Things to know before buying leasehold - part 4

We continue to receive a huge number of enquiries from buyers and new owners about leasehold properties. Sadly it seems few people are available to help with the purchase process, and fewer still are willing to have a conversation about potential concerns, pitfalls and problems associated with leasehold ownership. We have therefore prepared a 7-part series to give some more information and insight for those that own, or are considering acquiring, a leasehold property.

Major Works and consultations - Section 20

We previously covered what Section 20 means here. In this article, we'll consider what it means to prospective buyers and new leaseholders, and what to look out for before committing to a purchase.

Pre-sale enquiries and observations

The first thing to be aware of is that there might be no formal record of planned "major works" or consultations. This could be because the managers do not hold enough funds, or the work is not yet considered urgent enough, or simply they have not gotten round to it yet for various reasons. Despite that, it pays to be aware when viewing a flat, not just checking the inside but also the externals, the grounds, the roof, and anything in between. Look for signs that painting of windows is overdue, or lots of missing or broken roof tiles. Perhaps potholes all over the car park, or fences leaning over or fallen down. These all indicate potential large expenses and can often be very visible.

Likewise you can ask the seller or their estate agent about any expected major works, for example have they reported any large issues such as roof leaks, damp, heating issues, plumbing problems, etc. While these are all just part of life, it can help you make a better decision when purchasing. A better question could be to ask the seller when was the work last completed, as the seller might have a better indication of the history of the building than the upcoming plans between the managing agent and Directors. You can then anticipate major works like roof replacements, lift upgrades or decorations which come in cycles, and estimate when they may fall due in future. Be sure to check if a property is listed as well, as this can add various requirements and complications to any works, which in turn increases the cost of projects.

Pre-Section 20

After viewing a leasehold property, prospective buyers make an offer to purchase and, once accepted, instruct their solicitors to make enquiries. One of those enquiries includes an LPE1 (Leasehold Property Enquiries) form, which is designed to get an overview of information about the management of communal facilities. Be sure to check this form, and specifically details of planned works, consultations or service charge increases - all covered in Section 4. While copies of Section 20 notices issued will give clear details, you also want to consider when the property was last decorated, and whether an increase of more than 10% or £100 will apply to the annual service charge. Both of these would indicate planned work due soon, which often comes at a cost.

Also pay attention to whether a Reserve Fund applies, and how much has been saved. While it would be helpful to see a good fund available to pay for any likely works, if there is no Reserve at all this could impact the ability of the manager to manage cash flow and properly save for works ahead of time. If that is the case, it would be wise to seek a further explanation as to why a Reserve Fund has not been saved - these funds are so important that it is expected to become mandatory in law in the next few years.

Reviewing consultations and the implications

If you have been provided a copy of Section 20 notices, this isn't necessarily a negative. Many people are concerned when they see large projects need to be completed, but often it is a positive sign that a building is being properly looked after rather than left to fall apart. It may also imply good financial management, assuming of course that a Reserve Fund has been saved to cover the costs.

Take your time to review and understand the notices and what they mean. For example a Notice of Intention for internal decoration should suggest a relatively low cost project inside the building to keep hallways and stairwells smart and fresh - subject of course to the layout of the property any unusual features! You may even know a decorator you could suggest to quote for the work.

However a Statement of Estimates for £300,000 of roof repairs might imply a prolonged period of neglect, a lack of proper roof inspections and maintenance, and potentially urgent leaks that need quick attention and may lead to rushed work. It would be prudent to make further enquiries to understand the history of this scenario, how it has reached that point, whether funds have been saved over several years, what the expected outcome is and any guarantees on the work - hopefully a new roof to last 100 years!

Financial consequences

If there is a limited Reserve Fund, it may be expected that leaseholders will have to contribute to the cost of the project. Any funds need to be paid to the manager up front, so that they have money with which to pay contractors before they can commence work. You should check with your conveyancer before purchasing, but there may be room to negotiate those expected costs between the seller and buyer. Again, it helps to understand the nature of the project, likely costs and available funds, to ensure you are aware of likely fees for future. It is not uncommon for leaseholders to buy a flat, and then be charged an extra sum for major works that had already been declared prior to the purchase - make sure you don't fall into that trap and read all the documents provided!

If there is no mention of major works in the leasehold pack, be sure to ask. Even if there are no imminent works planned or expected, there could be a 10 year Planned Maintenance Programme that you could review, but this isn't always provided in a standard leasehold pack.

Management of major works

Section 20 projects can be for relatively small sums in small buildings, or for huge projects with extensive costs. However, the undertaking of this consultation does not by itself suggest positive or negative consequences. It is definitely positive that the manager is aware of the legislation and making the effort to consult, but without more details it is very hard to judge positive vs negative management of the property. Has it been left and neglected? Are they being proactive? Has it been delayed to allow residents to save funds? Is there a Planned Maintenance Programme? Will specialists and surveyors advise on the work?

There is a lot of information to be gleaned by checking just a few more details, and this can be invaluable both to decide whether or not to purchase, but also to ensure you are not caught out financially after such a large purchase.

Major works can be intimidating, but the key is to find as much information as possible and ask practical questions from other residents and the manager. If you are struggling to understand a consultation you have received, feel free to reach out to our team for some help and practical questions.