FTB - TP1 - Covenants - Pull Out?

toriade

Hi All, 

FTB looking for a bit of advice here. We found a new build just before lock down on a large development. Made reservations and applied for mortgage. Mortgage approved subject to valuation, valuation still pending due to lockdown. We have recently received our TP1 from the solicitor and we've got a couple of questions. Though its a freehold but comes with a rent charge to be forever charged on the property to ensure the payment of management fees/rent charge....Understandable, as I think that''s whats obtainable with large developments. Management company has the right to enforce s.121 of 1925 property law if no payment of management fees and fixed rent charge some months after notification/request. Though we love the property and trying to get a place of our own before baby 2 comes around.

Key thing here is the restrictive covenant regarding consent required when making changes on the property.

Can restrictive covenants vary between plots in an estate? A deed on the estate for one of the plots shows the owner can make changes to his/her house without seeking the consent of the management company, 10 years after purchase but mine doesn't specify the number of years and implies "forever".  I have pushed this back to my solicitor who has now forwarded a reply from developer's solicitor stating this can't be changed as its standard on the estate. This is not true as I have a copy of a deed of variation for a plot on the estate which the solicitor forwarded to me albeit mistakenly. Need I say, I am using the developer recommended solicitor. 

Will this have any impact further down the line when we come to sell? An intending buyer will surely prefer to deal with the govt directly instead of first seeking the consent of the management company who will demand consultation fees before he/she can make changes on his/her property. 

Do you think this warrants pulling out if developer is not willing to make this change? I'd expect all plots to be standard but not so in this instance 

SaverRate

Personally I would have pulled out on finding the rent charge issue.

daveyjp

Thank everyone for their time, but let them know with such an onerous clause you are unable to proceed. You are buying a freehold and that is what you expect, not a hamfisted leasehold mechanism.

Ignore anyone who says it is 'normal', that does not mean it is perfect or without potential problems further down the line.

greatcrested

Give the developer a choice: Amend the terms of the sale or find himself another buyer.

Don't agree to the rent charge and don't agree to the covenant. It's a house, not a flat. Buy freehold with no strings attached.

toriade

Thanks Guys, we've been always been told most new builds have this management clause hence the rent charge. 
Is it also a thing for different plots within a private estate to have different covenants?

sjc93

All of the new builds around my area (cotswolds) have the management clause, so it wouldn't surprise me if it was the same over the country.

I would definitely query the timeframe of altering the property though. Is this property something you could extend out if you wanted to in the future? 

daveyjp

toriade said:

Thanks Guys, we've been always been told most new builds have this management clause hence the rent charge. 
Is it also a thing for different plots within a private estate to have different covenants?

As I said normal does not mean perfect.  10-15 years ago it wasn't normal, ill thought out political decisions have lead to this position.

Don't concern yourself with others, negotiate what you want.

eidand

I can never understand these new build estates and why people buy on them.
You pay maintenance charges but nothing is really yours, here you pay for a nice, private park but everyone has the right to use it. Then you pay council tax on top of that and you have restrictive covenants as well. Finally, you risk getting a !!!!!! house anyway for a huge amount of money because standards are so poor. 
Must be like a self inflicting pain mechanism. Run and don't look back ...

princeofpounds

The developer can put whatever covenant they choose in the deeds of course. Of course they could vary them - it’s no harder than a lawyer typing for two minutes in a word processor, in theory. They may not want to, but it is a choice, not a rule.

I would find it unacceptable to have a permanent covenant on development - it’s just another way to screw money out of you down the line for permission. The developer has no genuine interest in the estate in perpetuity that would require such controls in good faith.

The guff about ‘standard on the estate’ is just that; what they really mean is they want to apply it to all the properties on the estate for their own reasons. That is different, and it’s a shame you are using their recommended solicitor because this is exactly the sort of thing they tend to gloss over. You also know from this variation that they are apparently lying over how standard their approach is.

As for the rent charge... well, specifics matter. If there are common areas, they have to be paid for somehow - councils often insist it exists in planning but refuse to adopt it these days, so the root cause is not always the developer actually. But new build communal management and charging practices have a mixed reputation, so you need to be confident it’s an ok set-up.

OldMusicGuy

I've just moved from a new build (quite old when we moved as we were there for 20 years). The restrictive covenants on that one did not allow any changes to the front of the building at any time, and also that conservatories or extensions at the back could not be built within five years of occupation. I'm moving to another new build right now (just exchanged), and the restrictive covenants on that one are much less onerous. In our new development, changes to the house of any type are only restricted until the last property on the development is completed.

The impact of these covenants can be minor. It's unlikely they will be enforced once the builders have gone and the development is complete unless other residents try to stir up trouble (and even then, the residents can't enforce anything, they would have to get the freeholder involved). For example, we changed the colour of our front door (not allowed) and also removed some plants form the front (again not allowed) but nothing ever happened. 

You also need to look at the rent charge/management fee. This caused us a world of pain in our last property as the management company (FirstPort) was awful and kept overcharging us and trying to get the management fee increased. I would not move to a property with a similar arrangement in place. The development we are moving to has a residents management company arrangement, which means the residents own the freehold of the common areas.

This will come up when you sell the house (it did when we sold ours last year). It will be a possible issue in the future, it depends how desirable the house and development will be to potential buyers. 

This is a very common arrangement for freehold properties on a development with common areas. We have looked at quite a few new developments in the last few months and every one had some kind of management company arrangement to cover this. The reason I was happy with the development we are moving to is because of the residents management company arrangement (which means the residents own the freehold of the common areas). You won't be able to get the developer to change to this arrangement if it is not in place because it requires a lot of work on the part of the developer.

Also, are the roads on the development being adopted by the council? If not, this means your annual costs have to take this into account. On the development we are moving to, the council is adopting all roads and footpaths.      

greatcrested

eidand said:

I can never understand these new build estates and why people buy on them.
You pay maintenance charges but nothing is really yours, here you pay for a nice, private park but everyone has the right to use it. Then you pay council tax on top of that and you have restrictive covenants as well. Finally, you risk getting a !!!!!! house anyway for a huge amount of money because standards are so poor. 
Must be like a self inflicting pain mechanism. Run and don't look back ...

Quite. I'd never buy on one of these estates.

Trouble is property is in short supply and sometimes people have little choice. That combined with FTB ignorance, plus the fact that it's so widespread as to be 'normal', means these arrangements just get perpetuated.

If more buyers kicked up a fuss, insisted on changes to the deeds, threatened to pull out (and pulled out for real) then developers would eventually get the message and stop including these 'standard' terms.