A new-build, freehold house comes with a £750 service charge: Should I walk away?
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?
Ed Magnus replies: Estate management charges, also known as estate rent charges, have become an increasingly common feature of new build estates. The charge is bound to each property through the title deeds.
Sometimes the charge may seem reasonable. However, often it can seem like you're paying money for almost nothing.
The charges tend to cover any communal gardens or lawns, private roads, pavements, car parks and play areas located within the new housing estate.
In the past, the local authority might have provided these services - but when new housing estates are built, councils don't have to take responsibility for them. This means the residents must fund it themselves.
In your case, it's just for a small green area and a pair of electric gates, so £750 seems rather steep. With seven homes, that adds up to £5,250 per year.
> We've found a leasehold flat: Should the inflation-linked ground rent put us off?
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.
For expert advice, we spoke to Clive Scrivener - a partner at Scrivener Tibbatts and a member of the Association of Leasehold Enfranchisement Practitioners.
Clive Scrivener replies: While such charges aren't unusual, there are several areas you must be aware of.
You mention that the management company responsible for these shared areas has been dissolved according to Companies House.
This 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.
Your 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.
You 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.
You 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.
You will need to establish who is ultimately responsible for these communal areas and if there is any cost liability to you associated with it before purchasing the house.
This situation is increasingly common in modern developments where there are private roads, green spaces, pathways and gates which are managed at residents' expense.
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