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Problems with new build estate charges

There is a silent revolution in the new build market, which few seem to fully understand, least of all homeowners and their conveyancers. The rise of privately owned and managed new build estates over the past 20 years has lead to 'freeholders on private estates' paying an extra new build estate management charge on top of their council tax. Want to know more about problems with new build estate management charges, termed 'fleecehold'? We asked campaign group HorNet to explain.

Post updated: May 16th, 2022

5 minute read

Estate management fees on new housing developments

Most people know about  freehold and leasehold, but a new model of new build estate charges, known as ‘fleecehold’ has crept in over the last 20 years and is now the industry norm.  Owners of at least a million newly built homes face paying these estate charges and permission fees with no way to challenge them or to take over the management themselves.  This problem continues to grow.

New build estate charges – freeholder problems

You buy a freehold house on a new build estate and are told there is a small charge to look after the lovely green open spaces. Sounds reasonable? Yes, until problems start. For example, being charged high management bills for poor service or being charged before the estate is completed.

Then, you begin digging and find the devil is in the detail. The charge is bound to your property through your title deeds. Your only way out is to move and pay off the fees to the management company. You may also experience delays (as often happens with leasehold transactions).

No dispute resolution for freeholders

To dispute fees, unlike leasehold service charges where there is a tribunal, there is no alternative dispute resolution available for freeholders. Although you can dispute the charges in county court, not many people have the resources to do so. This isn’t helped by the contract being written by the developer and deliberately vague.

No right to manage for freeholders

You have no consumer rights as the managing agents are accountable to the landowner (often themselves) and not you. There is no way you can demand a new managing agent.  There is no statutory right to manage as with leasehold property.

Residents on a private estate find they have to pay whatever charge the company decides for whatever level of service. The open space you pay for can be used and abused by the general public and yet you are required to cover the cost of maintaining the estate as well as paying council tax.

Do leaseholders on new build estates pay charges?

Leaseholders on private new build estates sometimes also pay estate charges in addition to their ground rent and block service charges.  The government is addressing some of the more serious leasehold abuses in new build homes, but no action has been taken over the estate charge scam.

What happens if new build owners refuse to pay fees

If you refuse to pay new build estate charges because you are dissatisfied, you may be bullied into paying up under threat of court action, as well as, additional debt collection charges.

You are also at risk of repossession. The 1925 Property Act states that a lease can be created on your home if you refuse to pay. Mortgage lenders will often insist on a Deed of Variation to protect them against this from happening.

How have new build estate charges happened?

Section 106 agreements

The current situation is the result of negotiations between developers and planning authorities under what is known as “Section 106 agreements”. The original intention of these funding agreements was to reduce the impact of new developments on their surrounding infrastructure (roads, schools etc.) where they would not otherwise obtain planning permission.

Over the years, it has turned into a mechanism for councils to use this much needed funding from developers to pay for council-wide services.

Developers can reduce their overall section 106 spend by offering to manage the new build estate themselves. This also saves them money in construction costs and council adoption fees.

Impact on homeowners

Councils may think they are doing the best for their ratepayers, but they are selling out on their new homeowners. Home buyers pick up the tab, forced to pay for open space and playgrounds they do not own and which are public amenities.

They have no say over how these spaces – usually of sub-standard construction – are managed.  The investors end up retaining ownership of the open spaces while the homeowners have to pay. There are some cases where homeowners are having to pay the landowner to maintain their own gardens.

Campaign for change to ‘fleecehold’

Homeowners on private estates feel duped, ripped off and are very angry at the way they are being treated. The current system is unfair to ‘fleecehold’ owners who have not been fully informed of their extra financial obligations when buying a home on a newly built estate.

HorNet campaign

HorNet is a group of UK homeowners campaigning for better regulation of new build estate charges and ultimately want to see them banned.

They want to see full public or council ownership and management of open spaces and want all new estates to be built to the standard required for the Council to adopt. Owners should also have the right to manage their own private facilities and spaces.

Three years ago, the government promised to extend to all new build owners similar rights leaseholders have to challenge service charges and poor management and to remove the risk of repossession for unpaid fees.  No action has been taken. If changes are brought in, HorNet challenges government to go further than existing leaseholder rights. It is widely accepted that the current system for leaseholders is flawed.

What if you are buying a new build home now?

Most newly built homes sold now will have an estate charge attached. Even if the developer intends to set up a resident management company to manage the estate when it is finished, there is still an open-ended liability when you sign your deeds to purchase a new build property.  You will still be required to pay your share of costs to maintain open spaces and other maintenance costs. See our guide for more about service charges.

 

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