What are Estate Charges on Housing Developments, And Why Do They Seem Unfair to Homeowners?

If you are planning to buy a new build house in the UK, you must know that if the Local Authority does not adopt all roads, verges, and any communal gardens there will be additional fees you must pay every year, also known as Estate Charges. Estate Charges are similar to service charges a servicechargesorted.co.uk/blogs/remedies-for-leaseholders-with-an-absentee-landlord'>leaseholder pays when owning an apartment, also sometimes referred to as maintenance charges. If you are not aware, you could end up paying hundreds of pounds in maintenance charges for the common areas of the estate every year.

Labeled by the media as servicechargesorted.co.uk/blogs/remedies-for-leaseholders-with-an-absentee-landlord'>leasehold, the new build estate charges come into play when a new housing estate is built, and the local authority decides not to include the areas for maintenance and upkeep purposes. This may be a strategy to reduce costs to the public purse but also can be a cost-saving scheme for developers who then may, for. For example, building roads to less than the full adoption standards.

The responsibility of maintenance and upkeep of the common spaces is then passed on to the homeowners. Many rarely seem to grasp that the administration costs of the Managing Agent to collect the Estate Charges, manage the monies, appoint contractors, a company secretary and accountant all add a substantial sum to their annual household budget. In short, the house owner needs to budget for repairs and maintenance to their own and pay their estate charges. The method of apportioning the estate charges is often that all homeowners pay an equal share of the costs of running and maintaining the communal spaces and any pumping stations, street lights or plant that the local authority does not adopt. However, where dwellings vary considerably, then estate charges are weighted to larger dwellings paying more.

The Freeholder, competent landlord or the Estate Management Company sets the actual Estate Charge. Or in reality, proposed by the Managing Agent who acts for them for their sign-off. Sometimes there is an opportunity for democracy and homeowners can be democratically elected, or cooped to give governance to the Estate Management Company, including setting the level of Estate Charge. Over the years, Estate Management Companies have become standard in the property market for new build houses which at least gives house owners mechanisms to be elected and consulted, however for houses in private estates built before circa 2000 often an Estate Management Company was not set up and instead a Managing Agent was written into the title documents forever! In such circumstances, the poor homeowners have no routes for redress of scrutiny.

Estate Charges Explained

If you purchase a freehold property on a new build estate, you will most likely have to pay a small service charge, known as an estate rent charge. This charge will cover the expenses involved in the maintenance of the common areas such as roads, pathways, playgrounds, etc. This may appear to be a reasonable demand. However, there are problems associated with this norm. Problems that are reported to have impacted millions of property owners in the UK.

Problems Associated With New Build Estate Charges

A key issue with estate charges is the bills are not seen as value for money, or owners resent getting high management bills for a service that's not up to the mark. And, with no right to opt-out homeowners can fall victim to unscrupulous landlords, and overcharging the estate charge will be bound to the property in most cases through the title deeds, so the duty to pay is in perpetuity and passes from the seller to the next buyer. And, when a homeowner on an estate with estate charges wants to move or sell up, the management company will have to get involved with the transfer process. This will involve more fees, and more delays.

The worst part of the problem, however, is that there are no readily accessible redress mechanisms for solving disputes. A freehold house owner has no consumer rights. That's because the management regime is answerable to the developer and/or Managing Agent written into the title documents unless there is an Estate Management Company snd democracy provided for. Also, unless homeowners are provided with democratic rights to become elected directors of the Estate Management Company, then the homeowner(s) cannot change the service provider and have no right to manage it collectively as the Right to Manage mechanisms available to apartment owners in blocks of flats do not apply to freehold houses in private housing estates.

Nor can the homeowner(s) challenge the estate charges at the First Tier planetrent.co.uk/blog/could-a-tax-tribunal-ruling-mean-btl-investors-avoid-3-stamp-duty-surcharge'>Tribunal because pretty much all the landlord and tenant legislation that is the jurisdiction of the planetrent.co.uk/blog/could-a-tax-tribunal-ruling-mean-btl-investors-avoid-3-stamp-duty-surcharge'>Tribunal does not apply to freehold houses. If freehold homeowners are dissatisfied with the estate charges work and refuse to pay, they are intimidated into paying by threats of court action. If any estate charge remains unpaid for 40 days or more, their home security could be at risk. So, this leaves the freeholder having to pay the estate charge the developer, freeholder or management company asks, regardless of the quality of services provided.

The Background

The Section 106 Agreements play a key role in the development of this situation. The main purpose of Section 106 was to achieve planning gain for the Local Authority, i.e., to lessen the burden on roads and schools, etc., by making a grant of a planning permission conditional on a set of negotiated or handed down conditions documented by the Local Authorities Solicitor's in a S106 Agreement. Through such legal instruments, ultimately the freehold homeowners become responsible for things such as maintaining roads, canal and waterways, discharge licences, ensuring trees plants in planting schemes survive, and replanting them if they do not.

How The Law Affects Homeowners

Arguably whilst Local Authorities and the public purse may have benefitted, widespread use of estate charges has seen rosd building standards reduced, and developers' profit margins increase by homeowners being obliged to pay for the management of common areas which they dont own. Where this allows developers to recoup what would otherwise have been ordinary build costs, this is arguably unfair.

The Home Builders Federation says such New Build Estate Charges offer a fair way of ensuring the maintenance of common areas without putting additional pressure on the local authorities. They would, wouldn't they And, it is true where development is high end and gated, it wouldn't be fair for the public purse to fund all the bells and whistes of the rich snd famous. However, homeowners have termed the charges as grossly unfair, as they have to pay a hefty fee for the maintenance of spaces that do not belong to them.

Director of the Conveyancing Association, Beth Rudolf, says house sales have a severe impact because of estate rent charges. A rent charge owner should be able to collect monies owed to them, but in the normal debt collection way, not by being able to repossess the property. Solicitors helping buyers with new build properties are required to warn their clients about the New Build Estate Charges. However, in practice, this issue is often overlooked.

So as a buyer beware.... the future value and the saleability of new-build properties will depend to a certain degree on how common spaces are maintained and the level of estate rent charges. An estate with a reputation for exorbitant charges will be more likely than not suffer from lower resale values. Under the circumstances, it is important for buyers of new-build freehold property to obtain legal advice before finalising their purchase