there will be an insurance bill to pay instead.

• Service Charges are usually variable - so it might be £96 per month this year,  but it could be more or less next year

So the key thing to investigate is whether the current Service Charge of £96 is correct. And as @loubel says, if all you are liable for is road maintenance, perhaps £96 per month seems high.

But it's possible that the road (and/or car park and/or pavements) will need repairing or resurfacing soon - hence the high charge.

And/or the street lights need updating / replacing, or the road's drainage needs some work done, etc.

Thank you. The roads/pavements/street lights are all maintained by our local council. The housing association only seem to maintain the flats. 

Emmy83

m0bov said:

Does your lease allow for a reserve fund? Not all do.

It allows for a reserve fund but only for services I receive. 

eddddy

Emmy83 said:

Thank you. The roads/pavements/street lights are all maintained by our local council. The housing association only seem to maintain the flats. 

So you should ask for a breakdown of the Service Charge - to see what your service charge money is being spent on.

Then check your lease to make sure you are being charged correctly.

Emmy83

eddddy said:

Emmy83 said:

Thank you. The roads/pavements/street lights are all maintained by our local council. The housing association only seem to maintain the flats. 

So you should ask for a breakdown of the Service Charge - to see what your service charge money is being spent on.

Then check your lease to make sure you are being charged correctly.

Thanks. I’ve asked them repeatedly for a breakdown of exactly what is being spent and they’ve ignored me every time! 

eddddy

Emmy83 said:

Thanks. I’ve asked them repeatedly for a breakdown of exactly what is being spent and they’ve ignored me every time! 

If you request a summary of your past service charges in writing - and it isn't provided within a specified period - your landlord (freeholder) is committing a criminal offence, and could be fined up to £2500 on conviction

(Unless your freeholder is a Local Authority.)


Here's some info taken from:
https://www.lease-advice.org/advice-guide/service-charges-other-issues/

daveyjp

Two issues.

(i)  Where the money is spent while you are a leaseholder and this is covered above.

(ii) Once you move to freehold the lease will cease to exist and any obligations fall away.

If there is a requirement for freeholders to make payments these will need to be covered in the transfer documents and these clauses will compel you to pay annual charges.  Unfortunately protection for freeholders paying such charges is not as robust as it is for leaseholders so your obligations need to be covered in fine detail.