My wife and I are in the process of buying a leasehold property in London. It was built in 2012 and the management company has produced no accounts for the past three years.
The vendors are up to date with their service charges, but we understand that we would be liable for any outstanding sums for the past three years once the sale is complete and accounts are finally presented.
My question is how much retention is it reasonable for us to ask from the vendors to cover this? The annual service charge is presently £1,600. Our solicitors have requested 20% of this figure for each year to give us some protection, which equates to £960 for the three years.
At our vendors’ request, we agreed to reduce this to £600 but asked them to agree to a clause in the contract to pick up future costs for their period of ownership. They are happy about the reduction but not about the clause. What is reasonable? Is six years the period of limitation for such charges? PM, London
Yes, there is a six-year period of limitation. Although management companies do not necessarily need to produce annual accounts, they have a statutory obligation to consult residents before undertaking certain works.
If they fail to do so, then they would not be able to recover the money so you would need to check that the proper processes had been followed if presented with a large bill. The Standard Conditions of Sale (Fifth Edition) which is used for most residential property transactions states that “when a sum to be apportioned is not known or easily ascertainable at completion, a provisional apportionment is to be made according to the best estimate available.”
Any resulting balance must be paid within 10 working days after the specific dues are known, otherwise it incurs interest.
Jonathan Smithers, head of residential property law at CooperBurnett, suggests that buyers make a best estimate of what may be due and leave it at that rather than get into complicated clauses involving future liability. “There is a risk but they may save themselves some costs in the long run,” he says. “The trouble usually comes later on when, in my experience, neither side necessarily remembers exactly what they agreed. Someone, usually a solicitor, has to hold on to the money for an extended period and account for it later – the fees attached to this can sometimes be more than the money being held.”
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