Wednesday, 5 March 2014

Service Charge – Could the monopoly finally be coming to an end?


Forward

Our business attaches a high value to training and as such we actively encourage all of our junior staff to compile articles on subjects which are of interest and which contain elements which will be of interest to consumers. 

In the first of these articles which forms part of our current training programme running for the next two months involving leasehold Kris has chosen a topic dear to any one which has purchased a leasehold property in the past.      

The article focuses on the hidden costs of purchasing a leasehold flat or house and of the efforts being made to bring about the long overdue changes needed to ensure this sector of the housing market is adequately regulated.

Kris would welcome your feedback and can be contacted at KristianN@mjpconveyancing.com

David Pett Director
5/3/2014

Kris writes:

As conveyancing business with over 100 live leasehold transactions at any point in time, a major conflict which we attempt to placate and pacify on a daily basis is the freeholder versus leaseholder battle of power.

We act as a bearer of bad news for both buyers and sellers alike. Buyers often lambaste the service charge budget as a ‘hidden cost’ before they've even made it over the proverbial threshold, whereas sellers grumble at the expense and length of time it takes the autocracy like institution that is their management company to produce a standard sales pack.

As a neutral in the on-going saga, I have always felt that it is the freeholder who dictates the balance of power. The seller is unable to sell without the freeholder’s intervention and likewise, the buyer is unable to register their purchase without seeking the infamous ‘certificate of compliance’ from the management company. However, much like the Boston Tea Party signified the beginning of a turning of the tide in the American War of Independence, it appears that the Office of Fair Trading have sparked a similarly rebellious (but considerably drier) attitude among leaseholders.

Times are changing

The Office of Fair Trading (OFT) will fully investigate the love-hate relationship at the centre of the leasehold property market and has pledged to issue a report by the end of 2014. In particular, the OFT will seek to identify:

1.   Whether managing agents and freeholders have the same interests as leaseholders in, for instance, keeping down costs for maintenance work or building insurance;

2.   Whether leaseholders have adequate interest on decisions taken by freeholders on the appointment of managing agents and the supply of residential property management services;

3.     Whether there is true competition between property managers;

4.  Whether the choice of contractors and services to leasehold properties may be unfairly influenced by links with associated companies;

Rachel Merelie, Senior Responsible Officer for the investigation comments that “Service charges for the maintenance of a building can be substantial and we want to make sure that leaseholders are getting a fair deal”.

Monopoly


In my opinion, the current market is far too slanted in favour of the freeholder and whether leaseholders do get a ‘fair deal’ is largely dependent upon chance.

As responsible conveyancers, it is our duty to alert any potential leasehold purchaser of the added (and often unexpected) costs that they will be liable for throughout the entire term of their ownership. Does the building require a new lift? Yes – then as a leaseholder you will be expected to pay for this. What about landscape gardening? – check, decoration of the lobby? – check, tropical fish for the aquarium? – check.

A competent conveyancer should flag up the service charge budget in the management pack for you to study in depth, and the decision about whether this is fair and reasonable should be made well before, returning to our cliché, you ‘cross the threshold’.

The same should be said of selling a leasehold property.

A complaint we often find levied upon freeholders is that leaseholders are not made aware of the substantial (almost always triple figure) costs and turnaround times involved in obtaining a leasehold management pack – the notorious skeleton key when it comes to selling a leasehold property.

Relying on best practices we always seek to obtain this figure for prospective purchasers prior to completing their transaction so that, in years to come when they decide to sell the property, they do not find themselves burdened with this unexpected and untimely cost.

Again, this serves as a further example of when you should push your conveyancer to seek all the information on your behalf rather than neglect due diligence in favour of a quick completion.

Advantages amongst the autocracy

Buying a leasehold property should not be considered a completely wasted investment however:

1.   There are clearly defined rules in place which will prevent neighbours devaluing your     property;

2.    If you are ‘time-poor’, it makes perfect sense for somebody else to address maintenance issues on your behalf;

3.    There is a clear agreement upon what proportion you are to pay if urgent remedial work is necessary on the building;

4.    Statutory protection for leaseholders does exist;

5.    Historically, leasehold properties are marginally cheaper than their freehold equivalent.

At MJP, we utilize an online case management system called Quick Conveyance that puts all those ‘need to know’ facts figures into one place at your fingertips for you to consider and weigh up prior to buying your leasehold property. We make sure the lease, the management pack and all leasehold enquiries are made available to you online in PDF format so that the only time you are truly ‘in the dark’ with your leasehold purchase is when you turn the lights off to settle down for your first night’s sleep post-completion.

For a competitive quote, please call our New Business Team, available 24/7 at www.mjpconveyancing.com .

By Kristian Nelson, Trainee Solicitor at MJP Conveyancing

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