Buyers beware of estate rent charge fees on freehold properties

The past decade or so has seen a squeeze on local council budgets. This has resulted in councils being unable (or unwilling) to accept responsibility for covering costs of maintenance, such as grass cutting and the upkeep of play areas, in public open spaces on new housing estates.

Increasingly the cost of maintaining these communal areas on newer housing estates is pushed onto homeowners. However, these homeowners do not receive any corresponding reduction in their council tax bills.

Developers of housing estates structure legally binding arrangements within the documents of sale to ensure that all future homeowners make a proper contribution to the upkeep of the estate’s common spaces.

Developers can choose to impose on homeowners either:

  • A service charge or
  • An estate rent charge.

Both arrangements provide a mechanism to require mandatory payments from homeowners.

Problems for freeholders

If you are a leaseholder on the new estate you have significant legal protection; you must be consulted before being charged, the charge must be ‘reasonable’, and you can refer a dispute to the Property Chamber tribunal if necessary.

However, the same protection is not afforded to freeholders. There is no test of ‘reasonableness’ and any dispute must be referred to the small claims court – a process which can rack up significant legal fees.

Check your obligations

When you buy a freehold house, your Deed of Transfer will outline the charges required and should clearly state:

  • What you are expected to contribute towards
  • The proportion of costs you should pay
  • Dates on which payment is due

However, there is no standard way this information is required to be set out in a Deed of Transfer, making it hard to challenge.

Issues with mortgages

Some buyers are now finding it difficult to raise a mortgage on a freehold property with an estate rent charge. Generally, the required payments are small, but defaulting on them can have an unreasonably significant impact.

In 2016 a case (Roberts & Ors v Lawton & Ors) resulted in the laws regarding estate rent charges being interpreted in a way very favourable to the rent collector. The judge in the case even described the outcome for the homeowner as a ‘wholly disproportionate remedy’.

In the law as it stands, if the charge remains unpaid for 40 days, the business receiving the rent (usually a management company) has the right to issue a lease on the property in order to clear the arrears, interest and costs. If this lease is granted, it will continue for its full term of years, even after the rent charge arrears are paid or the rent charge redeemed in full.

In practical terms, the management company could put tenants into your property or sell the lease to a third party. This means mortgage providers are very nervous of lending against freehold properties with rent charges in place, as their security (the ownership of the property) could be seriously undermined.

As the property owner, failing to keep up with the estate rent charge payments could result in you having to move out of your home – or pay costly fees to have this new lease on your property surrendered.

What can I do?

The current law may seem to be unfair for homeowners, however the case in 2016 has set a precedent so for now the law as it stands must be followed.

Be aware that you may pay a regular ‘service fee’ to a management company. This is structured differently to an estate rent charge and doesn’t worry mortgage lenders in the same way. Ensure you are fully aware of your obligations. If your property is subject to an estate rent charge, the charge must be paid in full and in a timely manner. Failure to do so could have serious implications for your freehold.

If you would like any further advice or to discuss an issue with an estate rent charge, please contact Helen Harris in the Forrester Sylvester Mackett Solicitors residential property department on 01225 755621 or visit contact your closest office.

The contents of this article are for the purposes of general awareness only. They do not constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.

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