"Estate rentcharge" is it definite No go?

Dev_MK

Hello
We are in a process of buying a house. It's new estate about 3 years old and only phase 1 houses are finished ( out of 3 ). During conveyancing process our solicitor pointed out that house is subject to estate rentcharges. At first we had no idea what they are but after a bit of research we learned about all Draconian remedies management companies have in the event of default. Additionally our TR1 document states that we only have 14 days to pay instead of 40. One of the residents told us it will be 159 £ per year and management company is called Trinity ( not set up yet ). We absolutely love the house and area but after learning about this we are  really struggling to make a decision to buy or walk away because of this alone. We were planning to stay there for about 10 years and then sell it but since apparently those rentcharges can make house unsaleable we no longer know what to do. Does it make any sense to buy now and hope for a law to change? Government already promised changes in that regard. Maybe we are exaggerating and it's fine or maybe just trying to justify this purchase. We know there are a lot of people who prefer older houses but we definitely prefer new build and it feels like we can't win here because there is no new build without rentcharges where we live. Would love to see your opinions about our situation. Thank you very much for your help.

hazyjo

Is the house definitely freehold?

Look, you'll hear many negatives (just look up "fleecehold"), but if you want something new ish on an estate, you'll be hard pushed to find a house without a service charge.

I lived in a house with charges a decade or so ago, didn't really bother us at the time. Meant the grounds were kept nice, and it didn't cost very much in the great scheme of things.

One thing you will be stung with is when you sell, you'll need a management pack (like you would if selling a leasehold property). It's likely to cost anywhere between £200-800 in today's money (give or take!) and many slow things down slightly.

Dev_MK

House is most definitely freehold. I've read a lot of articles about fleecehold already and most of them involved people saying they wouldn't buy if they knew. That's what made us really worried about whole situation. Management pack would not be a problem. I'm more concerned if we will be able to sell at all. Hard to tell what lenders think about it and if it will be mortgageable if the future. But on the other hand hard to believe so many houses would not be saleable in the future. I've heard it's 1.3 million properties and growing. I probably didn't mention but we are not buying directly from developer. It's pre owned and 3 years old( phase 1). We also managed to find out that there is a change in transfer documents on phase 2 houses saying that management company needs to notify lender in event of default so they could pay any dept there is and most likely charge us later. But that I assume is helping a bit. We would still have to negotiate putting that into our phase 1 TR1. Other worry is a fact that that could keep increasing those charges to some ridiculous amounts. TR1 states they need to be reasonable but not sure how binding that actually is. My guess is they will only be responsible for green area's since there is a section 38 agreement and section 104 agreement in place but we only know about their existence not seen them just yet. Just assuming it means roads and sewer's will be adopted by local council. Thank you very much for any input and opinions.

Flugelhorn

We have bought one recently - opted to get a DoV done to amend some of the more stringent parts if the transfer deed relating to the estate charge. (also included the bit about informing lenders if there was a default)  weren't getting mortgage but solicitor checked that what was done met the main lenders requirements. Developers and management company signed it without any fuss, sounds like they were doing quite a lot of these.

GDB2222

There are two issues.

 The practical issue is that the management costs could spiral. £159 now, whilst the developer is trying to sell more houses and has an incentive to keep the cost down. But what will it become when all the houses are sold? Apart from the annual cost, it could rise to a level where it noticeably impacts the value of the house. Ask yourself whether you would buy the house for the same price  if the annual maintenance cost were say £1000?

The theoretical issue is that the draconian nature of rentcharges makes the entire estate unmortgageable, as you have mentioned above. Eventually, something may be done, but you cannot be sure legislation will be retrospective. So, it may just be for new estates.

 And, in any case, rentcharges are used for a very good reason. It’s to keep the cost of collecting the management charges down. The management companies just have to threaten to invoke their rights, and owners cough up. If legislation draws the teeth of these rentcharges, the cost of collecting management charges will increase, which means still more to collect from those paying on time.

GDB2222

I’ve said rentcharges are used for a very good reason. Of course, I should have said mis-used.

Nevertheless, whilst the powers are normally used just to get owners to pay quickly, it’s only going to be a matter of time before some evil genius works out that there’s a fast buck to be made here.

HampshireH

Dev_MK said:

House is most definitely freehold. I've read a lot of articles about fleecehold already and most of them involved people saying they wouldn't buy if they knew. That's what made us really worried about whole situation. Management pack would not be a problem. I'm more concerned if we will be able to sell at all. Hard to tell what lenders think about it and if it will be mortgageable if the future. But on the other hand hard to believe so many houses would not be saleable in the future. I've heard it's 1.3 million properties and growing. I probably didn't mention but we are not buying directly from developer. It's pre owned and 3 years old( phase 1). We also managed to find out that there is a change in transfer documents on phase 2 houses saying that management company needs to notify lender in event of default so they could pay any dept there is and most likely charge us later. But that I assume is helping a bit. We would still have to negotiate putting that into our phase 1 TR1. Other worry is a fact that that could keep increasing those charges to some ridiculous amounts. TR1 states they need to be reasonable but not sure how binding that actually is. My guess is they will only be responsible for green area's since there is a section 38 agreement and section 104 agreement in place but we only know about their existence not seen them just yet. Just assuming it means roads and sewer's will be adopted by local council. Thank you very much for any input and opinions.

This could take nearly a decade in itself.

We have an estate near here I used to work on. There is a service charge for a all homes which covered, green areas, dog poo bins, play park space and lighting as well as roads.

Council still havent adopted the roads 7 years later in some parts but that had been the expectation when the estate 1st went up.

jimbog

hazyjo said:

be hard pushed to find a house without a service charge.

The OP was concerned about 'rentcharge' not 'service charge'

AdrianC

hazyjo said:

...but if you want something new ish on an estate, you'll be hard pushed to find a house without a service charge.

Of course.

Who on earth else is going to pay for all the unadopted roads and common areas?

jimbog said:

The OP was concerned about 'rentcharge' not 'service charge'

What's in a name? It's just the mechanism by which those common areas are paid for by freehold owners on the estate, rather than leaseholders.

Dev_MK

GDB2222 said:

There are two issues.

 The practical issue is that the management costs could spiral. £159 now, whilst the developer is trying to sell more houses and has an incentive to keep the cost down. But what will it become when all the houses are sold? Apart from the annual cost, it could rise to a level where it noticeably impacts the value of the house. Ask yourself whether you would buy the house for the same price  if the annual maintenance cost were say £1000?

The theoretical issue is that the draconian nature of rentcharges makes the entire estate unmortgageable, as you have mentioned above. Eventually, something may be done, but you cannot be sure legislation will be retrospective. So, it may just be for new estates.

 And, in any case, rentcharges are used for a very good reason. It’s to keep the cost of collecting the management charges down. The management companies just have to threaten to invoke their rights, and owners cough up. If legislation draws the teeth of these rentcharges, the cost of collecting management charges will increase, which means still more to collect from those paying on time.

Should I assume that TR1 document stating that charges need to be reasonable is not binding and basically meaningless? There is still a chance they will increase them so much? You definitely have a point there about legislation not being retrospective and certainly it's a possibility. On the other hand government would just abandon 1.3 million properties supposedly including those charges as they are now? I generally have no problem in paying for maintenance at all it's more of a concern for a future saleability and value which is hard to predict. Regarding Trinity as a management company... Not sure how much can be said about them but generally their reviews online are really really bad. Is this a cause for concern or many it's like that for all of them? 
Thank you all! This will definitely help us make more informed decision.
To be honest we absolutely love that house and it's location and because of that may  not  look at this issue objectively. That is why your input is very valuable to us. In the end don't want make stupid decision while being blind to issues it may cause later.

Dev_MK

HampshireH said:

This could take nearly a decade in itself.

We have an estate near here I used to work on. There is a service charge for a all homes which covered, green areas, dog poo bins, play park space and lighting as well as roads.

Council still havent adopted the roads 7 years later in some parts but that had been the expectation when the estate 1st went up.

You are right we don't have any time frame for this to happen. All we know that planning maps show all roads will be adopted and there is a paragraph in TR1 that states developer takes responsibility for maintaining them until they are adopted. Map shows green areas as only those will be under management company.