Selling your home: what is a retention and will I get it back?
Sarah Sargent, partner and head of residential property at Lupton Fawcett, answers your questions on property issues.
Q. My buyer has asked for a retention of a sum of money on completion – what is this and when will I get this back?
A. Retentions are often used in residential property transactions when there is a question about future costs/expenses relating to a property. The most common use is when you purchase a leasehold flat as there is often no certainty on the final service charges until the end of the financial year of the freeholder/management Company.
When a retention is agreed a certain sum of money will be held by the solicitors (often the sellers’ solicitor) until the final sums are known. In order to have clarity on retentions you should consider the following:-
1. How much will the retention be for? It should be enough to cover any potential costs. In the case of a service charge this would be the additional amount over the expected charges and would only be for the period in which the seller owned the property. The amount will depend on the current service charge but is often between £200 and £500. The freeholder/management company will sometimes provide guidance on what the retention should be.
2. How long will it be held? It is important that your solicitor drafts a suitable clause to be inserted into the contract which will provide for a limit on how long the retention is held for. That way the retention can be released by a certain date, even if the final accounts for the service charge have not been prepared. It is usual to set a date 12 months following completion.
3. What will happen if the buyer advises that they require the retention? You solicitor will ask to see evidence that there have been additional costs. They will then calculate what part of the additional costs covered your ownership of the property. They will then send the monies to the buyers’ solicitor and return any surplus retention monies to you as the seller.
For further help or guidance on this article or in relation to residential property generally, please contact partner and head of residential property, Sarah Sargent, on 0114 228 3281 or [email protected]