Q. I’m due to exchange on the property I am selling in the next week or so and everything has progressed well so far with the conveyancing, but just when I thought it was a done deal my buyers solicitor has asked if there are any major works to be carried out on the block in the near future and indeed there are, the block is almost 10 years old and due for major external refurbishment and internal redecoration. The problem is the buyer’s solicitor is questioning whether there is enough in the sinking fund to cover all the works, and if not then how much is this going to cost the leaseholders? I am very worried, do you think this issue could jeopardise our sale?
A. Whenever there are major external and internal works on the agenda a buyers solicitor will always look into this thoroughly in order to protect their client from inheriting any major costs incurred especially if the reserve fund doesn’t look healthy. And as a buyer of course you can understand that having just completed on their brand new home they really don’t want any nasty shocks dropping through their letter boxes in the shape of a section 20 notice for thousands of pounds to cover the works. A section 20 notice is a legal document which, under UK property law, entitles the Freeholder to charge the leaseholders of a leasehold property for their share of essential renovation costs to the building or common parts thereof. This means that homeowners are held liable for a proportionate percentage of their entire building’s refurbishment costs if and when this becomes necessary. It is for this the very reason that when service charges are collected by your managing agent a certain proportion is taken and placed into the reserve fund or sinking fund. This fund would obviously accumulate over the years so that any major works on the building should be covered by the fund. Occasionally and particularly if the works are extensive a section 20 will be served on the leaseholders asking them to contribute towards the works. The amount depends of course and like anything you will always hear of a horror story where the amount was so huge leaseholders have had to sell their properties to pay for the works, which of course is an extreme case but never the less the reason why your buyers solicitor is keen to get further information on the situation. In real terms though it’s often more like a few thousand pounds, a manageable sum for most home owners. From you as the seller’s point of view I understand you would not be keen to offer freely to compensate the buyer since I am sure for one you will not be the one benefitting from the works and two, you will have already contributed substantially to the sinking fund anyway! However the buyer will have a different opinion and in most cases will ask you to contribute by way of retention or a price reduction just in case the costs are higher than anticipated. If you are committed to the sale and your buyer is the same there is no reason why you can’t negotiate between the two of you and come up with a suitable compromise or solution that works for you both.