This really long post is well worth a read. It has been taken from our FaceBook group with the author’s permission.
It is both a personal journey of discovery and very informative for those new to the estate rent charge:
Some new-build estates (or newly built) will have ‘estate rentcharges’, some won’t. In my area (North East) every single new-build developer is doing them, and have been for the best part of 10+ years now.
It’s a case of something which used to have some small value in society, but now has been exploited and bastardised as a ‘legal loophole’. Traditional ‘rentcharges’, or ‘chief rents’, used to apply to some buildings (e.g. terraced houses), but they were very small, nominal charges, mostly very affordable. You could also ‘redeem’ them (get rid of them once and for all for your property) by paying a larger fee, agreed between you and the ‘rentowner’. Traditional ‘rentcharges’ were essentially banned in 1977 (Rentcharges Act 1977), and all traditional ‘rentcharges’ have to end by approx. 2035.
BUT, in 1977 they didn’t ban a different type of rentcharge called an ‘estate rentcharge’. Most of these new-build or newish houses, whether leasehold or freehold, are essentially classed as houses on a private estate, e.g. with the ‘freehold’ houses (or ‘fleecehold’) you own the house, you own the land the house is built upon, but you are still liable to pay an annual rent to the ‘rentowner’ for your house being built on a private estate, come what may.
Where the problems come into it are mainly the following (this is not an exhaustive list by any means!):
1. Most big developers set up their own ‘management companies’ as side companies, and those side companies (management companies) own the right to collect the rents and set the prices they want to charge. Essentially, with a lot of estate rentcharges, they can charge what they want, when they want, build up surplus pots of money for no particular reason, charge you for their staff salaries and Christmas parties, and put HUGE mark-ups on anything they charge you for. With a lot of the newer estate rentcharges they don’t have any caps on how much they can increase the fees by, and even if they do have some type of cap (e.g. goes up by RPI % each year) there are loopholes in the contracts to get around this. Also, and this is the crazy part, essentially they don’t actually have to provide any service or evidence of the service being done to charge you whatever they want. So, for example, they may charge you £500 a year, for no services at all. And it’s completely legal.
2. Another huge problem is when the developer’s side ‘management company’ sells the right to charge and collect the rent over to another company – sometimes these can be oversees companies set up in tax havens. These companies have no responsibility to you to be fair, provide good services, or be reasonable with their charges. Often people’s fees skyrocket when this happens. The reason being is that these companies just want to make as much money as they can, and get out. Why do they care if people are upset, or can’t pay, or lose their jobs, or can’t afford to live whilst paying these fees?! “That’s business!” they will say. Also, they can sell on the right to collect these rentcharges to whomever they want, when they want, as many times as they want, and often without informing you. And again, this is legal, and there are very few to no rights for the homeowner to challenge this.
3. Essentially you are paying a ‘rent’ and a mortgage at the same time. You have no control of how much rent you pay, when you pay it, or what that rent is used for (or not used not for in many cases). Especially with ‘freehold’ (or ‘fleecehold’ houses as they are known in this group), there are very few legal rights you have to challenge these charges. A lot of small claims courts won’t touch them with a bargepole should something go wrong. You end up having to take the ‘management company’ to the Land Tribunal, which is SUPER expensive and time-consuming! And these companies have lots of lawyers, and an endless stream of money coming from the homeowner’s pockets – the rentcharge money that the homeowners are paying. So the homeowners are essentially paying to fight against themselves in court. You can see how easy it is for the management company to play divide and conquer in a situation like this – by this I mean they can increase the rentcharge to cover the legal costs of some/all of the homeowners taking the management company to court. Some people will agree with the principle of this and stomach the fee increases for the greater good and the hope of an end to the scandal, some won’t (maybe they are struggling already with bills/debts, can’t afford it, find it stressful, don’t want the hassle, disagree, or worry too much to refuse to pay etc.).
4. You CANNOT redeem an ‘estate rentcharge’, which essentially means you can’t ever get rid of it yourself. Even when people have had a leasehold house, and then they’ve bought the freehold, they then have to pay the estate rentcharge, for as long as they own the property. I rang up the Government’s rentcharge department, and they confirmed all this for me. There are only a couple of people who work in that department, and the person I spoke to bought her freehold, and is now having to pay an estate rentcharge. So even the ‘experts’ are not immune from this it seems!
5. Essentially, you are paying council tax and an estate rentcharge for the same types of service e.g. basic repairs to the estate roads, hedge cutting, lawn cutting etc. Also, if you think of it this way, most people pay their road tax as well, so if something happens to your estate’s roads, even if they are adopted by the council, you will probably get a bill from the rentowner to fix this. Therefore, you would be paying 3 times for the same thing to be done! I saw somebody make a very good point to the statement “well this is normal now, this is how the world works now when buying a ‘freehold’ house”. They said something like (and I’m paraphrasing): “What about the freehold house around the corner from the new-build estate? Maybe that house was built in, let’s say, 1999, so not really THAT old! They only pay council tax, no rentcharge, and they can walk onto our ‘private estate’, whether it’s been adopted by the council or not, and use it, even damage it in some way, and ONLY the new-build homeowners have to foot the bill!”. Very good point I thought, and that point opens up many new discussions in the process. You can see how easy it is for people to get very upset/angry about this scandal! These are untested, experimental, waters we are in – and who knows how this will all end up? My additional point would be, this is only normal if we keep buying these houses, and accepting the idea that this practice is normal. It wasn’t normal for a very big chunk of history not so long ago!
6. It’s extremely dodgy the way these ‘estate rentcharges’ are sold to people. When we were buying it was called a ‘service charge/fee’, a ‘maintenance charge/fee’, an ‘estate charge/fee’, and also a ‘gardener’s charge/fee’. It was NEVER called by its true name, an ‘estate rentcharge’! These terms, and the way it is described by the sales teams, make it sound really reasonable e.g. “the council won’t cut the grass anymore due to budget cuts/austerity, so we’ve hired a gardener to come and tidy up the estate to make it nice etc.”. That makes it sound like a man/woman turns up, does their service, you check you are happy with it, they send an invoice, if you are content you pay the invoice. It makes it sound like it comes under consumer laws. It makes it sound like, if you’re not happy, you don’t pay. In all cases, that is wrong, and you do have to pay. More below on this.
Also, a lot of the time, these big building companies withhold the crucial document outlining the rentcharge and restrictive covenants, called the ‘TP1’ Land Registry form, from you until the last possible minute. We were shown ours just seconds before our solicitor wanted us to exchange contracts. And woe behold if you use the building company’s recommended solicitor (need I say more?)! By this time people have often paid a sizeable deposit (sometimes ‘non-refundable’ as in our case), paid for expensive property searches, solicitors/conveyancers fees; and they will be emotionally invested in the property, as well as being financially invested! This is how they get you! Most people don’t want to turn back at this point, and some people won’t know (even at this stage in the house buying process) what they are signing themselves up to!
Recently, I did an experiment where I went into the sales offices of all of the big national developers in my area. I asked them point blank whether they had estate rentcharges on their ‘freehold’ houses they were selling. Most of the time they would try and not answer and get around the question. Most of the time they would call it by another name, and try and make it sound reasonable. For the very few (namely one) salesperson who did admit they have rentcharges straight away, on my follow up question to see a sample copy of the TP1 document for said ‘freehold’ house they refused point blank. I must mention the fact that every single development had estate rentcharges on ALL of their ‘freehold’ houses, and every single developer REFUSED to show me a sample TP1 form on request. A lot of them phoned head office to double check for me, and were told NO! A lot of the salespeople then mentioned if I put down a deposit/reservation fee today, they would send the TP1 to my solicitor. Hmmmmmm, not sure why I have to pay to see a contract before I read it and sign up to the contract?
7. In a lot of these ‘estate rentcharge’ contracts nowadays, you have nowhere independent to complain to, or someone outlined to act in arbitration should something happen that you aren’t happy with.
If you don’t pay, in theory, the following could happen: they go to court to get a high court writ to get the money from you; they send in the bailiffs; they add the charges to your mortgage; they take possession of your house etc.
The WORST I’ve seen is where a guy didn’t pay his very small rentcharge as he didn’t receive an invoice. The rentowner applied to have a LEASE put on his house, and was successful! He paid them all he owed and asked them to take the lease off his property. They went to court. They went to appeal. And now, even though he has paid the rentowner everything he owes, the court decided the lease STAYS on his once freehold house!!!
Remember as well, if you don’t pay they whack on a LOT of interest!
8. You have to pay to get the certificate to say you have kept up with these annual rentcharges. If you don’t have these certificates, you can’t sell your house. The ‘rentowner’ or ‘management company’ can also charge you for the most stupid, everyday things like: having a shed, building a conservatory, changing the colour of the front door, having a caravan, selling your house etc. This can put off buyers, and make sales fall through.
9. And this is my prediction, I may be completely wrong, but it’s my gut feeling. All of this will come out in the wash, just like with PPI, diesel cars, or the leasehold stories recently. The Government will be forced to talk about this outrageous scandal, newspaper stories will be written about horrible cases, and there be questions on Question Time – as there rightly should be. When this will happen, who can say? But my bet is 5 years from now, when these things really start to hit people hard! People won’t be able to pay/refuse to pay, and repercussions will come from that. Some people will lose their homes. Everyday people will know about this scandal. People will read about it when trying to swot up before buying a house. People will realise that ordinary, hardworking people were encouraged to buy these houses with ‘Help to Buy’, ‘Housing Association’ schemes, and ‘Shared Ownership. Just like when the Government encouraged people to buy diesel to save the planet!
But, then what. The Government, if we are lucky, will say “Let’s get rid of estate rentcharges, once and for all!” – and if we are very lucky, they might do it. BUT, just like with the leasehold scandal/stories recently, who will benefit? The people who will benefit will be the future generations who won’t buy leasehold/or ‘fleecehold’ with estate rentcharges. The people who have already bought them will not benefit one jot, as they will be trapped! They won’t be able to redeem these ‘estate rentcharges’ (unless a miracle happens) because the ‘rentowners’ will have changed hands so many times, how on earth do they find the money to sort that out, with the teams of lawyers it would take to get rid of it?! They will be stuck between a rock and a hard place; they want to sell, but people don’t want to buy. They won’t want to pay for something that has been shown to be a scandal, but they will have to pay because they are contractually obliged to. And then, what happens to their house price?!