The Lemon Fool

We are considering buying a leasehold flat as a holiday-let investment but I'm concerned about management charges. What protection is there, if any, from Management Charges escalating? I remember seeing reports of leasehold property owners getting ripped off as charges were tripled etc.

The accounts I have seen for the property show that management fees have increased from around £1600 to £1900 in the last 12 months which is quite a steep increase, but the figures as a whole don't seem way out of line for leasehold properties.... but they are something we don't have to pay for our current 2 holiday lets.

Many thanks
C

One protection is the possibility of leaseholders getting together to buy out the freehold and then manage it themselves or use a management company who can always be sacked if you want to.

Leaseholders these days have fairly strong rights to buy the freehold and I suggest it is worth looking into this area before you buy it.

Well, the first thing to do is to look in the lease, as that will (should) specify what service charges can be levied for. E.g. often it will be limited to the costs of repair and maintenance but not improvements. In any case, service charges have to be "reasonable", about which there is, of course, a huge amount of case law, which you can google for yourself.

The Leasehold Advisory Service website is a good general resource. Here's a few pages you might want to look over:

https://www.lease-advice.org/advice-guide/service-charges-other-issues A guide to service charges, administration charges, ground rent, etc

https://www.lease-advice.org/advice-guide/right-manage The right for leaseholders of a building containing flats to take over the management of the building.

https://www.lease-advice.org/advice-guide/ce-getting-started Collective Enfranchisement (buying the freehold of your building)

Clariman wrote:We are considering buying a leasehold flat as a holiday-let investment but I'm concerned about management charges. What protection is there, if any, from Management Charges escalating? I remember seeing reports of leasehold property owners getting ripped off as charges were tripled etc.

The accounts I have seen for the property show that management fees have increased from around £1600 to £1900 in the last 12 months which is quite a steep increase, but the figures as a whole don't seem way out of line for leasehold properties.... but they are something we don't have to pay for our current 2 holiday lets.

Many thanks
C

Are you SURE those are management fees, not maintenance costs? Seems a LOT to be paying a management firm, or is that the total paid to them by all the flats for managing the block?

Assuming it is the management fee, you haven't mentioned the maintenance charges paid out to contractors doing cleaning of the common parts, gardening, lighting, car park maintenance etc.

Broadly speaking, your protection against high management cost and high contractor fees is to canvas other flat owners, get support and take on these tasks yourself. In reality, few of your neighbours are likely to give a toss, leaving you stuck with whatever is happening. My advice borne of experience is just never buy leaseholds, they are such a lottery.

And then there are the avaricious freeholder charges you are wide open to. Nothing much you can do about that other than get a better solicitor than theirs.

As I understand the costs are mostly maintenance. There are common areas both inside and outside, covered garage etc

Clariman wrote:We are considering buying a leasehold flat as a holiday-let investment

Although some properties have featured in both my Furnished Holiday Lets (FHL) accounts and my BTL accounts at different times, I've only ever used freehold properties for FHL because nearly all my leasehold properties required that letting be subject to a 3-party licence issued by the ManCo (on behalf of the freeholder) for a fee and (in theory) after vetting the prospective occupiers and the AST agreement. This allows them to know who's living in the building but makes FHL impossible and there have also been other lease requirements that would make FHL tricky.

Remember that you are not buying a flat. You get no bricks and mortar for your money. You are buying a lease. It's all very well to look around a flat and find it pleasing and just what you were looking for but what you really need to examine (and in detail) is the lease. You need to know what you're buying and that means knowing the lease. You may see other flats in the building apparently being used for FHL but you only know if that's a permitted use by studying the lease.

On a slightly different tack, I don't have the archive to hand but believe all my mortgage loans insisted on any letting of the property acting as security for the loan being only under an AST. Strictly speaking, this would involve re-mortgaging BTL property (or private residence) to fund FHL acquisitions with my accounting entries being based on the application of loan funds rather than on whichever property may happen to be acting as security. I don't know if FHL has now become a use acceptable to lenders but it used to be highly problematic.

Cheers!