Ask an unhappy owner in prime London what went wrong, and you will rarely hear about the roof, the neighbours or even the market. You will hear about the service charge. It is the most common post-purchase surprise I encounter, and the least examined number in almost every purchase.

Why it bites

Three features make service charges dangerous. They are uncapped — in a leasehold block, the charge is what the building costs to run, and you owe your share of it whatever that turns out to be. They are rising — sharply, since Grenfell, as insurance premiums and building-safety remediation have fed through, and in some prime blocks they have multiplied rather than crept. And they are largely outside your control — as one leaseholder among many, your influence over the management, the works programme and the insurance placement is close to nil.

In blocks with porterage, lifts and plant, charges of many thousands a year are normal, and on a large lateral apartment the service charge can quietly become a second mortgage payment. On the yields prime London currently produces, an unexpected jump in the charge can take a marginal investment negative on its own.

How to read it before you buy

• Ask for three years of service charge accounts, and read the direction, not the figure. A modest charge rising 20 per cent a year is worse news than a high stable one.
• Ask for the reserve fund position and the planned major works. A healthy reserve and a scheduled programme is a well-run building; a thin reserve with big works pending is a future demand with your name on it.
• Check the building-safety status in writing. Unresolved cladding or remediation can make a flat effectively unmortgageable until fixed — and the fix arrives through the service charge.
• Look at the insurance line specifically. It is the item that has moved most violently, and the least visible in headline comparisons.
• Talk to residents. Five minutes with a neighbour tells you more about the management than any pack.

The comparison buyers never make

Two flats at the same price are not the same price if one carries double the service charge. Capitalise the difference: an extra £10,000 a year of unavoidable cost, at prime London yields, is equivalent to paying several hundred thousand pounds more for the building. Buyers who would negotiate ferociously over £50,000 of purchase price routinely accept that difference without noticing they have paid it.

The rule is simple: model the service charge as hard as you model the price. Some defects in a purchase are prices — you calculate, discount and proceed. A badly run building with an uncontrolled charge is not a price. It is a condition, and no discount fixes a condition.

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Aldo Attanasio d’Aponte is the founder and chief executive of Arbitrage Group, a boutique buyer-side advisory specialising in prime central London real estate. This article is general commentary and not financial, legal or tax advice.