"Estate rentcharge" is it definite No go?

OldMusicGuy

This isn't the worst type of fleecehold and your rentcharge does not make the house unsaleable - I know, because I've just sold a house with an estate rentcharge on it.

The biggest exposure in fleecehold is where you do not own the freehold of the house, which is a real issue. But in your case you will own the freehold of the house, like others said the estate rentcharge is there to ensure you pay the maintenance and management fees for the common areas on the estate. 

You need to find out who owns freehold of the common areas - is this the developer, someone else or a residents management company? If the freehold is owned by a residents management company, that means the residents are in charge of the costs of maintaining the common areas which is the ideal situation. You all decide between you how much to spend on looking after the common areas.

If the freehold is held by the developer or someone else, a third party management company will maintain the common areas. They will decide what the costs are and you will have little say in this. Most of these management companies are awful, and they look to increase costs and their management fees every year. This happened to us on our last new build estate, and it was a right pain. However, it would not have stopped me buying the house. You just need to look closely at how maintenance costs and management fees are calculated before you buy, and also how you resolve any issues. You have to pay these and then argue about them after the event.

Regarding adoption of roads etc, you should be able to get a copy of the S104 and S38 agreement (we are buying a new build and our developer provided these to us). Our transfer of land document also describes how costs of maintaining the roads is dealt with prior to adoption by the LA.

Bottom line: don't overreact. Houses with estate rentcharges in place are perfectly saleable. Most new builds will have these. However, before you commit, make sure you know who owns the freehold of the common areas and make sure you understand how maintenance costs and management fees are calculated, and how these might escalate. Also, make sure you understand the implications of all the restrictive covenants in place, some of these can be quite negative, especially in relation to non-payment of the rentcharge. 

We have just moved from a development that was subject to overcharging and incorrect management fees by our management company. It did take a lot of time and effort on behalf of some of the residents to  get this sorted. However, the excess charging  amounted to a total of around £100 per household for a period of 2 to 3 years. That's not a huge exposure and most of the residents wouldn't have noticed until it was pointed out by one of the retired residents with too much time on their hands.....    

(note post edited to clarify use of fleecehold)

AdrianC

OldMusicGuy said:

Fleecehold is where you do not own the freehold of the house, which is a real issue. 

No, that's leasehold. Which is not necessarily any kind of issue.

OldMusicGuy

AdrianC said:

OldMusicGuy said:

Fleecehold is where you do not own the freehold of the house, which is a real issue. 

No, that's leasehold. Which is not necessarily any kind of issue.

Fleecehold as a concept really sprung up when people were buying houses that they assumed were freehold but then found out were leasehold. They then found the leases were being sold on and the ground rent could increase significantly. Also, the cost of buying the freehold often turned out to be more expensive than the developer told them. That really is an issue, the financial exposure and saleability of those houses is far worse than a normal new build with an estate rentcharge.

New builds paying maintenance for common areas have been around for a long time, before the term fleecehold was coined. But I guess they now fall under that general term as well (so I stand corrected and edited my post) but the issue is a different one. They have no rights to form a residents management company like the leaseholders in flats do if they want to replace the management company. So you are stuck with the management company that the freeholder puts in place and that's where you can get some financial exposure and pain. But it is far less than buying a leasehold house on a new build estate.   

GDB2222

I don't think we need to worry too much about precisely what the made-up term fleecehold means. The problem we are talking about is outlined here:
https://www.bbc.co.uk/news/uk-england-46279048

It's where someone buys a freehold property, but still has to pay estate management charges. These charges are unregulated, unlike the service charges on blocks of flats. Combine that with the utterly draconian rentcharges law, and it's a toxic charter for rogues to exploit. That's not to say that all estates have fallen into the hands of rogues, but until the management has finally been passed over into the hands of the home owners that possibility exists.

AdrianC

OldMusicGuy said:

AdrianC said:

OldMusicGuy said:

Fleecehold is where you do not own the freehold of the house, which is a real issue. 

No, that's leasehold. Which is not necessarily any kind of issue.

Fleecehold as a concept really sprung up when people were buying houses that they assumed were freehold but then found out were leasehold. They then found the leases were being sold on and the ground rent could increase significantly.

The ground rent can't increase except as is specified IN THE LEASE they agreed to on purchase. So what you mean is "they didn't bother checking what they were buying before buying it."

OldMusicGuy

GDB2222 said:

I don't think we need to worry too much about precisely what the made-up term fleecehold means. The problem we are talking about is outlined here:
https://www.bbc.co.uk/news/uk-england-46279048

It's where someone buys a freehold property, but still has to pay estate management charges. These charges are unregulated, unlike the service charges on blocks of flats. Combine that with the utterly draconian rentcharges law, and it's a toxic charter for rogues to exploit. That's not to say that all estates have fallen into the hands of rogues, but until the management has finally been passed over into the hands of the home owners that possibility exists.

That's why it's important to understand what you are letting yourself in for. The transfer of land document will specify how maintenance costs and management fees are calculated. The exposure will be on how the management company can decide what it charges to the estate, and how its management fees are calculated. It's not a definite "no-no" but you need to proceed with caution.

In our situation the way charges were calculated was all perfectly reasonable, and management fee increases did not automatically increase in line with inflation. The problem we got was a useless third party management company (most of them are) who ignored the agreement and charged for all kinds of unnecessary things. We formed a residents management association, got the mis-charging corrected and eventually got the management company under control. But it took time and effort, which is why we are now buying a new build that has a residents management company in place.  

OldMusicGuy

AdrianC said:

The ground rent can't increase except as is specified IN THE LEASE they agreed to on purchase. So what you mean is "they didn't bother checking what they were buying before buying it."

True, and the same is also true with most of the issues with estate charges - many people didn't bother to read and understand the transfer of land document in detail and just signed up to it without question. Most of the residents on our estate had no idea what they had signed up to when they bought the house. 

Dev_MK

As of right now we believe it's a developer who is responsible for maintenance costs of both roads and green areas and current residents  are not paying anything at all untill those green areas etc are finished. We expect than to happen in about a year ish. This was confirmed by two different people living there. Once those are finished it's supposedly Trinity ( management company ) who takes over green areas and council will pay for roads / sewers. It seems unlikely that residents will have anything to say and most likely won't be able to decide what Trinity is doing.

OldMusicGuy

Dev_MK said:

Once those are finished it's supposedly Trinity ( management company ) who takes over green areas and council will pay for roads / sewers. It seems unlikely that residents will have anything to say and most likely won't be able to decide what Trinity is doing.

You will have a say over what Trinity does, the question is how much of a say. It will be documented in the transfer of land document. That's what you need to review and decide if you are prepared to proceed on the basis of what's in that document. This is where using a good quality independent solicitor is a good idea. 

Just Google Trinity and you will find they are like most third party management companies, pretty awful. You need to decide if the house and development and nice enough to put up with the hassle that Trinity might cause.  

I'll pick up one of your earlier questions where the TR1 talks about "reasonable" charges. We disputed several charges that our management company charged to our development. We took them to the Property Ombudsman twice over a whole range of things and we did get them to back down on some of the charges that we felt were unreasonable, in other cases the Ombudsman said the charges were fair (for example, insurance premiums which shot up one year). So it will be up to you if you are prepared to undertake the hassle of disputing charges if you do feel these are unreasonable.

Also, the other issue with rentcharges is that you have to pay any charges first, the agreement can have very negative consequences if you don't pay quickly. So it will always be a case of chasing money after the event (which was worth it in our case).

capsy87

We have been looking recently at new houses and discovered exactly the same problem. The biggest issue we discovered is that if there is a big problem such as pumping station failure, private road collapse, sewer collapse,  everyone has to pay towards that. Also roads that are not adopted can be substandard, no lights, narrow etc. If you default on your rent charge, you can be evicted from your home. Easy way to find out details is to buy title deeds for a property already on estate and see what it says. We decided against any house that's has a rent charge. Even if you pay off your mortgage, someone else always has a charge on your home.