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A service charge is a fee that you’ll pay the freehold owner of the leasehold flat where you live, and it covers several different services that the freeholder will provide for maintaining the building in which your flat is located. If you fall behind in paying your service charge, you will accrue arrears, and this can add some hurdles to selling your flat for a fast and fair offer.
- What are service charge arrears?
- Your liability for paying service charge arrears
- Can service charge arrears prevent the sale of your flat?
- Options to resolve your flat’s service charge arrears
- Getting your flat ready for potential buyers
- Four ways to sell a flat with service charge arrears
- Top questions about selling a flat with service charge arrears
What are service charge arrears?
If you are the owner of a leasehold flat in the UK, you’ll likely pay a regular service charge.
This is a fee that will be stipulated in the leasehold agreement that you will have signed with the freeholder, who owns the building that includes your flat, along with the land on which the property was constructed. In addition to a service charge, you will also pay an annual ground rent to the freeholder and own the flat for a set number of years specified in the agreement.
The service charge is distinct from the ground rent charge, and it can help the freeholder cover some of the costs of keeping the building in good condition, as the website Which? explains.
Some of the services that might be provided through the charge include general maintenance and upkeep of the building, rubbish collection, insurance for the property, and a reserve account to cover any emergency repairs that may be needed at the building.
If leaseholders fall behind in paying the service charge, this can have negative effects on the overall block of flats or whatever type of property your flat is located in – if the freeholder is relying on the fee to fund specific services, they might not be able to if you’re in arrears.
Your liability for paying service charge arrears
As the current leaseholder of your flat, you will be liable for paying the service charge. If you have fallen behind and have arrears, the duty to clear this debt will remain with you.
This legal obligation for paying back the arrears won’t transfer to the next leaseholder, meaning whoever purchases your flat. Just because you manage to sell your property does not eliminate your mandate to clear the outstanding service charge balance that you owe the freeholder.
It’s important to take every step that you can to resolve your service charge arrears when selling your leasehold flat, and later in this guide we’ll detail some options for achieving this. That’s because the consequences of ignoring the arrears when selling could become quite serious.
In a worst case scenario, your freeholder could sue you to recover the cost of the service charge arrears. This resulting court action might conclude with your flat being repossessed and the proceeds from the sale being used to pay off the arrears before you receive any funds, as the StepChange Debt Charity website notes. At this point, you’d no longer own a flat that you could sell.
Can service charge arrears prevent the sale of your flat?
No, there’s nothing that a freeholder can do to block you from attempting to find a buyer for your leasehold flat when you have service charge arrears – but it can create some complications.
Whilst you cannot be prevented from selling your leasehold flat because of your service charge arrears, one important factor to consider is whether the service charge is very high, meaning above the average that other leaseholders are charging at similar flats elsewhere.
If you have fallen behind on paying the service charge because it is too expensive, that could imply that the fee is far costlier than the typical amount other leaseholders of flats are paying for the same services at their properties. If that’s the case, potential buyers who have a strict budget for purchasing a flat may lose interest in your home because of the high service charge.
For any buyers that make a serious offer for purchasing your flat, you’ll need to disclose the current service charge to them as it’s set out in the lease, as highlighted on the UK government’s website. Be prepared that some buyers might rescind an offer or otherwise lose interest in your property if they think that the service charge is too high, on top of the money that they will have to spend for buying the flat and paying the ground rent.
But generally, because the liability for paying the service charge arrears will remain with you even after you have moved out of the flat, such a situation should not prevent you selling.
Options to resolve your flat’s service charge arrears
Because you will remain legally liable for paying the service charge arrears regardless of when you sell your flat, as noted on the Brady Solicitors website, () it can be to your benefit to resolve this debt as quickly as possible.
If you have enough savings or other funds to clear the debt before selling your property, this can be one solution – although it will obviously have a larger upfront cost to your budget. Paying off the service charge arrears before selling can help to avoid a situation where an agreement is put in place that the freeholder can recoup the arrears from the process of the sale of your flat.
Such an agreement is another viable option for clearing your service arrears, and your solicitor or other legal representative will negotiate with the freeholder about resolving the debt by using a portion of whatever proceeds you’re able to generate from the sale of your flat.
Note that such agreements can sometimes include deadlines, such as the freeholder only waiting for six months for you to find a buyer before they attempt to collect the entire arrears.
If you are having significant financial problems, you should consult with a financial professional to see your options.
Getting your flat ready for potential buyers
Once you are prepared to sell your leasehold flat with service charge arrears, there are some steps that you could take that might make the home appear more valuable to buyers, which in turn can help to increase the number and price of the offers that you might receive.
Inside the flat, you should tidy every room and remove as much clutter and personal belongings as possible. People that may come to your flat on viewings will want to imagine the property as it might look if they owned it, and not how you have decorated it. Clean and decluttered rooms will seem larger and worth more to buyers than messy rooms.
Outside the flat, if you have any kind of lawn or other green space then you should mow and weed this, because it will make the home more appealing visually to visiting prospective buyers. You should also check to see if there are simple low-cost or no-cost improvements that you could make to the exterior, such as replacing broken glass or replacing any missing roof tiles.
If your home is considered a problem property for any structural or other reason – for example, if it has spray foam insulation, subsidence, damp or many other varied issues – then you will need to think about whether to invest your effort, money and time in fixing the problem before selling.
Attempting to find a buyer for a so-called problem property without fixing the issues can lead to you receiving lower offers. That’s because potential buyers will typically reduce the price they offer to purchase your flat by the amount of money they expect it will cost them to fix the problem, in the even that they buy the home and become the new leaseholder.
Investing resources in correcting a problem with your flat before selling can be one option for avoiding the scenario where you will attract reduced offers. But many homeowners won’t have the funds, energy or time available to pursue what could be time-consuming and costly fixes.
If that’s the situation in which you find yourself, there are still ways that you can get a quick and fair offer for your flat. For example, you could contact a quick property buying company like LDN Properties, as they specialise in making competitive and speedy offers to purchase almost any type of leasehold or freehold house, flat or other property, even those with major flaws.
Four ways to sell a flat with service charge arrears
When it’s time to sell your leasehold flat with service charge arrears, you will need to select a method for finding a buyer. Typically, the choices are selling to a quick property buyer, selling at a property auction, selling with an estate agent or selling without any assistance.
Selling to a quick property buyer
Perhaps the fastest way to sell your flat is getting in contact with a quick property buyer. These companies, such as LDN Properties which launched in 2003, make speedy and competitive offers to buy almost any leasehold or freehold property. They can complete the purchase of most homes in a few weeks, and that includes exchanging contracts and paying the seller the proceeds – a much swifter timeline than you might get with the other options for selling.
The reason that quick buyers are able to move so rapidly is that they already have the funds to purchase properties, without needing wait for many weeks or months to get a mortgage. It means you can get a streamlined, no-stress and hassle-free way to sell your leasehold flat.
There are several other benefits of selling your flat to a quick buyer, such as the fact that honest companies will never make a homeowner pay any commission when selling their property. This can be important for anyone who is looking to keep their overall selling costs low, compared to using an estate agent or auctioneer where you’ll be charged potentially expensive fees.
Quick buyers can also make fair and fast offers on almost any property, and they won’t reduce the price just because of a home’s age, condition, location, shape, size or type – and this includes properties that might have some type of structural flaw or other problem.
For example, the long list of homes that LDN Properties has made offers and sometimes purchased throughout the UK includes flats with service charge arrears, underpinned houses, properties with an overgrown garden, penthouse flats, homes with survey problems, properties with a regulated tenancy, buy-to-let homes, houses of multiple occupancy, flats with a short lease, properties with old electrics or wiring, student homes, Laing Easiform houses, vandalised flats and many other scenarios.
Selling at a property auction
You could attempt to sell your leasehold flat with service charge arrears at a property auction, where people will be able to place bids on your home, at ever-increasing prices. The highest value bid at the time the auction ends will be the winner and the buyer of your flat.
As part of the auction process, you’ll be asked to choose a reserve price, and this is the lowest value at which you are comfortable selling your home. Make sure that you are still likely to make a profit if your flat sells at this price, even after paying the auctioneer their fees, because a valid bid is a binding agreement to sell your property, and the buyer can sue to enforce it.
Most auctioneers will charge you commission at a rate of 2 to 5 percent of your property’s final sale price, and this will add to your costs because it’ll be taken out of the sale proceeds right away. As an example if the property sells for £150,000 with a commission payable of 3%, you would be paying £4500 of commission and don’t forget VAT is also added. Some auctioneers could be willing to lower their fees or make the winning high bidder pay for some of your auction expenses, so it’s worth asking whether this might be possible.
Auctioneers charge the fees for their work, which includes preparing and advertising a listing that will feature photographs of your flat and describe its main features, and hosting the auction.
It’s possible you’ll be given the choice of either a traditional or modern auction. With a traditional auction, your flat will be advertised for a set amount of time, and then the auction will take place, and that’s where people will be able to bid on the property. With a modern auction, people will be able to place bids on your flat 24 hours a day, seven days a week, as soon as the listing is posted, and the top bid when the listing (and auction) ends is deemed the winning buyer.
This typically won’t be a very swift way to sell your flat, because there can be several periods of waiting involved, including many weeks or months between when you decide to auction your property and when the auction takes place. And then if your home does sell, the buyer will have an average of 28 days to complete their required tasks like signing the legal paperwork.
Some auctioneers could be willing to set a shorter deadline for the buyer to finish these tasks, so you can ask individual companies if this is feasible. But note that other auction houses might give the buyer even more time than 28 days, adding further delay to the process.
Selling with an estate agent
Another way that you could sell your flat with service charge arrears would be to contact an estate agent, who will make the process relatively stress-free by doing most of the work – such as preparing and advertising a listing for your flat, organising viewings and hearing offers.
But this can take quite a long time, and you should not be surprised if your flat remains unsold for many months or even more than a full year. And if you get a serious offer from a buyer, they could still rescind it any time until contracts are exchanged and not face any penalties. This would delay a sale even further, because you’d have to start again with looking for a buyer.
When you sell a flat through an estate agent, you will also have to pay them commission if they succeed in selling the property. You can expect to be charged a fee often in a range from 1.15 percent to 1.40 percent of the flat’s final sale price. The commission will be subtracted immediately from the sale proceeds, which will add to your overall expenses.
You should also be aware that some estate agents might try a trick where they quote a very high potential sale price for your flat, despite them knowing that the property will only attract offers at a lower value. They do this to persuade you to use their services, which means that they can eventually profit from the commission they’ll charge if your flat finds a buyer.
The good news is that it’s fairly quick, simple and free to avoid falling for this trick. First, ask multiple estate agents for free quotes on the price at which they think your flat could sell. Second, look on property sales websites and note the current or past sale prices of flats that are similar to your home. And finally, calculate the average of all these prices, and this should give you a more realistic estimate of how much a buyer may be willing to pay for your flat.
Selling without any assistance
This can be the most stressful way to sell your flat with service charge arrears, because you will have to handle every step of the sale, starting with putting together a listing and advertising it, scheduling viewings for potential buyers to tour the flat, and hearing any serious offers.
It will be a very time-consuming process and therefore is only generally suggested if you have a friend or family member who has experience of selling properties and might be willing to assist you for free, or if you have the same type of experience. Otherwise, you could be looking at a slow timeline for selling, where your flat might remain unsold for more than a full year.
One of the few clear benefits of this method for selling is that you will not have to pay an estate agent or auctioneer any commission, which can help with lowering your sale costs. But any saving you make could be cancelled out by your spending to advertise your listing.
If you’re determined to avoid fees when selling, you may want to consider instead selling your flat to a quick buyer like LDN Properties. Not only will they promise to not charge any fees when purchasing your home, but they can also complete the process on a much faster schedule, taking just weeks before contracts are exchanged and you receive the sale proceeds.
Top queries and answers about selling a flat with service charge arrears
Your top questions when selling a flat with service charge arrears
If you are the owner of a leasehold flat, you will have signed a lease agreement with the freeholder, and it will specify how many you are the owner of the flat, how much ground rent you will pay each year, and the service charge – the latter is a fee that the freeholder charges to pay for a host of services at the property, including rubbish collection and building maintenance.
As the leaseholder of your flat, you will be required to pay your regular service charge in the amount specified in the lease agreement that you signed with the freeholder. If you fall behind in making these payments because you are experiencing financial difficulties, or for any other reason, then you will be deemed in arrears for the outstanding amount that you owe.
Yes, when you sell a leasehold flat, the legal duty to pay the remaining amount of service charge arrears stays with you and it does not transfer to the next leasehold owner of your flat. It’s important that you try to clear the outstanding service charge amount that you owe the freeholder, because they could sue you in an attempt to collect the money.
You could pay off the arrears before selling your leasehold flat if you have the funds to do so, and it will not create problems in trying to buy your next home. Or you could reach an agreement with the freeholder under which you would use a portion of the proceeds from the sale of your property to clear whatever amount you currently owe them.
No, your freeholder will not have the legal power to prevent you from trying to sell your leasehold flat just because you currently have service charge arrears. But very high service charges can be one reason people build up arrears, and some buyers might quickly lose interest in making an offer on your flat if they think that the service charge is too high.
Often the fastest option is likely selling to LDN Properties or another quick property buying company, as they generally take just a handful of weeks to exchange contracts and pay the seller the full proceeds. You can expect to wait many months at least when trying to sell a leasehold flat through an estate agent, at a property auction or without any third party assistance.
Yes, if you decide to sell without any help or if you sell your home to a legitimate no-fee quick property buying company such as LDN Properties. But if you decide to use an estate agent or an auctioneer to sell your leasehold flat with service charge arrears, they will charge you commission and this will be deducted from the eventual property sale proceeds.
