The Gazette 1980

GAZETTE

SEPTEMBER 1980

The Purchase of Second Hand Flats— avoiding the pitfalls

By MICHAEL W. CARRIGAN

The sale of flats is a comparatively new development in conveyancing in this country and it is only now, when major repairs to many of the initial blocks can be avoided no longer, that purchasers are for the first time becoming aware of the importance of the kind of flat scheme in which they are involved and the extent to which the management provisions of the scheme affect them. Since this development in conveyancing began ten years or so ago, many kinds of scheme have been tried, and while the schemes currently being used by flat developers have to a large extent been standardised, purchasers of second hand flats are faced with a variety of schemes, not all commendable, which will impose varying obligations on them. It will usually fall to the purchaser's solicitor to consider the extent of these obligations, and, if it does, it is essential that he appreciates fully the importance of doing so even before any contracts are exchanged. The most important area, in any flat scheme and certainly the one likely to give rise to the most difficulty, is that relating to the management of the block of flats when the development has been completed. The solicitor for a prospective purchaser should consequently spend a little time before any contracts are exchanged and possibly before any investigation of title, analysing the con- stitution of the management company and ascertaining where the responsibility for the provision of services and the overall maintenance and insurance of the block of flats lies, because the success or failure of any flat scheme will hinge largely on the kind of management company which is set up at the outset by the developers, and the extent to which the management company is in a position to deal with the day to day management problems which will arise, whether in regard to the repair and maintenance of the common areas or the possible enforcement of the lessee's covenants in the lease. The basic principle of the well-drawn flat scheme is that the flat owner should only be responsible for those repairs which either concern him alone or, as in the case of the party walls, concern him and another flat owner but do not concern the flat owners generally. This means that in such a scheme the lessor will, until the development has been completed and the obligation of the lessor vested in the management company, retain responsibility for:- (a) the maintenance of the structure of the block of flats (which will include the main walls, the roof, the foundations and the common parts of the building such as staircases, halls and corridors), (b) the provision of the common services such as lifts, water, gas, electricity and central heating (except in so far as they serve one flat and are the responsibility of that flat owner), (c) the upkeep of the car park and the ground surrounding the building,

(d) the insurance of the building and the common areas under a block policy, (e) the provision of proper refuse disposal facilities. This will effectively leave the individual flat owners with responsibility for internal repairs and services insofar as they serve individual flats only and with the liability for payment of an annual service charge to the management company which will have direct responsibility for the maintenance of the structural parts of the building and of the common areas. As far as the liability for payment of a service charge is concerned, the purchaser of a flat should be warned at the outset that there may be substantial annual payments to be made and that he may find himself having to take some interest and perhaps even a very active part in the management of the block. It is important that he appreciates also that his concern should extent not just to the flat which he is purchasing but also to the entire development to which the service charge for that flat applies because the common areas will normally include, at the very least, the entire structure of the block of flats of which his flat forms part. In some schemes it may even include the structure of several blocks of flats with the flat owner taking on a proportion of the liability for maintaining the common parts of them all. He should therefore be aware that if, after he signs the contract, substantial repairs have, for example, to be carried out to the roof, he may well be responsible for a proportion of the repairing cost and, if there is no sinking fund in existence, this could involve him in a substantial payment which he might not only not have provided for but which he may not in his wildest dreams have anticipated would fall within his liability. (In the well-drawn flat scheme the developer will, by the establishment of a contingency, or so-called sinking fund, make proper provision for large expenditure which is likely to arise even just through ordinary wear and tear ten or twenty years after the development has been completed. There will come a time when the roof may start to leak or when the lift will have to be replaced and it is best that a fund be available to meet this kind of liability when it arises, not just because it would impose excessive hardship on the owners of the flats in the replacement year but also because the problem to be dealt with by the Management Company may well be one for which it has had little warning but which involves it in immediate expense. The sinking fund will enable the Management Company to build up a fund over a period of years to meet contingent liabilities and from the flat owners point of view is a less painful way to deal with emergencies that are likely to arise than being faced with sudden and specific levies). The full extent of the possible liabilities which a purchaser can incur in buying a flat can only be considered when a proper analysis of the management of 167