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Services charges on sale


QUESTION: We are selling our flat. We have accepted an offer from a couple who seem to have a problem with cash. We are confident that the buyers will pay the purchase price, but what happens if they don't pay ground rent or service charges after we sell? Are we in danger of being held responsible ourselves?

You are obviously liable for these up to the point when you sell. In relation to sums due to the freeholder after you have sold, the position is more complicated. Before 1996, leaseholders were always subject to the "privity of contract" rule. The rule was that the original leaseholder named in the lease was contractually liable for ground rent due up to the end of the lease - even if he or she sold the lease to someone else. Subsequent leaseholders were also each liable for ground rent up to the end of the lease if they entered into an agreement with the freeholder to this effect. This rule often had quite unfair results. A freeholder could pursue the widow of a former leaseholder for ground rent and service charges decades after a flat was sold, even though the widow knew nothing about the current owners.

The Landlord and Tenant (Covenants) Act 1995 brought in two main changes to help to remedy this situation. First, section 17 of the Act requires freeholders to give ex-leaseholders a special notice before they can be held liable for ground rent and service charges. The notice must be given within six months of the date on which the charge falls due. Since freeholders rarely serve section 17 notices on the former owners of residential flats, they are usually unable to pursue the former owner for these arrears. Secondly, section 5 states that for leases made after January 1, 1996, the rule of privity of contract no longer applies. Once a leaseholder sells, he is automatically released from future liability to pay service charges and rent - unless he enters into a special form of contract with the freeholder called an "authorised guarantee agreement".

If neither of these provisions applies, you could be liable for future defaults by your buyers - and you will need to ask us how best to limit this risk.

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