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Home owners are subsidising infrastructure provision in their local authority area. How?

Section 106 of the Town and Country planning act allows developers to contribute to local infrastructure where planning permission would otherwise have to be refused. The original intention was to facilitate development of more new homes and provide road improvements, school places, affordable homes and leisure facilities for the new population. In recent years local planners have been using section 106 to provide more and more local infrastructure, arguably not always of direct benefit to the development under question. It is being used almost as legalised bribery to extract as much cash as possible from the big house builders.

It is acknowledged that the commercial house builders are driven by profit and shareholder value, so they are going to do everything they can to retain their profit margins including:

• Cost cutting on home quality.
• Cramming as many houses as they can onto the development.
• Skimping on estate amenities preparation.
• Not offering estate grounds/amenities/roads up for adoption.
• Implementing the private estate model with unregulated management companies we all know and love!
• Unjustifiable sale of leasehold houses with onerous ground rents and onward sale of their freeholds to offshore investors.
• Not providing affordable homes via commercial viability assessments.

Home buyers on these estates are therefore purchasing a sub standard home on a sub standard estate and pay unregulated estate charges – effectively a private tax. There is no doubt that future saleability and value of these homes will be affected.

For leasehold houses with high ground rents and doubling clauses, the homes are unsaleable right now.

A HorNet member has researched the topic, and if you are interested, there are links in this document to articles about section 106 use and its damaging effects: S106 Articles Links

The bottom line is that we, the new home buyers, are getting a raw deal as a direct result of the way local planners are utilising section 106.

 

 

We think this diagram broadly represents the relationships  between different tenures and charges on new build managed estates.

It is easy to see how central to the whole system estate charges are. Permission fees are common, but not always present.

The diagram graphically illustrates how residents with the least resources (in leasehold flats) end up having to pay more in terms of running costs. A bit like that cheap ink jet printer where the ink costs almost as much as the device. How much has Help to Buy contributed to this exploitative situation?

Leasehold houses on these developments may not be simply about lucrative deals selling on the freeholds and high and doubling ground rent, it is also easier to retain control over the estate, particularly when a property is sold on. The obligation to pay estate and permission charges automatically is transferred to the new owner, this does not happen with positive covenants for freehold houses, so less reliable conveyancing devices are used, like estate rent charges, or a chain of covenants.

“Leasehold to fleecehold” It is also clear to see how, if a leasehold house owner buys their “freehold”, they remain in the fleecehold trap. Many leaseholders are reporting this via our friends at the National Leasehold Campaign.

 

 

 

Great news of a successful case in the Dundee Sheriff’s court (same as small claims in rest of UK) – the Sheriff found an illegal monopoly and was able to strike out the burdens because under Scottish Law you cannot create a monopoly in the title deeds.  You might say how does this help everyone else?  Well…

The most common feature of the way the private estate model is being implemented is that home owners have no choice of provider. They are also very often being exploited, so there are grounds for a legal challenge under UK wide competition law.  The more legal experts who back up what we know to be happening to us, the better.

It may be a very good time to launch a mass reporting campaign to the Competition and Markets Authority, who are a bit like Action Fraud in that they monitor activity but don’t take up individual small cases.  We will shortly be developing a template to help members join in this action. Remember challenges over PPI initially and successfully took this route.

If you want to read the Sheriff’s verdict, here it is:
Continue reading “Monopoly Money?”