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Some two thirds of buy-to-let properties and overall some two million properties in the UK are leasehold flats either within converted houses or purposed-built developments.

But despite a restructuring of the system following the Leasehold Reform Act in 1993 and the subsequent Commonhold and Leasehold Reform act of 2002, many landlords are still receiving large and often unexpected bills for their apartments from freeholders and/or management companies. Here’s some pointers.

Examine the accounts
Go through your freeholder’s management accounts each year very carefully and work out if the charges for work on the building bear reasonable scrutiny. This is why it’s important to make notes when you visit your property; detail levels of common areas cleanliness, repair work and any damage – do the accounts reflect the reality you’ve seen? If not you have good reason to challenge a bill when it comes in for payment.

Beware low charges
Ironically, low service charges can be a sign of a bad freeholder. All buildings need regular repair and maintenance so if you’re paying a pittance then your freeholder may be storing up problems – and a huge one-off payment for all their leaseholders – for the future.

Beware ‘added extras’
Large apartment blocks in city centres are often marketed as ‘ideal investment opportunities’ and indeed they may be. But while service charges can appear low in the marketing blurb, beware the possibility of later hikes when all the ‘extras’ within these developments start to need repair and maintenance – such as lifts, car parks, saunas, gyms or swimming pools.

Buy a share of the freehold
One of the key changes within the leasehold reform legislation mentioned earlier was to enable leaseholders within a property to club together and compel a freeholder to sell them their shares of the freehold, usually with a view to managing the property themselves and controlling costs particularly when a property’s maintenance is being handled badly, negligently or just plain criminally.

Avoid a sinking feeling
Good freeholders should always be using service charge payments from their leaseholders to build up ‘sinking funds’ to pay for large bills such as for a new roof. But some unscrupulous ones do not – and pocket the payments instead so press them for where and how large their fund is, and what and when they expect to spend it on.

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By Simon Knock
09 May 2013

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