Service charge warning as Right to Buy sales pick up speed

“The revamped Right to Buy scheme was launched in April and offers 2 million council tenants and 500,000 housing association tenants increased discounts of up to £75,000 when buying their home. The ethos is to reward long-term tenants with the security of owning their own home.

“For tenants who are considering buying a flat, the extra service charge becomes a factor and it is important to ensure that the inclusion of these charges is communicated properly. As with the private sector, the buyer purchases a ‘long lease’ and the overall block is still owned by the council or housing association. The seller remains responsible for the upkeep of the building and tenants pay a service charge towards this. Should major work be required, this could cost thousands of pounds.

“Whilst in the private sector these outgoings are a well-known necessity, for public sector tenants many are becoming leaseholders without the full knowledge of future costs that home ownership may bring. This is becoming a bigger issue now that more people are exercising the Right to Buy, and although it may not be officially their job, landlords should try to ensure that details on service charges are effectively communicated to minimise difficult conversations/challenges in later years. In both sectors people often find that owning their own home is not worth the pay out for service charges, as they face the burden of financial responsibility with little control over costs.

“By law, service charges need to be included in the lease, stating clearly when and for what services. However, a tenant may not read or appreciate the detail of the contract that they are signing and the potential financial implications. Whilst a solicitor should advise potential Right to Buy leaseholders of the requirements when they apply, many do not discuss the details in enough depth and tenants are still caught massively short by a service charge bill.

“With even more social housing tenants expected to become Right to Buy leaseholders in the coming months, it’s important for housing associations to set expectations at an early stage. By consulting with their residents in advance of carrying out expensive work, and highlighting the prospect of service charges to any potential buyers, landlords can retain a positive relationship with the resident and avoid a potential Leasehold Valuation Tribunal challenge.

“Whilst the prospect of large costs may be intimidating for leaseholders, if the home is bought through Right to Buy, a tenant is given an estimate of charges at the beginning of the lease and cannot be charged more than this for the first five years. This predictability, at least in the early stages, will help the new leaseholder to factor the charges into their annual budgeting and avoid the shock of a large bill.

“By creating effective communication strategies in this area and arranging a discussion with potential buyers about the Right to Buy scheme, housing associations will be able to strengthen their relationship with current tenants, whilst also easing the transition for tenants choosing to buy their properties.”

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