1. Is your flat leasehold or freehold
The main two types of tenure are leasehold and freehold. If you own the freehold (or a share of the freehold) then you are directly responsible for the upkeep of the building. However, if you are a leaseholder of a flat, you will be expected to pay service charges to the freeholder for the upkeep of the building, unless you and your fellow leaseholders in the building go through the Right To Manage (RTM) process.
2. Ask the right questions at viewings
Ask the estate agent and the neighbours for information before you buy. Do the freeholder/managing agents respond to complaints? Are there any problems with the building? Is the block secure? Is car-parking an issue? Do they feel they get value for money and good service from the managing agent?
3. Investigate how much you will be expected to pay in service charges
Speak to the managing agents, or get your solicitor to do it for you, to find out what service charges have been in recent years and what they are projected to be in future – these can vary significantly if major works are planned.
4. Ask if the managing agent receives commission on insurance premiums
Almost all traditional managing agents take a commission, sometimes in excess of 50%, which comes straight out of leaseholders’ service charges.
5. Ask who decides which contractors work on your block
Managing agents frequently receive a commission from their chosen contractor or only appoint companies to which they are financially related. If you have a good cleaner or know of a good maintenance company, would you be free to use them?
6. Ask whether there is a sinking/contingency fund in place
It is good practice for managing agents to accumulate a fund over time to pay for major planned works or unforeseen necessities. If there is no fund in place, you may find yourself liable for a significant amount of money at short notice.
7. Inspect common areas and the external condition of the block
Commission a surveyor if you have any concerns over the condition of the whole block as this should uncover any serious problems that might deter you from buying. Marks on the communal walls or blown light bulbs could also indicate that the building is poorly managed.
8. Check how long is left on the lease
Lenders will usually require that there is a minimum of 60 years remaining on a lease before granting a mortgage. However, even if there is more than 60 years on the lease when you buy, you may still want to apply for a lease extension as the closer the lease is to expiring the more expensive the extension becomes, making the property harder to sell. You may need to factor the cost of a lease extension into your budget.
9. Check for any additional charges
Ask the managing agents about their additional charges, known as ‘disbursements’. What do they charge for sending a letter or for a stamp?! How much would they make you pay to see an invoice if you wish to check how your money is being spent? Although they may only charge a small markup, it makes you question what other charges they are sneaking past you.
10. What happens if you wish to terminate the contract?
Most managing agents require three months’ termination notice, and many also charge a termination fee equivalent to three months’ agent fees. In the worst cases, agents insist upon as much as twelve months’ notice.
Steve Wylie, Director at Urban Owners who compiled the check-list, said:
“The cost of homeownership can be daunting, especially for first time buyers, for whom every penny counts. Unfortunately the managing agent industry is unregulated and there is plenty of scope for sharp practices and rip-offs that often hit first time buyers hardest. Doing your homework before purchasing could save you from a costly mistake.”
“However, flat owners are able to take control of the management of their block if they feel they are paying over the odds for poor service. Urban Owners’ expertise in leasehold law, together with our pioneering block administration services, mean that first time buyers can take control back from rogue freeholders or unscrupulous managing agents, typically saving £400 per year.”
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