Service charge risk for leaseholder in partially unsold property?

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    Service charge risk for leaseholder in partially unsold property?

    Hello,

    I am in the process of buying a leasehold apartment in a newly completed block of 32 residential flats plus one commercial space. None of the properties are sold yet as the object has just come on the market, after the developer went bust and receivers were instructed to sell the property.

    If my purchase goes ahead, in case there was a delay with the sale of some of the other flats or the commercial property, would I be at risk of having to pay a larger proportion of the service charge, given that the same amount of cost would be divided up between a smaller number of leaseholders? This post from 2013 seems to suggest that the freeholder would be liable to contribute towards such charges, but would this also apply in my circumstances where the freeholder is in administration?

    My lease reads the following:

    In relation to the Service Charge Year current at the date of this lease, the Tenant's obligations to pay the estimated Service Charge and the actual Service Charge shall be limited to an apportioned part of those amounts, such apportioned part to be calculated on a daily basis for the period from the date of this lease to the end of the Service Charge Year. The estimated Service Charge for which the Tenant is liable shall be paid in equal instalments on the date of this lease and the remaining Rent Payment Days during the period from the date of this lease until the end of the Service Charge Year.
    Can anyone advise whether "apportioned" here refers to the number of days the lease was held for, or would this relate to the apportionment between the individual apartments, according to size? The below was included below the draft service charge budget.

    Screenshot 2021-07-29 at 23.09.31.png

    Any thoughts on the above would be appreciated, my solicitor doesn't really seem to know the answers to this..

    #2
    If your solicitor is unable to answer your questions, you should consider changing solicitor.

    The clause states that you are only responsible for paying your share of the service charges from the date of your lease. There should be another clause within the lease which states how your share is to be calculated eg a fixed percentage of the total or a reasonable sum to be determined by the freeholder etc

    The freeholder or in your case, the administrator should pay the service charges relating to unsold units. At the end of the year, you should receive service charge accounts and you should study them carefully to ensure that the freeholder has contributed and that no costs which are the freeholder's responsibility have been included as service charges.

    Comment


      #3
      Thank you for your feedback. The clause relating to the share of service charge is as follows

      Service Charge: a fair and reasonable proportion determined by the Landlord of the Service Costs;
      Isn’t that a rather vague definition? What if the Landlord/Receiver determines it fair not to contribute to the service charges? Is there legislation that regulates that freeholders are obliged to contribute for unsold flats or commercial spaces I could rely on? My solicitor seems to be under the impression that’s what might happen.

      Comment


        #4
        If your freeholder has gone bust there is unlikely to be funds , so regardless of lease obligations they won't be able to contribute and work won't get done.
        "A fair and reasonable proportion" is not ideal as clearly it would be fair and reasonable for you to pay a much larger proportion if you are the only resident, and FTT would likely concur.
        Your lease date is very likely to be long before the purchase date so your apportionment may be much higher.

        Personally, I would be walking away unless it's a huge bargain in which case I would be requesting that lease be altered so your liability is clear.

        ​​​​​
        ​​​​​

        Comment


          #5
          Originally posted by michael_bates View Post
          Service Charge: a fair and reasonable proportion determined by the Landlord of the Service Costs
          No way on earth should you buy a flat with that definition.

          Comment


            #6
            I have seen worse, it doesn't end with " ... whose decision shall be final"



            Comment


              #7
              Originally posted by michael_bates View Post
              My solicitor seems to be under the impression that’s what might happen.
              Something may be lost in translation as to "seems" and "impression" but you need as much bankable legal opinion in this caper as possible. What may seem one thing can swerve into something entirely different when a court gets their hands on the wording. The word "reasonable" in leasehold may as well come from ancient Coptic, not received English.

              I would expect my lease to say in clear terms that I must pay X% of the estimated service charge and when all portions are added up for flats and commercial unit the total comes to 100%. Happy days.






              Do not read my offerings, based purely on my research or experience as a lessee, as legal advice. If you need legal advice please see a solicitor.

              Comment


                #8
                Originally posted by MrSoffit View Post
                I would expect my lease to say in clear terms that I must pay X% of the estimated service charge and when all portions are added up for flats and commercial unit the total comes to 100%. Happy days.
                Absolutely!

                What you need to be wary of here is that the landlord may be looking to retain some part (perhaps the commercial unit) and get all the flats' contributions to add up to 100%.

                Comment


                  #9
                  Firstly, let me thank you all for your contributions and collective wisdom. As a first-time buyer, this is completely unknown territory for me and as you noted correctly, my appointed solicitor seems to be paying less attention to the fine print of the contract than me - this is just one out of eight queries I raised with him, which I believe could put me at financial risk further down the line, that he has not been able to give me clear answers to.

                  Following your advice, I will definitely not agree to sign the lease on such murky terms. But even if the receiver agreed to contractually fix a percentage of estimate service charges to be paid, is there a way to protect myself from the scenario Section20z described?

                  If your freeholder has gone bust there is unlikely to be funds , so regardless of lease obligations they won't be able to contribute and work won't get done.
                  The commercial unit alone is supposed to contribute almost 20k towards the estimated annual service charge budget, but I honestly don't see this object being sold anytime soon. So without a solvent freeholder, I assume this development would be off to an undercapitalised start, with insufficient funds for necessary maintenance and repairs. Or are there provisions I could ask to be included in the lease to ensure whoever is the landlord (presumably the freehold will be sold off after the flats) needs to contribute on behalf of any vacant units?

                  Comment


                    #10
                    Well done for checking the terms of the lease thoroughly before buying.

                    The administrator has probably been appointed by creditors and his duty will be to find a buyer, either for the freehold or for the individual units, as soon as possible. He will need to pay the share of the service charges out of the proceeds so I do not think that you need to worry about that, indeed he will be interested in keeping the expenditure as low as possible, The major problem is that you do not know who will become the freeholder, so you would be stepping into the unknown.

                    Your best option would be to try to buy the freehold at a discounted price, change the terms of the lease and sell the unwanted units. .

                    Comment


                      #11
                      Originally posted by eagle2 View Post
                      Your best option would be to try to buy the freehold at a discounted price, change the terms of the lease and sell the unwanted units. .
                      That would be one heck of a leap from first time flat buyer to owner of a multi million pound freehold block of flats and commercial.

                      Comment


                        #12
                        It may need support from friends and family, a helpful banker or a chance on the lottery, but the end result could be the freehold and a unit for nothing and a workable lease,

                        Comment

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