Press Article
METRO - 14 July, 2011
Service charges
By Jo Eccles
When buying a new flat, service charges are something which can easily be over looked – you are so focused on the actual flat, that the communal areas and the cost of maintaining them can be forgotten.
Service charges are the amount of money you pay each year towards the costs of running and repairing the building. Some estate agents will highlight low service charges, but this is not necessarily a good thing. Often, if the charges are too low, there will be no ‘sinking fund’ for the building – this is essentially a pot of money which can be used to pay for maintenance, refurbishment and repairs to communal areas; it works like a savings account as you contribute to it each year, rather than needing to pay out large sums of money in one go if work is needed.
When viewing a property, always take note of the communal areas – if they are well maintained, it can indicate that the building is well run. You should make sure you check the shared space throughout the whole property; I once viewed a first-floor flat in Notting Hill for a client and the communal areas were immaculate, but upon further exploration, I discovered that above the first floor, they were disgusting! The owner of the flat had refurbished the communal areas himself and paid for a cleaner because he thought (quite rightly) that the run-down stairs and hallways would deter potential buyers.
You should also check out your neighbours – if they all own their flats, they will all have a vested interest in keeping the communal areas looking nice, but if some of the flats are rented out to tenants, it is unlikely that landlords will want to contribute much to the sinking fund as it will eat into their profits. That said, if a building has a nice feel and is well maintained, rental premiums will tend to be higher, thus going towards mitigating the higher service charges.
Although services charges may seem like a small issue when house hunting, buying in a building without a sinking fund could prove to be costly if all of a sudden it needs a new roof! Your solicitor will always ask whether work is planned for the building, and whether there is a sinking fund in place to pay for the costs, but it’s better to get this information up front if possible, before you start incurring legal fees. If it does transpire that major works are planned which you as the new owner will need to contribute to, try to renegotiate the price as your offer was made before this additional expense came to light. The seller will not always agree to a price reduction as they may argue that you as the new owner will benefit from any improvement in the building, but it’s certainly worth a try.