Major works service charge repayment options
One of the questions most commonly asked by leaseholders is ‘how can I pay for major works?’. There are a number of options that leaseholders can consider and we hope this information will help you find the one best suited to your circumstances.
Your lease states that you are required to pay service charges, including major works bills, within 14 days of the invoice being produced.
We recognise however that for a number of leaseholders, meeting the cost of a major works bill within this time may not be possible for you, particularly for very large works.
If you do not think that you will be able to pay within 14 days of an invoice, you must contact the Council in the first instance to discuss your situation. An assessment of your circumstances will be carried out which will determine whether you are entitled to apply for any of the Council’s repayment schemes.
We will consider your individual circumstances such as your income, cash in the bank as well as other assets such as shares or other properties that you might own. If you have sufficient cash and other assets that could meet the major works bill, including other properties that you could sell, you would be expected to make the required payments in full when due in accordance with your lease.
Subject to eligibility, the main options for repayment available to you are:
Interest free payment option
Under the interest free option, you can spread the cost of a major works bill over 12, 24 or 36 months, providing that you agree to pay monthly or quarterly by direct debit.
5-year payment option - part interest free, part with interest
Under this option, you can spread the cost of a major works bill over 5 years, with the first three years interest free and then in the remaining two years interest will be charged on the outstanding amount. You are required to pay monthly or quarterly by direct debit.
Equity share purchase option
Under this option, you would agree to the Council “purchasing” a percentage share of the market value of the property which would offset the value of the major works bill. An example would be if you had a major works bill of £20,000 and your flat was valued at £100,000, the Council would “purchase” a 20% share in the equity for the property.
As an equity share, the value of the equity can go up or down, depending on the overall value of the property. If you sell the property at a later date, the Council will receive the appropriate value of its share.
You must have sufficient equity available in your property to cover the invoice amount. A charge will be made to cover the reasonable administration costs and legal fees involved in making an equity share purchase. Your property will need to be valued and valuation fees are payable by you. The Council’s charges and the valuation fees can be included in the equity share value.
If you apply for this option and have a mortgage, the council may require the consent of your mortgage lender before the council can purchase an equitable share in your property. In these circumstances it is proposed that the council will, with your permission, liaise directly with the lender concerning this process. Any administration costs incurred by the Council in arranging this would be added to the amount of equitable interest purchased in your property.
Equity loan option
Under this option, you would take out a loan with the Council, equivalent to the value of the major works bill, repayable with interest over a long period (e.g. 20 years). The loan would be secured as an equity share in the property based on current market values. This is similar to the Equity Share Purchase Option except that you are effectively buying back the secured equity over time, like you would repay a mortgage. Once your loan is repaid the charge will be removed. As an equity share, the value of the equity can go up or down, depending on the overall value of the property.
If you wanted to sell the property before the loan was repaid in full, a redemption figure would be calculated and this would need to be paid before the sale was able to complete.
You must have sufficient equity available in your property to cover the invoice amount. A charge will be made to cover the reasonable administration costs and legal fees involved in making an equity share purchase. Your property will need to be valued and valuation fees are payable by you. The Council’s charges and the valuation fees can be included in the equity share value.
If you apply for this option and have a mortgage, the council may require the consent of your mortgage lender before the council can place the equity share charge on the property. In these circumstances it is proposed that the council will, with your permission, liaise directly with the lender concerning this process. Any administration costs incurred by the Council in arranging this would be added to the amount of equitable interest purchased in your property.
Statutory right to a loan
The statutory Right to a Loan is only available to leaseholders where the property was purchased under the Right to Buy within the ten years prior to the major works service charge liability arising. There are set amounts that can be borrowed and the amount to be borrowed determines the length of time over which the loan can be repaid (up to 10 years). Interest may be payable on the loan and administration charges can be made. A charge will be made against the property to the value of the loan. More details are available on enquiry.
Combination options
In certain circumstances, some of these repayment options may be combined, for example you might pay a lump sum to significantly reduce your outstanding bill and then repay the remainder by way of an interest free loan.
Major works over several years
If the block that your property is located in is having major works which are likely to take several years to complete, usually an exceptionally large project, you may find that you are likely to receive sizeable major works invoices for two or three years in a row. If this happens you might find that you have a number of repayment options running at the same time.
Alternatively, as there would be a known estimated cost of an overall project, or even a fixed cost to a project, you may decide that you want to make arrangements just once, rather than for each year you are invoiced, particularly if you are considering an Equity Share Purchase or an Equity Loan as both these options attract valuation charges and other costs to set up each time.
External repayment options
Please also consider other sources of finance when deciding your repayment option.
Extend an existing mortgage
If you have a mortgage from a bank or building society you can approach them to extend your mortgage to cover the cost of the works.
Secure a loan with a lower rate of interest
You may want to investigate whether you can secure a loan with a lower rate of interest from a reputable bank, building society or loan provider.
Independent financial advice
As a Council, we are not permitted to give you any financial advice about how you should go about meeting your service charge obligations. We can tell you what options that the Council may provide but any decisions will be entirely yours to make.
