April 24, 2017

My contingency fund fee on sale paid to modify these six-month old gates

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JoanWadeThe Carlex reader “Fleeced” thinks contingency fund fees paid on sale are a rip-off and Carlex is wrong not to oppose them.

She bought and sold a flat after only six months and had to pay out her contingency fund contribution.

Worse, it was needed to pay for new underground carpark gates which might reasonably have been expected to be part of the new building’s warranty.

The utter valuelessness of these NHBC warranties in so many cases is more of a scandal than fees on sale of any type.

The Leasehold Knowledge Partnership is deluged with cases where blocks of flats have a raft of defects and are either not covered by the warranty or the insurance or the freeholder simply will not make a claim.

All in all, it is far easier to have the leaseholders pay for it.

We sympathise with Fleeced for this case, but we are aware of sites where leaseholders are in control and do impose a contingency fund fee on sale.

It can be a good way of doing this.

Here is Fleeced’s account:

The attached photo shows that all the flats were not even sold when a problem arose with the electronic gates.

Because I was the first person to sell within the first 6 months I ended up indirectly paying for the repairs to the gates myself because I had paid 1% to PMSL for the contingency fund. I had already been ripped off £45,000 in a part-exchange deal and forced to pay for repair costs to the gates when Pegasus should have paid for the repairs under the 2 years NHBC warranty.

Pegasus and Peverel were complicit in the financial exploitation.

As AM has said a reputable management company plans long term for all maintenance work/repairs paid for out of the service charges. But PMSL is unscrupulous and collects exit fees of 1% for a contingency fund that enables the corruption to carry on. It’s a racket that must be stopped.

Comments

  1. Well its not reasonably expected at all- its wishful thinking- the NHBC Zurich or Architects warranty would not cover this.

    So its not a problem of the contingency fee itself but how it is spent and who spends it. In principle its a useful thing but I’d like to see a test determination if these should be held in trust or not. Its not something I would look closely at but if these are not servuice charges, perhaps others might explore the issue or if explicitly or implicitly expenses on defects are outside the wording of the CF in the specific lease.

  2. Fleeced is a doughty campaigner, and has long disagreed with contingency funds being partly funded through exit fees. She cannot see why retirement leasehold properties should be any different from the rest of the market, where contingency funds are supported entirely from service charges.
    The facts are that it is essential for contingency funds to be robust, and the money has to come from somewhere. It is a completely different matter whether the money is spent prudently. Or whether (in the Peverel model) healthy contingency funds were historically plundered in the door entry scam.
    I think the retirement market is different, and people on fixed incomes would be even more put off if they were hit with higher monthly services charges.
    I would be championing Right to Manage, giving people autonomy to decide how their contingency funds are supported, and disagree that contingency fund exit fees are necessarily ‘unfair’.
    Have a look at episode 20 of Rip off Britain, series 6, broadcast on BBC1 on 10th October, and available on i-player. 24 minutes in, the programme tells the story of one family’s unfortunate experience at the Peverel-managed Assisted Living development Wavertree Court, Horley, Surrey. In 2007, they bought a one-bedroomed flat for £194,000. At that time, the service charges were £400 per month. When they needed to sell, the flat remained on the market for three and a half years, and the service charges had risen to over £500. Even these amounts were putting off prospective purchasers. How much more would they have been without the exit fee contributions? The family finally sold at £125,000 … an eye-watering loss.
    Peverel Retirement were unsympathetic, and pointed out it was the solicitor’s job to ensure the purchaser had understood their responsibility under the lease. (Oh that we had all been well-served by our solicitors!)
    Kate Faulkner, property consultant, gave some wise words on the programme. She pointed out that renting was a practical alternative to buying. That people should understand the true cost to leave – and the true value of the property – before they commit to a decision. (Something many Carlex readers have discovered to their cost too late!) And finally that it’s a good idea for people to plan ahead for their own needs later in life.
    The really scandalous element of the exit fee is that which goes straight into the landlord’s back pocket. This was misrepresented to us (and many other people) as a ‘fee for the service of checking the suitability of the incoming purchaser for independent living’. It is in reality a ‘fee for doing absolutely nothing’, and this is what we should be vigorously campaigning against.

    • Bit confused about Susan’s post ??

      She says “Peverel Retirement were unsympathetic, and pointed out it was the solicitor’s job to ensure the purchaser had understood their responsibility under the lease. (Oh that we had all been well-served by our solicitors!)” ???
      Not sure what her implication is here, pointing the finger at our solicitors and their collusion with the landlords? please elucidate Susan.

      As I understand it – it is the landlord’s lease and conditions that the solicitor is presenting to the client .
      Peverel are merely the agents that collect it for them, why is Peverel getting all the stick??

      On a deeper thought – why didn’t they [Peverel] explain that they only act for the landlord, that contingency exit fees reduce the service charge for the residents – exit fees are an income steam for the landlord as are manager’s flat rentals – it’s the carrot that persuades prospective landlords to buy the leases from the builder/developer in the first place.

      Kate Faulkner summed it up in a nutshell – Don’t Buy – Rent.
      Then you can walk away anytime. Bit late now though for most.

      My evaluation of the ‘Rip Of Britain’ effort was worse than useless and did nothing but cause alarm and despondency amongst any viewer living in a cloud cuckoo land of owning retirement housing.

      The only consolation that was that the poor chap that ended up inheriting the Wavetree Court flat has sold it – can’t say the same for a few flats in my development.

      • “Kate Faulkner summed it up in a nutshell – Don’t Buy – Rent. Then you can walk away anytime. Bit late now though for most.”

        Sounds good but this is not the solution. It’s easy for the fit and healthy younger generation to suggest that older retired people should rent a flat but they need stability in later life and renting does not provide that security, unless, of course, you can afford renting at The Hawthornes Retirement Homes, or a suite at the Ritz hotel…

        Root and branch leasehold regulation and reform to rid the leasehold sector of corrupt landlords is the only answer to stop them from financially exploiting vulnerable retired people and successive housing ministers continue to block any move in making this a reality.

        All exit fees must go. If retirement flats were properly managed, free from unscrupulous accounting, exit fees wouldn’t be necessary to balance the books.

  3. There is a simple answer in this; SDLT is waived and put into the reserve fund and appoint, as happened in the past, a Chartered Surveyor for the block to independently set the forecast reserve fund contributions so that buyers know what is to be on and that this is maintained. A buyer is required to pay 3 or 6 months charges on deposit, held by say the TDS, against voids or issues with the estate or infirmity.That way contingencies go the way of the dodo and service charges especially those under RTM are not under pressure when they are not paid.

  4. Hello Kevin

    My point about solicitors wasn’t that they are in collusion with anyone. However, it seems they often don’t give good advice to their clients, the purchasers. I don’t know why. Lack of understanding of leasehold? Laziness? Certainly, we were poorly advised when we bought, and many people I’ve spoken to had similar experiences. Had we received sound legal advice, I very much doubt we’d have gone ahead with the purchase.

    Re the ‘Rip off Britain’ programme, I was merely drawing attention to topical media publicity – the most recent in a catalogue of programmes and articles exposing the scandal of retirement leasehold. It’s inevitable that such programmes will spread despondency among those who have purchased. But hopefully in the long-term, the publicity will result in much-needed reform.