PLEASE READ BEFORE POSTING
Hello Forumites! In order to help keep the Forum a useful, safe and friendly place for our users, discussions around non-MoneySaving matters are not permitted per the Forum rules. While we understand that mentioning house prices may sometimes be relevant to a user's specific MoneySaving situation, we ask that you please avoid veering into broad, general debates about the market, the economy and politics, as these can unfortunately lead to abusive or hateful behaviour. Threads that are found to have derailed into wider discussions may be removed. Users who repeatedly disregard this may have their Forum account banned. Please also avoid posting personally identifiable information, including links to your own online property listing which may reveal your address. Thank you for your understanding.Lease Agreement: Ground Rent & Service Charge opinions
Options
JayS90
Posts: 32 Forumite
Hi all,
My partner and I are currently in the midst of purchasing our first property, a 2-bedroom leasehold flat, and I was just looking for some thoughts and opinions regarding some initial concerns I have regarding the lease agreement, ground rent and service charge.
We were sent through the lease agreement a couple of days ago along with all of the associated paperwork for the searches completed by the solicitor. Needless to say it's a tough read with plenty of legal jargon, but I was able to make some progress in making sense out of it in the end.
The building was constructed back in 2004 and the lease agreement dated June 2004. From my understanding the ground rent is £150 per annum for an initial 25 year period, increasing by £150 every 25 years. So it's due to go up to £300 per annum in 2029. This seems quite fair to me, but am I being naive?
There's a paragraph that I'm struggling to get my head around immediately under the ground rent specification, it reads:
"PROVIDED that during any period or periods in which the rent otherwise payable hereunder would equal or exceed the lowest rent which would result in the interest of the Lessee being or becoming a protected tenancy within the meaning of the Rent Act 1977 as amended re-enacted or replaced from time to time the rent payable hereunder shall be limited to a sum One pound (£1.00) per annum less than the said lowest rent"
Any clues as to what that means in layman's terms?
Lastly, again from what I believe I have deciphered, it seems to set out an initial service charge of £500. Now I know this document is dated June 2004 and was created for the initial sale, so am I right in thinking that this is the initial service charge fee set out when the property was originally purchased by the first Lessees? And am I assuming correctly that this fee has since increased in line with current costs and inflation since June 2004? If so, we were advised by the estate agent that the ground rent is £150 per annum (which is confirmed in the lease agreement) and the Service Charge £1200 per annum, but there is no mention of the current service charge rate within any of the forms or paperwork provided by the sellers' solicitors. Should I be instructing our solicitor to request this information so that we have it in writing?
Many thanks for reading (if you got this far!), any opinions and/or advice would be welcomed :beer:
My partner and I are currently in the midst of purchasing our first property, a 2-bedroom leasehold flat, and I was just looking for some thoughts and opinions regarding some initial concerns I have regarding the lease agreement, ground rent and service charge.
We were sent through the lease agreement a couple of days ago along with all of the associated paperwork for the searches completed by the solicitor. Needless to say it's a tough read with plenty of legal jargon, but I was able to make some progress in making sense out of it in the end.
The building was constructed back in 2004 and the lease agreement dated June 2004. From my understanding the ground rent is £150 per annum for an initial 25 year period, increasing by £150 every 25 years. So it's due to go up to £300 per annum in 2029. This seems quite fair to me, but am I being naive?
There's a paragraph that I'm struggling to get my head around immediately under the ground rent specification, it reads:
"PROVIDED that during any period or periods in which the rent otherwise payable hereunder would equal or exceed the lowest rent which would result in the interest of the Lessee being or becoming a protected tenancy within the meaning of the Rent Act 1977 as amended re-enacted or replaced from time to time the rent payable hereunder shall be limited to a sum One pound (£1.00) per annum less than the said lowest rent"
Any clues as to what that means in layman's terms?
Lastly, again from what I believe I have deciphered, it seems to set out an initial service charge of £500. Now I know this document is dated June 2004 and was created for the initial sale, so am I right in thinking that this is the initial service charge fee set out when the property was originally purchased by the first Lessees? And am I assuming correctly that this fee has since increased in line with current costs and inflation since June 2004? If so, we were advised by the estate agent that the ground rent is £150 per annum (which is confirmed in the lease agreement) and the Service Charge £1200 per annum, but there is no mention of the current service charge rate within any of the forms or paperwork provided by the sellers' solicitors. Should I be instructing our solicitor to request this information so that we have it in writing?
Many thanks for reading (if you got this far!), any opinions and/or advice would be welcomed :beer:
0
Comments
-
...the Service Charge £1200 per annum, but there is no mention of the current service charge rate within any of the forms or paperwork provided by the sellers' solicitors. Should I be instructing our solicitor to request this information so that we have it in writing?
The service charge is a percentage of the cost of repairing/maintaining the building - so it's not a fixed amount, it will vary based on what work is done each year etc.
Typically, as part of the conveyancing process, you'll get the last 3 years of accounts that you can look through.
If there were any big jobs done in a particular year (like repainting the building), the service charge might be higher in that year.
Similarly, if any big jobs are planned for future years, the service charge may increase in those years.
And since things like insurance premiums, electricity prices, management fees tend to increase with inflation, that will push up the service charge each year.
Also, check to see if there is a sinking fund for major repairs. (i.e. everyone puts a bit of money in a 'savings pot' each year, for future major repairs.)0 -
The point of employing a solicitor is partly so that they can explain things to you in layman's terms, and you're not left asking people on web forums for help in interpreting the docs. If they are failing to do so then you may wish to gently point that out to them.0
-
Also, you need to understand if you have any say in the appointment of the managing agent. If you don't, then you are exposed to the risk that the freeholder will appoint a sister company as a managing agent, which will in turn appoint sister companies for all kinds of works, which will result in blatant overcharging. Even if this ha snot happened now, it may happen in the future, eg if the freehold is sold to another company.
This is something I am very sensitive about. Other people are not and think I am paranoid. To each their own. But it's something you should factor in your decision, even if you ultimately decide you don't agree with my reservations.0 -
The service charge is a percentage of the cost of repairing/maintaining the building - so it's not a fixed amount, it will vary based on what work is done each year etc.
Typically, as part of the conveyancing process, you'll get the last 3 years of accounts that you can look through.
If there were any big jobs done in a particular year (like repainting the building), the service charge might be higher in that year.
Similarly, if any big jobs are planned for future years, the service charge may increase in those years.
And since things like insurance premiums, electricity prices, management fees tend to increase with inflation, that will push up the service charge each year.
Also, check to see if there is a sinking fund for major repairs. (i.e. everyone puts a bit of money in a 'savings pot' each year, for future major repairs.)
Thanks! I'll make sure to ask the solicitor to provide or request the last 3 years of accounts for the service charge, and check if there's a sinking fund.SouthLondonUser wrote: »Also, you need to understand if you have any say in the appointment of the managing agent. If you don't, then you are exposed to the risk that the freeholder will appoint a sister company as a managing agent, which will in turn appoint sister companies for all kinds of works, which will result in blatant overcharging. Even if this ha snot happened now, it may happen in the future, eg if the freehold is sold to another company.
This is something I am very sensitive about. Other people are not and think I am paranoid. To each their own. But it's something you should factor in your decision, even if you ultimately decide you don't agree with my reservations.
I'll also check to see if we have any say in the appointment of the managing agent, obviously that would be ideal and I do take your point but it's unlikely to affect our decision.The point of employing a solicitor is partly so that they can explain things to you in layman's terms, and you're not left asking people on web forums for help in interpreting the docs. If they are failing to do so then you may wish to gently point that out to them.
They've only just sent through the documentation, their covering letter states they will expand on the documents when they report on the transaction. They also asked to be advised of any matters that would cause us problems, so I just wanted to get a jump on understanding it all to identify any potential pitfalls as early as possible. So far I haven't been provided with any documentation relating to the service charge, so that's why I came on to this forum to ask. As a result I now know I should be provided with records of accounts. :T0 -
As a result I now know I should be provided with records of accounts. :T
You should also be provided with details of any work that is planned in the future - but that might be less reliable.- A highly organised freeholder / management co might have detailed future maintenance plans - which they will tell you.
- A less organised freeholder / management co might have no plans in particular - they just fix stuff when it breaks.
If you want, you can pay for a survey of the building to find out what condition it's in, and therefore the likelihood of future bills.
(e.g. The survey might say the roof looks like it will need replacing in 3 to 5 years. That means you might get a big bill for your share of a new roof in 3 to 5 years.)0
This discussion has been closed.
Categories
- All Categories
- 343.3K Banking & Borrowing
- 250.1K Reduce Debt & Boost Income
- 449.7K Spending & Discounts
- 235.3K Work, Benefits & Business
- 608.1K Mortgages, Homes & Bills
- 173.1K Life & Family
- 248K Travel & Transport
- 1.5M Hobbies & Leisure
- 15.9K Discuss & Feedback
- 15.1K Coronavirus Support Boards