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  • Buy-to-Let

    Non payment of service charges and ground rent

    If you own a leasehold property, it is a condition of your lease that you pay the service charges and ground rent.

    The service charges are there to keep the fabric of the building in good maintenance and decorative order, and to pay for the buildings insurance and other measures such as security and utilities and cleaning in the communal areas.

    Non payment of service charges and ground rents are on the increase, so I thought I would put together some information to help you if you are struggling:

    1. If you cannot pay the service charges or ground rent. contact the property management company and agree a payment plan with them to split the costs over several months.

    2. Do not ignore requests for payments! Each time a letter is sent out, an admin fee will be added. If it goes to a debt collector, even more fees will be added, and the debt will start to build up significantly.

    3. If you do not pay these charges, you are putting your lease in jeopardy!

    4. If you continue to refuse to pay, the management company may get a judgement against you that could affect your credit rating.

    5. For long non-payment of these charges, the lender will almost certainly step in and pay the debt on your behalf, to protect their security.

    6. The lender may add the outstanding amount to your loan, or come after you for the payment.

    7. The most worrying issue is that non-payment of your ground rent and service charges could be a breach of the T's and C's of your mortgage, and could give the lender a reason to call in the loan and take possession of the property. This is particularly relevant to Mortgage Express customers.

    So, the main thing to understand from this is to act swiftly if you cannot pay these charges, and work out a payment plan with the management company.

    Even if you only pay £50.00 a month, this may be enough to keep the problem from escalating.

    A lot of management companies offer the option of a monthly payment instead of one big payment, so if you struggle to control your finances, this might be the best option for you to set up a direct debit at the beginning of the period when the charges become due.

    Remember to keep copies of your service charge and ground rent demands for your tax return as these are tax-deductible.

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    Oh the stories I could tell on this sort of thing!

    Few things to add;

    If you have a buy to let mortgage and your lender pays your service charge/ground rent and that sum equals two or more months mortgage payment then they can invoke the Law of Property Act and bring in an LPA receiver as it's classed as arrears (even if they add to the mortgage). They will get your rent paid to them, rack up the charges and may start repossession.

    Your service charge usually includes insurance, if you're not paying your service charges it's highly likely you would not be able to make an insurance claim. Where insurance is concerned don't just think in terms of a few grand, if there was any sort of liability claim these can run into hundreds of thousands or millions.

    Check regularly that freeholders and management companies have your home/correspondence address as they could be writing to you at the property address. Tenants usually won't pass on your post.

    I know a number of people who've ended up with CCJs at their address or connected addresses due to this and you can forget getting mortgages! Trying to get these unravelled or removed is a Herculean task.

    I've just had the situation where a freeholder instructed a new management company. The old one had our correspondence address but didn't pass it on so they sent all bills to the rental. Our address is on the Land Reg too but they didn't bother checking that! When they finally got in touch they'd instructed solicitors. Luckily I had all the evidence/letters to back it up and they relented but I've had some nasty experiences with these companies.

    The Office of Fair Trading announced an investigation this week - about time!

    Lisa

    PS Tax tip - ground rents and service charges are recorded separately on tax returns so pay them separately even if they're on the same bill to keep your accounts easier to manage.
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    Lisa

    All comments are for education and information purposes only and do not construe as advice or a financial promotion. No liability is accepted for comments made. If you wish to receive information in an advisory capacity then please contact me about becoming a client.

    www.keys-mortgages.com
    Interesting post and one all leasehold investors should be aware. I almost got my hands burnt speaking literally my someone I hosted a mortgage for and that someone did not pay the service charge or ground rent and it was only a court paper to my house stating that unless I paid it in 21 days, they would repossess the property and I would still be left with the mortgage. No, I would have been made to repay the mortgage full stop. As it happens I paid the bill in full including the legal costs within minutes of opening the letter. I lost my cool with the ' successful ' person I had agreed to host for. Never again.
    What most people are unaware of, is if they
    don't pay the service charge or ground rent and the mortgage company do, unless it is paid back within that month is it settled, it will be recorded on your credit file as a payment failure. Bye bye any more finance!!!
    Thankfully I was aware and i spoke to the bank in that department and made them fully aware of when it was paid. They made me aware on a separate occasion.
    Finally I attended Bernie wales leasehold training day in October and as a leaseholder you have rights too. It's easy to forget.
    It's not easy being a leaseholder but as someone who has made a lot of money from extending leases in London I am definitely aware of my legal obligations.
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    Hi Marc,

    Thank you for that valuable addition and salutary tale of hosting a mortgage for someone who does not pay the service charge and ground rent, and therefore put you at risk.

    I am interested to explore:

    1. Why you hosted a mortgage for someone else? What was in it for you?

    2. Why a "successful" person needed to have a mortgage host.

    3. Why the "successful" person failed to pay the service charge and ground rent, or was that always your obligation, but you were not made aware of it?

    4. Is this same individual still asking people to host mortgages for him/her?

    @Lisa

    When someone takes over a property on a lease option, are they responsible for these charges, or do they rely on the owner to make these payments?

    In the situation of a lease option, what would happen if the service charges and ground rent went unpaid?
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    Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **Book your FREE portfolio review and health check with Property Tribes Financial Services**

    The owner is ALWAYS ultimately responsible.

    The lease or option may make alternative arrangements but as I say ultimately the owner.

    If they went unpaid the owner could face court, CCJ, mortgage arrears and ultimately repossession by either the lender or freeholder.

    Lisa


    (10-12-2013 08:44 AM)vanessa warwick Wrote:  @Lisa

    When someone takes over a property on a lease option, are they responsible for these charges, or do they rely on the owner to make these payments?

    In the situation of a lease option, what would happen if the service charges and ground rent went unpaid?
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    Lisa

    All comments are for education and information purposes only and do not construe as advice or a financial promotion. No liability is accepted for comments made. If you wish to receive information in an advisory capacity then please contact me about becoming a client.

    www.keys-mortgages.com
    Quote:

    I am interested to explore:

    1. Why you hosted a mortgage for someone else? What was in it for you?

    2. Why a "successful" person needed to have a mortgage host.

    3. Why the "successful" person failed to pay the service charge and ground rent, or was that always your obligation, but you were not made aware of it?

    4. Is this same individual still asking people to host mortgages for him/her?
    -------------------------------------------------------------------------------------------------------------------------------------
    Hi Venessa,

    In Reply to your exploring points

    1) It was a mortgage broker that asked me - This ' successful ' person who I know fairly well, had failed a lender's search at the 11th hour and I was number mad - What did I get out of it? To date I have not received any financial incentive or thanks. I gained experience and frustration. In hindsight it should have been a joint venture.

    2) My Investigations found a debt management plan for £85k.

    3) It was never my role to pay either ground rent or Service charge - the naïve me thought he would contact the management company or companies in this case; He did neither. As Lisa pointed out, management companies can simply go to court having sent letters to the wrong address and get the legal process in place for taking ownership. It is an obligation of mine since wake up call, to ensure they are both being paid. I have always paid the mortgage from my account.

    4) I am sure no other people have been asked to host any mortgages on his behalf.

    Thankfully his interest is no longer building a portfolio.
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