Toxic leaseholds are banned but now firms are cashing in on freeholds

Daily Mail Online Finance 3 weeks ago

Up to 1.3 million homeowners could be trapped in freehold contracts that tie them to rising and unregulated fees, Money Mail has discovered.

Many new-build estate residents who already pay council tax are being charged uncapped 'management fees' if their local authority does not take on the upkeep of the area.

Campaigners are calling it 'the new leasehold scandal' and say homeowners are now struggling to sell or remortgage.

Retired teacher Joelle Jones and husband Ian are battling demands for cash from an estate management company — despite paying £2,310 a year in council tax (see box below)
Retired teacher Joelle Jones and husband Ian are battling demands for cash from an estate management company — despite paying £2,310 a year in council tax (see box below) 

Developers say the charges — which can be as high as £1,800 a year, according to a campaign group — are necessary to cover the cost of maintaining roads and green spaces on the estates because local councils can no longer afford to do so. 

But councils say many developers are simply trying to make more money. MPs, campaigners and residents are now all calling for the charges to be capped and regulated.

Buying a freehold property ordin-arily means the homeowner does not pay ground rent and service charges that leaseholders face.

Earlier this year the Government banned the sale of new-build leasehold houses to protect families, who were being forced to pay toxic ground rents that doubled every decade.

But now, an increasing number of newbuild buyers are being hit with escalating fees and charges — despite buying their property outright and owning the freehold.

Others have to pay up to £2,000 in 'permission fees' if they want to make improvements to their home.

And some developers are adding 'covenants' to property deeds that ban the owners from parking vehicles such as vans or motor homes on their own driveways.

Campaign group Hornet says it knows of at least 110,000 households which now have to pay these fees — typically around £250 a year.

Cathy Priestley, of Hornet, says: 'This is the new leasehold scandal, we've been told some homeowners are struggling to sell, and in some cases building societies are refusing to accept re-mortgage applications.'

It is understood that many developers are selling the contracts to maintain the estates to property management firms.

Beth Rudolf, director of the Conveyancing Association, says more freehold homes are being sold with estate management charges.

She says: 'The Government is banning leasehold houses because of all the abuse, but it's a bit like whack a mole — every time you think you've sorted out one area, another one pops up. 

We are expecting it to become more common now that the Government has banned leasehold houses, builders will be looking to replace lost revenue.'

The fees can come under a variety of names including 'upkeep fees', and 'service charges'. In most cases part of the income is used to pay for contracted jobs the council would usually do such as maintaining green spaces and roads.

But Local Government Association housing spokesman David Renard says: 'Even in cases where councils are in a position to adopt new open spaces, some developers prefer to make their own arrangements for repair and maintenance in order to maintain control of those spaces and generate income.'

Labour MP Helen Goodman, who estimates 1.3 million households are affected, is seeking a change in the law for new estates where management of streets, verges and public open spaces has not been taken over by the local council.

She told the House of Commons in November last year that management companies appointed on estates had the 'opportunity to mismanage and overcharge with impunity'

She told MPs: 'The fees are high, rising, uncapped and unregulated. One constituent told me their fee had risen from £60 to £134 in four years. Another constituent faced a 50 per cent rise in one year.

'All of this looks like just another way for property developers to screw more money out of hard- pressed households. It really is a private new-build tax.'

She added: 'When challenged over the fees or upkeep by residents, the management companies adopt an ultra-aggressive stance.

'My constituents have been bullied with threats of court action or even the bailiffs. This is going on across the country.'

Miss Goodman said problems have arisen because public areas on new-build estates are sometimes 'not made up to proper standard', so local councils will not take them on. Instead, housebuilders are selling the management rights on to third-party companies which charge 'unfair fees', she said.

The fees must be paid by residents on top of the normal council tax, owed to the local authority.

'A couple of years ago, I had a trickle of complaints about the poor upkeep and unfair fees being charged to homeowners on new estates. This has now turned into a torrent and then a flood.'

Miss Goodman, whose bill was backed by a cross-party group of 30 MPs, wants to force developers to build estates where public areas are built to a standard where they can be adopted by local councils, and for estate management bills to be capped and regulated.

But the bill did not get passed in time and it was dropped when Parliament was prorogued recently.

Labour's Clive Betts, chairman of the Commons housing, communities and local government committee, says he believed some estate charges were acceptable if they were explained properly to property buyers.

He adds: 'I'm very concerned about the growing number of freeholders being made to pay charges, because it seems to me that since leasehold homes have become more difficult for developers to sell they are now simply looking for other ways to keep up their income streams.

'That is completely wrong and the Government needs to intervene to take action to stop it.

'Any fees should be clearly explained and freeholders should have a right to challenge them.'

Developers are also forcing freeholders to follow strict rules.

These can include a ban on satellite dishes on the front of their homes or even having mobile homes or commercial vans parked outside.

Failure to comply could lead to legal action from the developer or management company.

Builders often say this is to ensure all houses on an estate look similar, but campaigners say that these rules go against the spirit of freehold ownership.

Affected homeowners have told Money Mail they are frustrated by the lack of laws to protect them. 

Sebastian O'Kelly, a spokesman for the Leasehold Knowledge Partnership, warns that residents on new estates were at risk of becoming 'second class citizens'.

He adds: 'You're going to have a situation where some people who pay council tax will get all the services they are entitled to, while others living in newer homes will be paying their council tax but will only get some services — and on top of this will have to pay estate fees.

'Councils should not be allowing these management companies to be set up just to shirk their responsibilities. This is not how you create communities.' 

A spokesman for the Home Builders Federation, which represents developers, says: 'Traditionally local authorities 'adopt' and then maintain this new infrastructure, with residents funding upkeep and maintenance through council tax.

'However, increasingly we are faced with the situation whereby councils specify requirements for new roads, green spaces, drainage systems or play areas but subsequently refuse to take responsibility for these new assets. 

This leaves residents reliant on management companies to fill the role that council taxes should pay for.'

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