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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
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