House buying (freehold), with estate management charge and right to reenter the property - Red flag?

propertibuyer

Dear all,

Thank you for reading my post!
I am in the process of buying a property in the South west.
My solicitor has sent me a 'transfer of deed' related to the property (freehold house) I am purchasing. A paragraph has caught my eye:

'The transferee hereby grants to the Transferor out of the Property the Estate Rentcharge and the Estate Maintenance Charge together with any interest which may be due thereon calculated in accordance with this transfer. The parties declare that in addition to the statutory powers afforded to the Transferor by the Law of Propert Act 1925 enabling it to enforce payment of the above Estate Rentcharge and Estate Maintenance Charge, if the Estate Rentcharge and Estate Maintenance Charge or any part of it is at any time in arrears or unpaid for more than 21 days after it has become due and lawfully demanded or if there is at any time a breach of the covenants on the part of the Transferee contained in Clause 20 the Transferor may re-enter the Property or any part of it in the name of the whole and reposses and enjoy the Property as if this transfer had never been made without prejudice to any right of action or remedy in respect of any previous breach of covenant.'

I have asked for information regarding the charges, and am awaiting a mangement pack from the vendor's solicitor.

In the meantime, I had to inform my mortgage provider about the clause (as per the solicitor's advice), and they are now investigating if the right of re-entry granted to the Transferor will adversely affect their security.

Is this a red flag? Should I walk away.

Thanks again for taking the time to read and advise

propertibuyer

Any advice?

need_an_answer

What advice has your solicitor given you ?

Do they perceive it as a "red flag"?

OldMusicGuy

Walk away, it appears to be outrageous IMO. We are in a similar situation, a freehold property with shared common areas owned by the developer and subject to a rentcharge. If we don't pay within 21 days, we get charged 4% over base rate interest, that's it. It would appear from what you have shared that late payment or breach of the covenants effectively allow them to repossess your property. Very concerning.

Given that we have had to take our property manager to the Ombudsman twice over incorrect charging and billing, and we have to dispute their charges every year, there's no way I would want this threat hanging over me.

sal_III

If you are set on getting this property, speak to your solicitor, asking what are the options to remove/amend the charge. As OldMusicGuy mentioned this seems extremely onerous for a Freehold. Even Leaseholds need court order for repossession. If it cannot be amended and you still want the property - renegotiate a massive reduction of the price. The Vendor will be hard pressed to sell it with this charge/covenant to any sane person.

If you are not that attached to this property, just move on.

SouthLondonUser

In addition to what oldmusicguy said, I would also point out that this seems to be one of those 'fleecehold' cases (look it up), whereby you basically have no control over this company and how much it charges. Is that the case? What do they do? Maintain some green spaces? Can freeholders fire the company and appoint another one? If the company increased the charge by 30% every year, you could probably sue them; but if they increased it by an above-market but not as outrageous amount, say 5% every year, and commissioned sister companies to do the work, could you really do much about it?
Even if they are reasonable now, you'd have no control if they sold to someone else in the future, who would then start charging crazy amounts.

RelievedSheff

Unfortunately this is the way that the majority of new build estates are going.Local councils will not or can not afford to adopt the green spaces and shared areas so the developers employ a management company to do the work and maintenance.

As this is a currently unregulated area the management companies can charge what they like and increase charges by whatever they like.

We were fortunate and found a new build estate with no management charges so don't have this worry. Nottinghamshire CC adopted the green spaces in our development, of which there are lots!

OldMusicGuy

RelievedSheff wrote: »

As this is a currently unregulated area the management companies can charge what they like and increase charges by whatever they like.

That's an important thing to watch out for. In our agreement (which is 20 years old), the management fees are capped and cannot be increased in line with inflation or some other measure. That means our management fees do not escalate every year. However, apparently this is quite rare, because our management company cannot follow the billing rules with their system (hence we have to dispute the charges every year).

SouthLondonUser

A quick search for fleecehold will bring up loads of results:

https://www.bbc.co.uk/news/uk-england-46279048

https://www.leaseholdknowledge.com/fleecehold-estate-management-contracts-are-the-latest-fiddle-from-taxpayer-subsidised-house-builders

https://www.theguardian.com/money/2017/dec/02/homeowner-freehold-management-fees-unadopted

https://www.betterretirementhousing.com/downsizing-pensioners-assailed-by-fleecehold-charges-reports-daily-mail/

propertibuyer

Thank you all very much for pitching in. The solicitor mentioned it, but failed to comment any further - definitely not using the company again. The fact that the bank is seeing it as a risk to their security, and that I would likely have a problem selling it in the future, I am walking away from the deal. It is just not worth the hassle. Plenty more houses to choose from.

Thanks again. This forum is a fantastic resource and help.

Kentish_Dave

My wife and I looked at a new family home a big development near City Airport last year, and the terms of the lease were just awful, so we walked away.

One and a half million pounds for a house where you did not own the outside of the walls, or the windows, could not put furniture on the roof terrace, and the £30,000 “parking space” was actually just a right to park in the large underground car park, with no allocated space and no guarantee that they would not over-sell the available spaces.

Reading the forum for residents since makes me very glad that we bought a freehold property instead.