Dealing With Rent and Service Charge Payments

Where a property is leasehold there will usually be a ground rent payable and if it is a flat, a service charge. They will usually be demanded annually or perhaps bi-annually or quarterly. When the property is sold the seller is responsible for amounts due up to and including the date of complete and the seller is responsible thereafter.

Unfortunately a landlord will rarely apportion the demands therefore unless completion happens to fall on the day payment is next due, the buyer and seller need to decide how any demands relating to the period during which completion takes place are dealt with. There are two ways to deal with such demands.

Apportionment in Favour of the Seller

First, the seller may pay to the end of a particular period, say the current quarter, and if so his conveyancer will calculate what portion of the amount he has paid relates to the period between completion and the end of the quarter and will recover that amount from the purchaser (via his conveyancer) on completion. This is called an apportionment. Often, the seller’s conveyancer will pay the amount due on his client’s behalf from the sale proceeds, in which case the purchaser’s conveyancer should ask for an undertaking from the seller’s conveyancer that the arrears will be paid.

Allowance in Favour of the Purchaser

The other option is for the amount due for the period in which completion takes place to be left unpaid and if that is the case the seller’s conveyancer should work out what portion of the demand his client should have paid and make an allowance in favour of the buyer for this sum. This means that although the purchase price remains the same, the buyer gets to hold back an amount which is equal to the amount the seller should have paid.

If an allowance is made, the purchaser’s conveyancer should collect the balance of what is due to the landlord for the period from his client on completion, put that together with the allowance and settle the arrears.

Arrears Demands Received By Purchaser Following Completion

It is inevitable that occasionally things will go wrong. If you receive a demand for arrears following completion of a purchase which relate to a period before completion you should immediately contact your conveyancer to find out whether an allowance or apportionment was made. If an allowance was made but your conveyancer neglected to collect the balance from you and settle the arrears then you can simply settle them directly.

If an apportionment was made then you should ask your conveyancer to confirm he obtained an undertaking that the arrears would be settled by the seller’s conveyancer. If he did, he should enforce that undertaking, which may mean that the seller’s conveyancers have to pay the arrears themselves and recover them from their client. If he has failed to obtain an undertaking then, although the seller may be contractually bound to you to settle the arrears, your best course of action may be to demand that your conveyancer pays as suing your seller could be a long and expensive process.

If your conveyancer objects, which he may well do initially (and assuming he does not have a reasonable explanation), complain first to the senior partner of the firm and if that is not successful speak to the Solicitor Regulation Authority. You should not lose out as a result of a mistake by your conveyancer and if the charges continue to go unpaid your lease may be forfeit, in which case you will have lost all of your money and be homeless.

Having said all of the above, obviously if your conveyancer has advised you before exchange of contracts that the arrears would not be paid on completion, or at least that the seller was not prepared to offer any guarantees, and advised you of the risks involved, then you can have no claim against him.

Retentions Against Service Charges

Sometimes the actual amount of service charge owed by the seller at completion cannot be ascertained. There are two main reasons for this, either because the charges are demanded in arrears or where they are demanded in advance, because when the final expenditure for the year is calculated at the end of the landlord’s financial year there is a shortfall between the anticipated expenditure and the actual. If this latter situation arises, which is fairly common, the difference will be collected from the tenants. This is sometimes called a “balancing charge”.

Where the actual amount due for the seller’s period of ownership cannot be calculated it is common practice for a retention to be held. A retention is an amount of money held back from the purchase price, usually by the seller’s conveyancer but sometimes by the buyer’s, to cover the seller’s liability once the final figures are known.

The management company, like any company, has 10 months after the end of an accounting period in which to file its final accounts therefore a fixed deadline of say 11 months after the end of the accounting period during which completion takes place should be imposed, after which the retention can be released to the seller.

If a balancing charge is demanded of you as a purchaser and it does relate to a period before completion you should contact your conveyancer as soon as possible to check whether a retention is held and if so, recover what is due to you. If no retention was held then, depending on what advice you were given, you may have a claim against your conveyancer.

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