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If you own a leasehold flat then you will typically pay a service charge to the freeholder owner of the building and land on which it is located. Service charges include fees like your share of the building insurance and repair funds. Excessively high service charges may deter some buyers, but there are still ways that you can get a competitive and fast offer from a buyer.
- What are service charges for flats?
- How a high service charge can complicate selling a flat
- Challenging your flat’s high service charge
- Getting your flat prepared for sale
- Capital Gains Tax and the sale of your flat
- Four ways to sell a flat with a high service charge
- Top questions about selling a flat with a high service charge
What are service charges for flats?
Many flats throughout the UK are leasehold properties, which means that you own the individual unit for a specific number of years as stipulated in a lease agreement with the freeholder, who owns the building itself and the land on which it is situated. You have the legal right to live in the home until the lease expires, when ownership will then revert back to the freeholder unless the lease is extended.
One typical condition of lease agreements is that they include a service charge, which as the UK government’s website explains can cover several fees that leaseholders must pay.
An important clarification is on ground rent, which is an annual fee that the leaseholder pays to the freeholder for owning the flat. This is a straightforward fee that the freeholder can charge and they are not required to provide any service for it – therefore this is a distinct payment from a service charge, for which the freeholder does have to provide a service.
Building insurance is often the responsibility of the freeholder, as they will pay the insurance policy premiums to cover the costs of any damage to the property, but not leaseholders’ possessions. The freeholder can then pass the costs of this insurance policy on to however many leaseholders they have by dividing it up among all of their service charges.
A sink, or reserve, fund is another service charge that can apply, and this is where leaseholders will have to pay a regular contribution toward an account managed by the freeholder that would pay for any unplanned repairs or other maintenance, such as repairing a roof. As the government’s website notes, freeholders are subject to certain rules about using these funds.
How a high service charge can complicate selling a flat
Service charges vary from property to property, and can be just a few hundred pounds a year, but there are increasing press reports about significant increases in these fees.
One recent story by the Manchester Evening News highlighted that a flat in the city had a service charge that in one year jumped by more than £300, bringing the total to almost £900. And in other locations, particularly London, service charges at some flats can soar to more than £1,500 each year.
Such high fees are not only a problem for the current leaseholder as they try to plan their budgets, but they can also present a complication when trying to sell the property.
That’s because some buyers might have major concerns about buying the flat and becoming the next leaseholder and then being required to pay the high service charge. They might need to apply for a mortgage to pay for the cost of purchasing your property, and they simply may not be able to afford those monthly loan repayments on top of the high service charge. As a result, these buyers are likely to lose interest in making an offer to purchase your home.
Challenging your flat’s high service charge
If you’re worried that a high service charge might deter buyers from being interested in your flat, then one option can be to challenge the charge as unreasonable before a tribunal.
This will require filing a formal complaint with what’s known as the First Tier Tribunal (Property Chamber), as the Leasehold Advisory Service – an independent organisation that gives advice to residential leaseholders details on its website. A judge will then review the details of the complaint, in which you will have to make a justification for why you think that the service charge you are being made to pay is unreasonably high compared to similar flats.
In an ideal outcome, the judge would agree with you that the service charge is unreasonably high and then require the freeholder to reduce the amount that you’re required to pay. This in turn would potentially address the problem of the high service charge deterring potential buyers, because the tribunal would have hopefully lowered it to a reasonable amount.
However, there is no guarantee that you will win with a tribunal fight over the high service charge, and there can be many legal costs and delays involved with the process. If you end up losing and the high service charge remains, all you will have done is spent many months or possibly even longer fighting the fee instead of selling the property, and adding to your costs.
Instead, you might want to consider contacting LDN Properties or another quick buyer because these companies are not typically deterred from making fast and fair offers for flats even with high service charges. They will still give you an honest and competitive price for your property, and you won’t have to worry that they’ll back out of the sale because of the high current or future service charge due to a section 20 notice being served.
Getting your flat prepared for sale
One important part of the selling process is getting your leasehold flat ready for sale, which means making sure that it looks in the best possible condition for any buyers.
With the interior of your flat, you should spend some time and effort on cleaning all of the rooms and removing as much clutter as possible. Make the rooms look as spacious as you can, because this will give people visiting on viewings that the space is larger and more valuable. If you have pets, clean up after them and keep them locked away during these viewings.
Outside of the property, if there are simple and quick actions you can take to improve the appearance of your unit then you should do them – this could be steps such as replacing any broken glass at your flat or giving the window ledges a fresh coat of paint.
Appearances matter when selling a home and these simple steps could help to make your flat seem more valuable to buyers, as a recent article in The Times explains.
Another issue to consider is whether you will need to spend some time, money and effort on fixing and major structural problem with your flat, such as dry rot, large amounts of asbestos or other issues. These negative aspects can make some buyers view your property less favourably, and they might reduce their potential offers by at least the amount of money that it would cost them to fix the issue once they become the next owner of the flat.
By spending money and time on addressing the problem before selling, you will eliminate this outcome, but many people won’t have the funds or other ability to do this work.
If that’s your situation, then you’ll still be able to get a fair and fast offer for your flat if you get in touch with a quick buyer such as LDN Properties. These companies will give you a competitive price for your home even with a major structural problem, and they can also typically complete the purchase of most properties within just a few short weeks. A further benefit of selling to a fast buyer is that you’ll never have to pay any commission to sell your home.
Capital Gains Tax and the sale of your flat
Creating a budget for the sale of your leasehold flat is an important step, because you need to account for your potential expenses, including whether you’ll pay Capital Gains Tax.
This tax is assessed based on how much profit, also known as gain, that you might make from the sale of your flat compared to your original purchase price.
Consult with a financial professional about this tax, because there are certain steps that can help to either eliminate or significantly reduce how much tax you might have to pay.
And if you either sell your home at a loss compared to what you paid for it, or break even and sell close to the original purchase price, then Capital Gains Tax will typically not be charged.
Four ways to sell a flat with a high service charge
When you are ready to sell your flat with a high service charge, you need to decide on which strategy you’re going to use to find a buyer. The four choices are typically selling with an estate agent, selling to a quick property buyer, selling on your own or selling at an auction.
You will discover that there are certain advantages that come with each approach, such as quick property buyers never charging any fees, and disadvantages unique to other methods, such as selling on your own often taking more than a year and being very stressful.
Consider writing down your main aims with selling, such as your preferred sale price, the amount of time you can wait to find a buyer, whether you can accept paying commission for the sale, and more. Then compare these goals against the specific information about each of the four options below and it should help you with finding the one that best suits your needs.
Selling with an estate agent
One major pro of selling through an estate agent is that they will be responsible for doing almost all of the work required to find a buyer, which reduces your stress and effort significantly.
This starts with creating a listing the describes your flat and features photographs of the interior and exterior, then advertising this listing in their office, in local newspapers and online, then organising viewings for potential buyers to tour your property. Finally, they will hear offers from serious buyers and hopefully guide one of them through to exchange of contracts.
But for doing all of this work, estate agents will require that you pay them commission for a successful sale. It will add to your overall selling expenses because the estate agent will deduct this commission from the sale proceeds right after completion.
It can also be quite a slow way to sell a flat, and you should not be surprised if you have to wait many months, or even more than an entire year, before you’re able to get a buyer. For those owners who are looking for a speedier sale, you may want to consider other options.
Also, some estate agents might have zero experience with selling flats that have high service charges, so they might not know how to market your home, making it harder to attract buyers and delaying a sale even longer. Ask individual companies if they have had success selling flats with high service charges, and avoid doing business with those that have none.
Selling to a quick property buyer
Perhaps the fastest way to sell your flat with a high service charge is by getting in touch with a quick buyer. These companies, such as LDN Properties that launched in 2003, make speedy and fair offers for buying any age, condition, location, shape, size or type of leasehold or freehold property, and they’re known for how fast they can complete the purchase.
It typically takes them only a few weeks to exchange contracts and pay you the proceeds, which is generally much faster than the other three selling options outlined in this section. If your top aim with selling is getting a buyer as quickly as possible then this is a great choice.
Another reason to consider using a quick buyer is that they will not be deterred from being interested in your flat just because it has a high service charge – unlike individual private buyers who might be concerned about their ability to pay that fee as the next owner.
Flats with high service charges are just some of the many varied purchases that LDN Properties has made throughout the UK, because the company can also make competitive and speedy offers for a broad range of properties including vandalised homes, properties with solar panels, uninsurable houses, flats near industrial estates, self-build houses, properties close to railway lines, and much more.
You will also never have to pay any commission when you sell your flat with a high service charge to a quick buyer that promises to never charge any commission. This can help to reduce your overall selling expenses and ensure you’ll receive the full proceeds from the sale. That is perfect for any homeowners who are looking to reduce their total costs with finding a buyer.
And it’s also incredibly easy to check whether a quick buyer is legitimate, by asking if they belong to a third party entity known as The Property Ombudsman (TPO). This organization writes regulations that shield owners against scams in the quick buying industry, and all genuine TPO members – such as LDN Properties – must adhere strictly to these rules.
You can visit TPO’s website and click on the "Find a Member" tab and then type in the name of an individual quick buyer when prompted, and it will search to see whether the company is genuinely registered with the organisation. If the quick buyer is a true TPO member then their membership details will appear. If you get no results then the company is not registered with TPO and you should not sell with them because it might be a fraudulent business.
Selling on your own
A third way to sell your flat with a high service charge is doing so on your own, which means that you would have to do all of the steps involved with trying to find a buyer – everything from creating and advertising the listing to organising viewings and fielding serious offers.
This is a huge amount of work even for those who have experience with selling properties, and it can be very stressful and not something that you can put off to just your free time. Don’t be surprised if it takes more than an entire year to sell your property. And even if you get a serious offer from a buyer, they could still withdraw it without any penalty until just before contracts are exchanged, which would set you back many more months in the selling process.
The only clear advantage of selling this way is that you will not be required to a pay an estate agent or auctioneer any commission, which can help lower your expenses. But this saving might be eliminated by the money that you’ll have to spend on advertising your property and other costs that you will incur with having the sole responsibility for selling the flat.
As an alternative, you could contact a quick no-fee buyer like LDN Properties about selling your home. These companies making quick and fair offers to buy almost any type of property, including flats with high service charges, and promise never to charge any commission. But they have the added benefit of being able to complete the purchase of most properties within just a few short weeks, and that includes the exchange of contracts and paying you the proceeds.
Selling at an auction
And the fourth way to possibly sell your flat with a high service charge is at an auction, where you will pick a reserve price – the lowest value at which you can accept selling your home – and then people will place bids on the flat, hopefully several at ever-increasing prices.
There is no promise that anyone will bid on your home, and if it receives no bids at the reserve price at least then it will be deemed unsold and you’ll have to start over with trying to find a buyer, which can add much more time to the selling process.
If you only get a single bid at the reserve price then this is considered a legally binding agreement that you’ll sell your flat, and the buyer could sue you to enforce it if you try to walk away from the sale. That’s why you need to pick a reserve price that should be ensured to produce a profit from the sale, even after you have paid the auctioneer’s fees.
And those fees are typically charged based on the final sale price that you get for your property, adding to your costs because this will be taken out of the final sale proceeds.
You could potentially ask an auctioneer to lower this fee or at least have the winning high bidder pay for some of your expenses, so it’s worth inquiring with individual companies.
Top queries and answers about selling a flat with a high service charge
Homeowners thinking of selling their home quickly typically have a range of questions that need answering, ranging from the how selling a flat with a high ground rent through to selling a property without kitchen or bathroom. Here are a few of the questions we’re asked about selling a flat with a high service charge:
Your top questions when selling a flat with high service charge
Some buyers might lose interest in making an offer on your property if it has a high service charge, because this can add a significant expense on top of whatever mortgage repayments, utility bills and other costs they would have if they buy your flat. Some service charges can be as high as several thousand pounds, making it much harder to attract potential buyers.
Yes, you could consider pursuing a tribunal action against your freeholder if you believe that the service charge you are paying on your leasehold flat is unreasonable. If you win, this could force a lower service charge before you sell. However, this can be a lengthy, costly and complicated process and it would add a major delay on to your overall selling timeline.
Yes, although you may find it harder to attract certain individual buyers, you could still get a competitive and swift offer on your flat if you get in touch with LDN Properties or another quick buying company. These businesses are highly experienced at making fast and fair offers for so-called problem properties, such as leasehold flats that have high service charges.
Typically it will be, because these companies can finalise the process of purchasing a property within just a handful of weeks, and that includes exchanging contracts and paying you the full proceeds. Compare that to using an estate agent, selling via a property auction or selling without any assistance, which can all take at least many months or even longer.
Not necessarily, and if you sell to either a zero-fee quick buyer such as LDN Properties or you sell without any third party help then you won’t have to pay any commission. But if you decide to sell your home at an auction or with an estate agent then they will make you pay commission that will be based on the sale price and subtracted right away from the sale proceeds.
Ask individual companies if they are members of The Property Ombudsman (TPO), an independent organisation that writes rules to guard homeowners from falling victim to fraud in the quick buying industry, and legitimate members must follow these regulations. If a company cannot prove that it belongs to TPO then be cautious of selling to them because it may be a scam.
