A new-build, freehold house comes with a £750 service charge: Should I walk away?
I was recently asked to comment on this issue by This is Money on behalf of ALEP (the Association of Leasehold Enfranchisement Practitioners) of which we’re a member, writes Clive Scrivener, Founder Partner at Wimbledon-based Chartered Surveyors Scrivener Tibbatts Ltd.
“I’m looking at buying a three-year-old house on a gated development made up of seven houses. The house is a freehold property, but has an estate management charge for the communal areas, comprising a small green space and a pair of electric gates.
“The charge is £750 a year but the documentation from the management company gives very little detail. Should there be some detail around how much the charge may increase each year, and how to dispute any charges? Also, I looked up the management company on Companies House and it says it has been dissolved.
“Should I continue with the purchase or call it a day?”
Owners of at least a million newly-built homes face paying these estate charges, according to the Homeowners Alliance, often with no way to challenge them or to take over the management themselves.
This is a particular concern when buying a property as you don’t want to see an annual charge balloon. While leaseholders in England and Wales have a statutory right to challenge unreasonable service charges, freeholders do not currently have an equivalent statutory right.
It is possible to dispute the charges in a county court. However, most people won’t have the resources to do so. The fact that the management company has also been dissolved on Companies House is also a major cause for concern.
While such charges aren’t unusual, there are several areas you must be aware of. You fact that the management company responsible for these shared areas has been dissolved according to Companies House raises the question about who is now responsible for maintaining the communal areas, how funds are being managed, and what happens if repairs are needed.
Without an active management company, you may be left with unclear or unfair responsibilities, especially if management responsibilities are being split between neighbours or disputes arise.
A well-run residents management company will be able to provide you with a service charge budget, service charge accounts every year, a maintenance schedule and possibly a future planned and preventative maintenance plan. The service charge budget and accounts would show actual expenditure, and the management company would be able to provide invoices and receipts for expenditure on request.
A solicitor should investigate the current status of management arrangements, any legal obligations tied to the property, and whether a new management company has been appointed or if residents are now self-managing.
They should establish who has legal title of the communal land. If the management company has been dissolved and does own the land, then this title could have gone ‘bona vacantia’ (ownerless) and would pass back to the Crown.
They would then have to contact the Crown Estate’s solicitors to apply to acquire the company or land back. This can be a costly and lengthy process.
We recently advised on this exact situation for a new development of eight houses where the communal roads and green spaces had reverted to the Crown Estate due to the management company (owned by the original developer) failing to file accounts and therefore being dissolved.
Establishing who is ultimately responsible for these communal areas and if there is any cost liability to you associated with it before purchasing the house is essential. This situation is increasingly common in modern developments where there are private roads, green spaces, pathways and gates which are managed at residents’ expense.
If you would like to discuss something related to a property valuation please contact Clive Scrivener direct via email at Clive@scrivenertibbatts.co.uk or call 020 8971 2983.
