Buying a flat – massive service charge/ground rent. Should I buy it?

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  • Buying a flat – massive service charge/ground rent. Should I buy it?
  • Premier Icon jambalaya
    Subscriber

    Service charge and ground rent are two different things.

    Ground rent is typically very low and is paid to the freeholder (eg person who owns the building)

    Service charge is paid by all the flats for building maintenance, insurance etc and would be paid by all the flats I to a common pot held by the management company. What you should do is ask to see the management company accounts and ask to speak to the people who run it, normally one or two of the residents take the lead and will be directors.

    FWIW £190 a month sounds a lot

    tonyplym
    Member

    Worth asking to see if significant repairs have been done recently, or are planned/needed in the future – such as roof, windows, gutters, drains or similar – decision may have been made to spread the costs over a longer period, rather than lumping the leaseholders with a very big on-off bill.

    brooess
    Member

    I want to buy the flat I’m living in, owners want to sell and we’ve agreed on a private sale, just need to get on with negotiations.
    Problem is, service charge/ground rent is £190 pcm.
    From what I can find out from asking others who own flats, this is very high indeed.
    There’s nothing special about the building, a Victorian villa with 9 flats and off-street parking. No additional facilities like a gym/security or private grounds so the charge seems pretty poor value to me and will add c40% to my mortgage repayments.
    As well as costing me a load more each month, I think it will also reduce the appeal when I sell in a few years – people buy what they can afford a mortgage for and having to pay an additional £200 I think will put people off – and there’s plenty of choice round here…

    tbh I can’t think of a reason to buy the flat now I know this – seems like massive additional expense for me for no real gain, reduced ability to overpay the mortgage as planned, and reduced ability to sell in the future…

    Thoughts?

    zeffir
    Member

    Does seem steep, for routine maintenance I’d expect around £250 per quarter. They may well pay additional funds into a sinking fund for future major projects, ask the managing agents for a breakdown. It would certainly put me off as a buyer tbh, though older buildings=more upkeep and if you’re considering an older property I suppose you have to accept greater cost.

    jekkyl
    Member

    No. Stay well away, most ground rent is a quid a year. Imagine instead you’re paying that money towards a mortgage repayment.

    GJP
    Member

    Ask to see the accounts for the last 3 years.

    Ground rent is typically nominal, I think mine is £50 per year but it does increase in line with the lease. If I live to be 150 then I may be paying £400 per annum.

    Beyond that there should be service charge account to cover repeating costs insurance, communal lights and heating, cleaning, gardening, and minor repairs. Any service charge service at the end of the year cannot be retained and should be deducted from next years service charges. But sometimes the leaseholders may agree to transfer it to the sinking fund.

    The sinking fund is used for major works and money can be retained year on year. Generally the lease will provide a clause that enable the freeholder to ask for extra to cover large urgent costs that cannot be met from the existing sinking fund e.g a new roof ours cost £600,000!

    Depending when the lease was drawn up then you will need to accept some latitude in how the accounts are used. To exercise my lease to the letter of the law would not be pragmatic. But my residents association of which I am a 1 / 32 shareholder will do their upmost to hold on to my money. Pees me right off at times

    Ask to see the lease, and read it carefully.

    grantway
    Member

    Before you go ahead
    Knock on a couple of doors and see if you all can buy the freehold

    grantway
    Member

    Before you go ahead
    Knock on a couple of doors and see if you all can buy the freehold

    gribble
    Member

    Unless there is a major item of expenditure on the service charge, that is a one off, steer clear. Service charge will not likely decline, as once it is at a level, it is hard to drop it back down unless the place is not maintained.

    I would be putting the additional cash into a mortgage, the service charge will add no value to your property if you buy.

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