Low Down on Estate Charges

HorNet has been going for over three years and gained much information from members over that time. Here is a summary of our experiences:

Almost all new builds now are on estates with estate charges.

Estate grounds are not put up for adoption but “donated” by developers in Section 106 agreements with councils as public amenities. The cost of maintenance is charged to the estate residents via property law. Until the selling of leasehold houses was exposed as a scam by the National Leasehold Campaign, developers often favoured all leasehold estates where the estate charges were contained in the lease and could be enforced via leasehold law. Where houses were sold as freehold plots other means of enforcing payment have been used.

There appear to be two main conveyancing methods to tie the freehold purchaser into paying estate charges, estate rent charge or chain of covenants. With the first which is a special case of a rent charge and cannot be redeemed (sadly!) the penalties for non payment for any reason are draconian. The rent charge owner can enter the property and take out a lease on it. This remedy is in section 121 of the Law of Property Act 1925 and although the government have promised to repeal it, they have not yet done so. Because of this some mortgage lenders are asking a deed of variation which will protect their freehold interest in the home (and as a side effect the home buyer’s as well). A chain of covenants is simply an extra deed in which the buyer promises to pay the estate charge in return for the estate being maintained. Failure to pay is treated like any other debt within the county court.

Developers favour the private estate model as they can save huge sums on construction costs and big fees to councils for adoption and inspections.

Developers usually create a shell company before building commences with responsibility for managing the estate. At first they own the company but it may be transferred to the residents when the estate is completed. Or it may be sold to a land and property managing agent. In some cases this agent is named (embedded) in the house deeds and cannot be changed by the home owners. We have had many reports of obstacles being placed in the way of self management.

The estate land does not not necessarily transfer with the responsibility to maintain it.

The detail of the set up varies substantially between developments which makes it very hard to give any general advice or support.

There is no set of laws (statutory framework) governing these arrangements and home buyers do not have any specific rights to challenge their fees or query the services being provided (or not, usually).

There are no caps on the fees which can be charged, and it is our experience that they rise steeply once the builder has finished and no longer selling homes.

Until quite recently, most home buyers have not been made aware of the true liability they are taking on when the sign up to buy these homes. They are commonly told that there is a small annual charge for grass cutting/keeping the estate tidy. It is usually much more than this and can include expensive liabilities such as pumping stations, sub standard roads and footpaths or old brown field structures which may not have been adequately remedied. It is not always clear exactly what is covered in the maintenance, and in many cases items have been added after the house has been purchased.

Now that more is out in the open, we have many prospective buyers coming to us for advice, often with their conveyancers report and/or their TP1 (transfer of part of the freehold) document from the builder. We are not lawyers, so the best advice we can give is to read this article on our web site and then go through your documents making a list of all the questions you have to ask your solicitor. It is unlikely they will be able to reassure you that all will be OK down the line, particularly over the resale value of your home. At the end of the day, you will have to make a judgement over the risks in the specifics of your purchase. At least you have the benefit of the information and can make an informed choice – something which was not available to many home buyers in the past.