Advice- All our costs are in the Service charge, right?

WE BOUGHT THE FREEHOLD EXERCISED RIGHT TO MANAGE ALL OUR EXPENSES ARE COVERED BY SERVICE CHARGE, RIGHT?

Ignoring the recovery of service charges costs I am focusing on the operating expenses of these companies form the annual return fee to legal expenses or directors insurance. In most cases the leases were to drafted to anticipate this arrangement to the freeholder, or RTM must ensure that their agreement or articles  allow for those expenses to be met by the participants, until such day as all leases are amended to do so.

In may cases of complex ownership eg commercial units or freehold houses , they may never be amended.

When buying the freehold the default advice is to “ extend the leases to 999 years and a peppercorn rent” but spare a  thought about ground rents. They are a good source of income to meet these expenses and to build up a reserve in addition to or instead of a sinking fund.

In the long term they add value to the freehold, so at some future point if disaster strikes and funds are needed the freehold can be sold. In the meantime a group can resolve year to year not to collect the rents .

Take for example a roof replacement  of £40k, meaning say £10k each. Selling a freehold with leases at £250 GR per annum  could raise half that money, at the cost of future payments of ground rent of £250.