One flat in a block exempt from service charges?

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    One flat in a block exempt from service charges?

    Hello, I am considering the purchase of a flat in an nine-unit conversion, leasehold with share of freehold. The service charges are on the high side despite no lift or amenities. When I started to look into the details, I see that one flat does not pay any service charges. Its apportionment is zero. This flat's "free lunch" is a significant drag on the finances of a small building.

    Any idea what might be going on here? I thought maybe the original developer/freeholder kept this flat, but it has sold multiple times since the 1970 conversion, including last in 2013. The leaseholders purchased the freehold in 2014 and have not extended the original lease, which has ~85 years remaining.

    I know service charge proportions are next to impossible to change without near-unanimous consent, so I do not want to lock myself into a situation where I'm permanently subsidizing someone else. At the same time, can it really be legal for one flat to pay nothing in perpetuity? Based on the information I have, the expenditures include multiple repairs to the flat that pays nothing, so it's truly a free lunch situation.

    Thanks for any ideas on what's going on, and if there's likely to be a solution. I'd appreciate suggestions on any questions I should be asking.

    #2
    Is the 'freeloader' flat a more recent addition?

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      #3
      The "freeloader" flat is number one, the front basement flat. Possibly a caretaker flat at some point?

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        #4
        If you are buying a flat, the only bit relevant to you is how much your service charges will be. If you don't like the set-up then don't buy it.
        YOu are very unlikely to change percentages

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          #5
          Presumably there are 9 flats registered at the Land Registry, and if so is there a lease for the basement flat?

          If the annual service charge is £9k you would personally be subsidising the basement for a sum of £125 each year.

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            #6
            Section20z,

            Yes, I realize the percentages are unlikely to change and am considering walking away. Before doing so, I am trying to get more information and also checking to see if others have come across this situation previously. (Is it as unusual as it seems to be?)

            This does seem like the type of blatantly unfair situation - one flat paying zero in perpetuity - for which there could be a legal remedy.

            I also wonder if the freehold perhaps has some leverage, e.g., refusing to extend the lease of the flat with no service charge unless the owner consents to a fair proportion of the service charge? With the lease at 85 years, the owner will need to extend soon. Going through the statutory process to extend for 90 years may well cost more (and all upfront), v. agreeing to pay some reasonable proportion of the service charge and getting a 999 year lease.

            All of that said - even if there is a remedy, I'm also not sure I want to get myself into a contentious situation with the freehold involved in legal disputes.

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              #7
              I think you are right. Nobody else has bothered. Why should you take on the uncertainty and stress ? You only have to walk away.

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                #8
                The counter argument is that the unfairness of the contract is reflected in the value of the other flats. Therefore if you reflect this in your offer then you won’t be disadvantaged going forward

                the owner of the flat with zero service charges may have paid more for the flat because of that advantage and may feel aggrieved if the terms are challenged by somebody who bought their flat for less because of that apparent unfairness

                if the service charge from the 8 flats adds up to 100% you will not be able to vary the service charge so the ninth flats has to pay

                Sometimes a ground floor flat has to pay for the lift in the block along with the other lessees - again the apparent unfairness if it is disclosed should be reflected in the price paid - this compensating the purchaser for the ongoing costs

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                  #9
                  sgclacy,

                  The above is all a bit theoretical. There are various things which in theory should affect the value of a property, whether freehold or leasehold, but in practice do not.

                  Whether the owner of the service charge free flat paid more or not, the point is that he bought it knowing he had no service charge to pay and the owners of the other flats bought theirs knowing what percentage they had to pay.

                  As mentioned, the only way the service charge proportions can be changed is if they do not add up to 100% or there has been some change.

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                    #10
                    Thank you for the advice so far. I'm curious if anyone has ever encountered this situation before. I had wondered if zero service charge for one flat, which clearly benefits from the service charges collected, would violate the "fair and reasonable" principle of the law. It sounds like no.

                    The eight flats that do pay have proportional service charges that add up to 100%. In this particular building, the two-bedroom flats already pay 1.5x the one-bedroom flats. Plus there's the "freeloading" flat, which is a two-bedroom but pays nothing.

                    The net effect is that this particular flat has a 5k annual service charge. In a hypothetically equivalent building where all flats paid and where the service charges were the same regardless of unit size (as in my current building), the annual service charge would be 3.3k. I think this is going to be a long-term drag on the value of the property, regardless of how good of a deal I can get at the time of purchase.

                    I am also wondering why the freeholders did not extend the leases at the time of freehold purchase - 85 years is getting a bit low - and if it's somehow related to the above.

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                      #11
                      Service charge proportions are changed all the time, often when new flats are added but it needs the agreement of all parties (or FTT) . Have you downloaded the lease for this flat to see what it actually says about maintenance?
                      There is no reason for a freeholder to extend leases on purchase, it is generally in his interest to allow term to shorten

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                        #12
                        You can argue that the service charge proportion is unreasonable and ask the FTT to set it at a reasonable level.

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                          #13
                          Lawcruncher,

                          The root of the current near hysteria over ground rents is that purchasers and their advisors in many cases have not reflected on the financial burden the rent creates on the property

                          There is nothing onerous with a ground rent of £5000 per annum provided the purchase price of the flat is some £100,000 plus less than with the rent of a peppercorn.

                          It is time for greater disclosure and education rather than trying to tear up contracts because purchasers have not considered the terms properly or cut corners using solicitors who can only offer an execution-only service because of the fees that buyers are prepared to pay

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                            #14
                            Originally posted by LAD View Post
                            Thank you for the advice so far. I'm curious if anyone has ever encountered this situation before. I had wondered if zero service charge for one flat, which clearly benefits from the service charges collected, would violate the "fair and reasonable" principle of the law. It sounds like no..
                            The terms were set out clearly in the lease, and it is for buyers to reflect upon them before entering into a contract. If they add up to 100% then that appears to be the end of the matter

                            Tanfield Chambers have posted the following article

                            https://www.tanfieldchambers.co.uk/2...nant-act-1987/



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                              #15
                              Originally posted by eagle2 View Post
                              You can argue that the service charge proportion is unreasonable and ask the FTT to set it at a reasonable level.
                              I do not think that that is possible. It is perfectly reasonable to change the percentages if they do not add up to 100% as either the leaseholders will be paying too much or the landlord not collecting enough, It is also reasonable if there is a change in what has to be maintained. Otherwise, where a change means an increase the leaseholder is fixed with a bargain he did not make.

                              There are any number of ways the percentages may be calculated: internal floor area; rateable value (when properties had rateable values); sale price; all flats pay the same irrespective of size; weighting so ground floor flats contribute less if there is a lift; this looks reasonable.

                              If there is a caretaker or warden's flat that might be excluded on the basis that the caretaker or warden is there for the benefit of the leaseholders. If the freeholder exclude one flat because he intended to live in it there is nothing which can be done if he later sells it with a nil service charge.

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