Saturday, 24 May 2014

Service Charges

For first time buyers the key consideration is the cost of a house or flat, and the relationship between annual salary and property price. For years salary and property prices stayed more or less together. The banks would lend 3 times the annual salary and that was enough to buy. Now London properties have broken free of this constraint and new properties can cost 10 times an average salary. This has made banks jittery about risking their money for ownership dreams of normal people. They attempt to lower risk by asking for large deposits. With all this to consider people are apt to overlook service charges and ground rent fees. This can be a recipe for disaster.

The most essential document is the lease. All new buyers are well advised to carefully read and re-read a lease before committing to a purchase. The first thing to find is how long the service charges are set at a fixed rate. New buyers are sometimes faced with leases that allow service charges to rise every year. If such a lease is signed then unscrupulous owners can use this to personally profit.

The next thing to read is the definition of the demised premises (the parts that are for the exclusive use of the leaseholder) and the reserved premises (the parts that the landlord retains ownership of). Service charges are used to maintain reserved premises. A new flat in a run-down development can incur large payments for the maintenance of reserved premises such as corridors, lifts, windows and garden areas. The lease will list these costs.

Some buyers move into a property and are immediately presented with a large service charge bill for work that occurred prior to occupation. Another common complaint is that the landlord is using service charge money to ‘improve’ their property rather than ‘maintain’ it. This increases the value of their property and leaves the leaseholder out of pocket. This is an issue that can be challenged in the law.

If you have a grievance with a high service charge the first thing to do is get some free advice. The only website I have found that provides this service is It is a list of emails and replies that provides an invaluable resource for people who want to challenge their service charges. They will also answer any question for free. All they ask for is a small donation.

The next step is often to take a landlord to a Leasehold Valuation Tribunal (LVT). It is not too expensive or complicated to do this without legal representation. Often the threat of legal action will make a landlord more open to discussion about costs. The court has the power to over-turn service charge costs, and in extreme cases to award court costs.

Above it all, it is the lease document that stands at the centre of any dispute. Paying for a solicitor to look at it and explain the ramifications of the document is a good idea. The right lease document gives you security against outrageous service charge costs.

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