City Living: Should buyers be forced to pay service charges in advance, asks Edel Morgan.

Extraction by intimidation appears to be the latest way of collecting service charges in new developments. Buyers are being told the sale of their house/apartment won't go through unless they pay their service charge upfront on close of sale. Worse still, some are being forced to pay two years' service charge in advance.

Developers are adopting a "take it or leave it" approach and most people are paying up rather than risk the purchase of their house falling through. Service charges are traditionally associated with apartment schemes but are becoming more common on new housing estates.

Management agents are being brought in to maintain the grounds of residential schemes because local authorities are opting out of doing so. However, while some purchasers might agree in principle they should pay the charge, in a pay-up-or-lose-the-house situation, they are often doing so without any information as to how that money will be spent.

A reader e-mailed City Living to say he bought a three-bed end-of-terrace house in Swords, Co Dublin and was "a bit surprised" that he had to hand over a €600 service charge in March last year before getting his keys. "Although I had reservations and was somewhat confused at the time, I paid it rather than risk losing the house."

He wondered why he had to pay a service charge for his house when other houses built in an earlier phase of the development don't pay charges. He baulked at the idea of paying a maintenance charge for a house. "I previously lived in an apartment block in town and I can understand a service charge to cover block insurance and maintenance of communal areas but, as my home is a three-bed townhouse, I do not see why I am being charged. I still have to pay for all bin and maintenance around my own property."

His service charge for this year is €507. When he investigated where this charge was being spent, he discovered in the management company budget for 2004 that €40,000 was being spent on maintaining the grass on "two relatively small" greens. "This is on top of the €16,000 for 2003. I find this astonishing as, when we moved in May 2003, these greens were incomplete and seed had only been laid. As no grass grew till the end of the summer, I believe they were actually only cut for the first time around May this year."

Part of the charge covered €8,500 for public liability insurance on the surrounding grounds. He believes this is unfair because the houses across the green that don't pay a service charge and "use the same roads".

Electricity costs were €750 and the management fee was €22,500. There are 177 units in the development, some of which are still under construction.

In an estate in Blanchardstown, Dublin 15, purchasers were presented with a clause at contract stage which demanded two years' service charge upfront on close of sale.

The Law Society's website www.lawsociety.ie lists examples of "unfair terms" in building contracts. According to Patrick Dorgan, chairman of the Conveyancing Committee of the Incorporated Law Society, on the face of it, a demand of two years upfront could be deemed unfair. One option would be to withhold payment after closing but before taking this course of action it is important to be very sure of your ground.

"While it would preferable to have such a clause removed pre-contract, the purchaser would have at least the reassurance that if they refused to pay the two years' service charge on closing, the builder would in all probability be unsuccessful if he decided to sue.

A District Court judge is also likely to find the term unfair," he says. However, he says that a demand for a one-year service charge on closing is "universal practice, right or wrong" and is considered more acceptable.

"As long as the purchaser and solicitor are reasonably satisfied, the service charge being sought will be applied to provide services which should be specified on the contract."

However, in a real life situation, you are dependent on a good solicitor to ensure the terms of the contract are to your satisfaction. Many purchasers are too frazzled at this stage of the transaction to kick up a fuss and without support from their solicitor, will acquiesce to the developer's demands.

If the maintenance charge covers the building insurance on your house, this in effect means that all of the houses on an estate are locked into an insurance deal with the same company - very profitable for that company if it is a large estate.

For some, this may be a relief as it saves them the bother of ringing around insurance companies to get the best quote but they should make sure they know exactly what they are covered for and whether their property is insured for an adequate amount.

It is also important that you get a copy of your policy. If you would prefer to exercise your right as a consumer and choose your own insurance company, make sure your voice is heard.