What happens to service charge arrears when a property is sold?

Brady Solicitors’ service charge experts explain how to recover service charge arrears incurred by a former owner of a leasehold property.

In an ideal world, the buyer will have used specialist leasehold conveyancing solicitors who would have clarified any outstanding service charge arrears and taken steps – prior to completion of the purchase – to ensure that these arrears were settled.

All too often, however, buyers go for the cheapest conveyancing quote and then find that their solicitors fail to make the proper enquiries, leading to a nasty surprise when they are faced with a service charge debt incurred by the previous owner.

Who pays? Old or new leaseholder?

Property managers are often then unsure as to who they should be chasing for the outstanding arrears  – is it the old leaseholder or the new leaseholder?

Calls received by the Brady Solicitors’ service charge specialists suggest that many property managers often – mistakenly – believe that service charge arrears ‘pass with the property’ when it is sold.

In fact, the arrears remain the liability of the previous leaseholder and do not pass on to the new owner, as set out in The Landlord and Tenant (Covenants) Act 1995. The Act explains that that the new owner cannot be bound by covenants within the lease – such as service charge liability – until after the transfer of title has taken place.

How to take action to recover the arrears

You can still take action, however, via either the First-tier Tribunal or the county court, to secure a determination and judgement against the previous owner. This determination will then allow you to take enforcement action against the new owner as a result of the breach of the lease.

Clearly, a new owner of a leasehold property is going to be unwilling to settle arrears on behalf of a previous owner, but our experience has shown that they will sometimes settle in order to avoid ongoing hassle and possible enforcement proceedings.

With this in mind, it makes sense to ensure that you give notice of the proceedings to the buyer as well as the seller.

Need some specialist service charge help?

Brady Solicitors’ service charge team has had recent success in securing arrears payments on leasehold properties that have changed hands. Please do contact us if you think we could help you.

Get in touch with our experts

With hundreds of years’ worth of combined experience, our experts have dealt with nearly every leasehold property matter you can imagine. If you’re currently in need of legal support or advice, please get in touch.

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