Produced in response mainly to the Housing Minister, Kit Malthouse, following his contribution to the Westminster Hall Debate on 22nd January 2019. We are getting similar messages in reply to our own representations from the Department for Housing, Communities and Local Government. These defend the status quo on voluntary adoption and local 106 agreements passing the buck back to Local Authorities and disregarding the role of their own National Planning Policy Framework. There is also a reluctance to rise to the challenge of creating legislation to cover estate charges, although we do note that recently there has been a slight shift towards talking about a legal framework rather than simply access to the First Tier Property Tribunal. We have reports of two cases where the FtT has been unable to hear freehold estate charge cases due to the lack of legislation.
Statement from HorNet (Home Owners Rights Network)
on the Housing Ministers proposals for Estate Charges
HorNet welcomes the government’s belated recognition that there is a serious national problem over estate charges, but there is a long way to go as Helen Goodman pointed out in her closing speech on The Estate Fees debate (Westminster Hall 22/01/19) which she secured to hold the Housing Minister to account.
It became very clear from Housing Minister Kit Malthouse’s speech that the government seems intent on moving forward with the sticking plaster approach of tacking estate charges onto existing leasehold rights. There was no mention of repealing the section 121 remedies available to the rent charge owner to effectively repossess a “freehold” home and no mention of compensating home buyers for purchasing a home at full market value which has been subsequently devalued by these estate management arrangements.
We welcome the idea of government using “Help to Buy” as a lever to prevent future private estates, but this will do nothing for those already trapped.
Indeed it also became very clear that Kit Malthouse was not prepared to acknowledge or address the very major issue of the poor quality estate construction and maintenance which is causing long term blight on these developments. Instead he focused on protecting the status quo, insisting that section 106 agreements and adoption by councils remain local decisions, when we all know that councils make these decisions always looking over their shoulder at central government legislation and policy. They do not want to waste their limited funding on planning appeals where central government does not uphold the local decision. It is patently untrue that local authorities have real autonomy. HorNet believe that developers favour private managed estates because they can retain an asset and save on construction and adoption costs.
In his speech the housing minister states “There is only so much money that can be extracted from a particular housing development.” This is a pretty clear admission that government uses private house builders to fund infrastructure and will extract as much as they can. In respect of the public open spaces being “donated” via 106 agreements instead of adopted, it is the residents who pick up the tab, NOT the developer. Government fails to acknowledge that the more they extract from private house builders, the more likely it is that home buyers will foot the bill to maintain profit margins.
The proposals he put forward simply will not work to obtain a fair deal for home buyers. Why??
Most freeholders deeds contain clauses which allow the management company to recover its legal fees via the estate charges, so win or loose, the company carries no financial risk in using the courts system of which the First tier Tribunal is a part. Access to the FtT will only be of use if this loophole is plugged. Even if this is done, the system is imbalanced in favour of land owners and investors, as leaseholders know to their cost.
Why is government offering freeholders the same rights as leaseholders when it knows these rights do not give them fair redress? Indeed the abuse of the leasehold system is also subject to government enquiry right now. This does not give us any confidence that government really wants to help new build home buyers, but rather has the interests of property developers and managers as their priority.
Proposals for home owners to apply to a tribunal to change management companies will not work for the majority, as there is quite a high turnover of ownership on new estates and problems for owners working together due to absentee landlords. Why should home owners have to go to the trouble and expense and responsibility of managing estates which belong to a private company and are designated public open space? There is no reason other than asset creation and income generation why these areas should not be managed publicly.
Enfranchisement, where the home owners gain ownership of the land in common, may be a way forward for existing estates, although measures would need to be put in place to indemnify residents from defects in construction. This is especially important as we know that construction has been on the cheap, and sometimes not finished at all. HorNet believes that councils should adopt these areas sub standard, as they are responsible for allowing the private estate model without taking into account the risk of future blight. Since only the landowner can offer the estate for adoption, the residents would have to take ownership of the land first.
On quality the minister states: “We expect all housing developers to deliver good quality housing and estate facilities, to deliver it on time, and to treat house buyers fairly.” We say it is no use just expecting these considerations, measures must be put in place to ensure that shareholder value and profit do not override them, which is exactly what is happening now with the private estate model. HorNet have informed the MHCLG on more than one occasion of the sub standard nature of estate delivery and this message has been re-enforced by Helen Goodman and her fellow MPs in the debate.
Maintenance has to be paid for – we agree with the minister on this. Many HorNet members have said they would be prepared to pay the council (or parish/town council) for estate upkeep. It is up to government to look at the problem of funding and come up with a fair solution. One which does not involve private companies ripping off residents, and where local communities and residents fund these amenities together, since they are generally open to all to use and abuse.
Estate management by private companies is expensive – on average at least 50% of charges is simply for management costs. If there is an estate management company, it opens the door for high and arguably unnecessary fees for permission to alter properties and for moving and re mortgaging. We have reports from members of house sales being blocked or delayed because the management company is a party to the legal transfer. It should not be possible for this to happen with a freehold property. What do these companies actually do which could not be done by local authorities??
In our view they do not add value for the home buyer, only an income stream for themselves. We have numerous cases where a small strip on land is the only “estate” being managed. These are cynically known in the industry as “ransom strips”. Their existence certainly lends credence to the idea that this whole estate maintenance model for residential homes is a scam, saving money for developers and making it for property management companies.
To give an idea of the size of the problem here are some statistics:
HorNet has 4500 members on social media and a database of over 400 estates representing over 80,000 households.
The average estate charge is approx £250 per year, although there is huge variation.
The private estate model has been in use for at least 15 years and the norm for 10 years.
The government don’t count private estates, but do count new homes delivered. 1.3 million in the last 10 years, most of which will be on estates, and most of them privately owned.
Based on this a conservative estimate is at least 1 million affected households – which equates to a £250 million per annum property maintenance income, not to mention the value of the land held.
HorNet have evidence from across the UK of the problems for home owners and for the estates themselves, and we would like the government to start a dialogue with us so that we can brief them on precisely what is happening on the ground and work to create a balanced and fair system for everyone.
Cathy Priestley and Halima Ali
(Campaign Coordinators from Homeowners Rights Network)
February 6th 2019