Change in freeholder - management fees / insurance premiums

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    Change in freeholder - management fees / insurance premiums

    I own a leasehold flat in a converted property with two flats. The freehold was recently sold and I have received a demand for payment for ground rent, insurance and management fees and I have two queries I wondered if anyone could help me with:

    1. There has never previously been a management fee associated with the property. The service charge is as and when required, but the new freeholder is now trying to charge an annual fee of £450 for management of the property. While I understand that some payment may be required given the as and when nature of the lease, there is one very small communal area and, assuming they are charging both properties the same fee - £900 a year in management costs seems steep! Given there are no accounts for the previous 12 months as it is a newly incorporated company for the purpose of purchasing the freehold, is there anyway I am able to challenge this?

    2. I have been sent a copy of the buildings insurance schedule, however there are two separate properties listed on this. The demand for payment asks for 50% of the annual insurance policy cost but it works out as 25% of the total cost of the insurance for both properties (four flats) - is that allowed? The insurance is quite a bit more expensive than it has been in the previous years I have owned the flat and it doesn't seem correct that I may well be covering the costs on another property.

    Any advice would be greatly appreciated!

    Before anyone can really do much more than guess what might apply in your situation, you would need to let us know what it says in your lease regarding service charges and insurance - and also what what exactly it is that is being demanded.

    What some people actually mean when they say that they have received a demand for "management fees" is that they have received a service charge demand, only part of which will be for management fees.

    1. While a property containing only two flats may require very little management, if your lease allows for managing agent fees to be charged, and the £450 includes maintenance costs as well, £450 may be considered very reasonable. You need to consider how the costs are broken down and whether any work than is proposed is actually necessary. The fact that costs have previously always been low, and charged 'as and when required' doesn't mean that higher costs aren't reasonable (it's even possible that costs have previously been low because maintenance that should have been carried out has been ignored.

    2. Does the insurance that has been arranged fully satisfy all of the requirements in the lease? Did the previous, cheaper, insurance cover all of the same risks, or is it possible that the property was previously underinsured?
    Have you asked the providers of the insurance how the premium was calculated, and whether the premium is equally split between the two properties (although it is possible that they won't answer you if you aren't named on the policy)?
    Freeholders are allowed to buy insurance policies that cover more than one property as long as the requirements of the lease are met and they can justify why they have done this. Usually it will be argued that they can get cover cheaper by buying policies that cover several properties - but it should be clear how much of the premium relates to each property.

    It may be worth considering getting together with the other leaseholder in your block purchase the freehold between you so that you can manage the property yourselves.
    Were you offered the freehold when it was sold? If not you can force the freehold to be sold to you at the price that was paid.
    Alternatively you should be able to force the sale of the freehold by following the collective enfranchisement process.


      Thank you for taking the time to respond and apologies it’s taken a while to come back - I was awaiting a response from the freeholder as to what the management fee refers to. The insurance side of things all makes sense.

      In terms of the management fee, they have said it is just the cost of the management fee - no works included. They are managing the property themselves ‘to keep costs down’. While the lease entitles them to do this, I simply cannot see how it would cost them this much.

      They have said this is an estimated fee, so I presume the best thing to do is pay in now and ask for a break down of costs next year when the next year’s fees are due?

      Unfortunately I’m not in a position to buy the freehold at this point.


        What is the annual ground rent and remaining years left on the lease ?

        Some leaseholders add the cost of buying the freehold onto their mortgage loan..


          Originally posted by acoll View Post
          In terms of the management fee, they have said it is just the cost of the management fee - no works included. They are managing the property themselves ‘to keep costs down’. While the lease entitles them to do this, I simply cannot see how it would cost them this much.
          What, exactly, does the lease say about management fees?
          Many leases will allow the fees of a third party managing agent to be charged to the service charges, but don't allow the freeholder to charge if they are managing a property themselves (they sometimes get round this by having a company that is actually owned by the freeholders as the managing agent).
          Regardless, £900 for a year will almost certainly be considered unreasonable unless they will be arranging quite a lot of services and maintenance work.


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