According to a report issued recently by the Competition and Markets Authority(CMA) 80% of the freehold properties built in the last five years by the 11 largest housebuilders, two-fifths of all new builds across England, Scotland and Wales, have unregulated and ever increasing additional charges, in perpetuity, over which the residents have no control
Most new estates are not adopted by the local council meaning that residents are liable for the roads and common parts often to include sewers, lighting, verge trimming and amenity and recreational facilities. Effectively a second tier council tax over which there is no control and can increase considerably over time as the infrastucture degrades.
Fleecehold: The solution – The only realistic solution to the fleecehold crisis is within the planning system which will require significant new legislation. All new developments need to be constructed to an acceptable standard and adopted by the local authority. Developers should be penalised for non-compliance. A fund needs to be established through a housebuilders tax to enable the adoption of existing estates and to ensure that these long term liabilities, that they have created, do not continue to be a burden on householders.
- Unlike leaseholders, freeholders have no right to transparency over their estate charges or to challenge the charges they pay. The majority of mangement companies are owned by the housing developers themselves. According to a study by Investors Chronicle just two quoted housebuilders banked over £50 million, in part, from estate manement fees and the sale of such companies. Around 9,000 such companies appear controlled by a handful of leading developers. A huge cash cow at the expense of freeholders.
- More sinister is that in many cases, although the properies are freehold, the estate mangement charge is frequently legally secured by a “rent charge” which enables the developer to convert the property to a leasehold if for any reason payment of the service charge is withheld or delayed. Many mortgage providers will not entertain such provisons making resales problematical.
- Freeholders, unlike leaseholders, generally have no right to appoint an alternative mangement company or self-manage the development if dissatisfied with the service they receive.
- MP warns scandal bigger than Post Office.
The Leasehold and Freehold Reform Act 2024
The Leasehold and Freehold Reform Act has now become law although it has failed to address many of the scandals inherent in fleecehold. Although freeholders who currently pay estate charges get the same access to redress as leaseholders, they are excluded all leaseholder rights which includes the option to manage their development. It does not address forfeiture that allows a managing agent to repossess a freehold where relatively small sums of management charges remain unpaid. It does not address the issue of existing and new build estates being adopted by local authorities. Currently freeholders are in effect paying a second rate charge for infrastructure and other services with virtually no control over charges.