"Estate rentcharge" is it definite No go?

Luckystarr_2

We’ve recently bought and sold on a David Wilson site that had a management fee. The ‘village’ put together a committee which worked with the management company by conducting walk rounds a few times a year and planned/raised any issues issues or work. The management company was responsible for general upkeep of paths, walls, grasses areas and the two play parks. All our bills were around the £60 twice a year though we were aware major issues could see an increase. We had no issues when we came to sell. 

AdrianC

capsy87 said:

Also roads that are not adopted can be substandard, no lights, narrow etc.

Adopted roads can be that kind of "substandard", too.

Round these parts, if there bain't be grass up the middle, 'im be a main road, 'im be. Whether both wing mirrors are in the hedge at the same time is just a question of what time of year.

Dev_MK

Once again I read through my transfer document looking for relevant information. generally its way to much to include all here but I will at least  try to include meaning of some parts that I assume may be important.
1. Developer will indemnify the Transferee ( us ) from and against all claims and demands for contributions to the cost of construction maintenance and repair of the Development Roads until such time as the same are adopted by Local Highway Authority as maintainable at the public expense. ( sewers are also included later )

2 As soon as reasonably practicable after end of each accounting period the management company shall provide a written statement of the estate services costs and the variable rentcharge (including a statement of how they have been calculated).
Comment: Problem is that we cant have those as no one is paying it just yet. Will be after management company is set up.
3 If in any accounting period the management company reasonably desires or is required to pay or incur any estate services costs and the money held by the management company on account of the variable rentcharge is insufficient to meet the transferee's share of it ( as reasonably estimated by the management company ) the transferor shall be entitled to demand a further sum on account of the variable rentcharge.
4. If and so far as the amount of variable rentcharge is not wholly within sections 2(4)(b) and section 2(5) of the rentcharges act 1977 the amount of the variable rentcharge shall be reduced by such amount of the variable rentcharge wholly within those sections but without prejudice to the liability of the transferee to pay the amount of the reduction pursuant... ( I don't get this one at all )
5. Estate services / things management company will be responsible for
- lightning inspecting repairing etc.
- estate common parts including all structures on them
- all boundary walls , gates , fences , traffic signs ( on common parts )
- landscaping
- fire detection alarms
- cleaning of all external windows on units
- management costs and the payment of proper remuneration of it in accordance with a scale of charges appropriate in the open market ( I've heard other companies like to overcharge this )
- insurance
- the provision repair renewal inspecting insuring and maintenance of the multi-use games areas
- the provision and maintenance of any other works facilities or services that the management company may in its reasonable discretion consider necessary or desirable in the interest of good estate management
- Ancillary costs ( very long list impossible to include here ) things like petrol electricity needed to run maintenance operations

Planning maps show that they are only responsible for a bit of green areas and I would hope that means overcharging us is less likely than in a situation where they are responsible for entire estate. As some of you mention before details matter here and as of right now we are unable to tell how will they calculate costs( its not included in TR1 only that it should be reasonable) . We will most likely find out after management company is set up ( 1-2 years ). Other information that may be relevant is that there will be about 150 properties once all 3 phases are finished. Once again I would like to sincerely thank you all for your valuable knowledge in regards to this issue. It will be a major factor in our decision to proceed or not. Since this is so common now I hope other people facing this will be able to benefit from all information you were so kind to share.

OldMusicGuy

There's a bit of confusion in what you posted. You keep talking about a management company being "set up". This sounds like a residents management company, which is very different to a third party management company (which is someone like Trinity). You do not "set up" a third party management company, they will be employed by the freeholder. You need to be very clear about what exact form of management company will be running the estate - if it is a residents management company then the residents collectively are in control of what gets charged to estate costs, so no worries there. Very different indeed from a third party management company.  

So which is it - third party management company or residents management company?

Dev_MK

Reality is we don't know for sure. Our solicitor despite being independent is also next to useless. Seller solicitor is even worst... Which is why I was trying to get as much information as possible on my own. We found a contact to few people living there and one of them just purchased new house on same estate directly from developer. That person told us that their paperwork says it will be Trinity. There is nothing on ours since it's basically from 2017 when house was originally purchased as new and we will be bound by the same rules on our new TR1. When my solicitor asked seller solicitor about management company, costs involved etc. They said that company has not been set up yet ( words they used ) and current owners did not have to pay anything until management company is set up ( once again words their solicitor used ). So currently residents are paying nothing for years... Honestly I should probably call developer and ask them about it. I believe my solicitor should be doing that but that is unlikely.

GDB2222

3 If in any accounting period the management company reasonably desires or is required to pay or incur any estate services costs and the money held by the management company on account of the variable rentcharge is insufficient to meet the transferee's share of it ( as reasonably estimated by the management company ) the transferor shall be entitled to demand a further sum on account of the variable rentcharge.

Nothing there about the standard rentcharge amount having to be reasonable. Only any top-ups. 

GDB2222

Rentcharges Act para 2(4) and 2(5) says:

(4)For the purposes of this section “estate rentcharge” means (subject to subsection (5) below) a rentcharge created for the purpose—

(a)of making covenants to be performed by the owner of the land affected by the rentcharge enforceable by the rent owner against the owner for the time being of the land; or

(b)of meeting, or contributing towards, the cost of the performance by the rent owner of covenants for the provision of services, the carrying out of maintenance or repairs, the effecting of insurance or the making of any payment by him for the benefit of the land affected by the rentcharge or for the benefit of that and other land.

(5)A rentcharge of more than a nominal amount shall not be treated as an estate rentcharge for the purposes of this section unless it represents a payment for the performance by the rent owner of any such covenant as is mentioned in subsection (4)(b) above which is reasonable in relation to that covenant.

4. If and so far as the amount of variable rentcharge is not wholly within sections 2(4)(b) and section 2(5) of the rentcharges act 1977 the amount of the variable rentcharge shall be reduced by such amount of the variable rentcharge wholly within those sections but without prejudice to the liability of the transferee to pay the amount of the reduction pursuant... ( I don't get this one at all )

The Act section 2(5) says the service charge under the rentcharge must be reasonable. The para you are puzzling about says that if the service charge is unreasonably large you are still liable for it, but only the reasonable part can be recovered as a rentcharge. The rest, they can sue you for.  [You've truncated it, but I expect that's what it says.]

I think the practicality of the situation is that you have to pay whatever is demanded under the rentcharge, as otherwise you risk losing your home. If you do so under protest and then sue successfully on the basis the rentcharge was unreasonable, the above paragraph says that it won't help you, as you're liable anyway.

GDB2222

I strongly recommend that you get a solicitor to spend time explaining all this to you before you get too far into your purchase.

OldMusicGuy

Dev_MK said:

Reality is we don't know for sure. Our solicitor despite being independent is also next to useless. Seller solicitor is even worst... Which is why I was trying to get as much information as possible on my own. We found a contact to few people living there and one of them just purchased new house on same estate directly from developer. That person told us that their paperwork says it will be Trinity. There is nothing on ours since it's basically from 2017 when house was originally purchased as new and we will be bound by the same rules on our new TR1. When my solicitor asked seller solicitor about management company, costs involved etc. They said that company has not been set up yet ( words they used ) and current owners did not have to pay anything until management company is set up ( once again words their solicitor used ). So currently residents are paying nothing for years... Honestly I should probably call developer and ask them about it. I believe my solicitor should be doing that but that is unlikely.

Interesting. This is really important. Saying a management company "will be set up" implies a residents management company. A limited company has to be established which will own the freehold of the shared areas, and all the residents own shares in the management company. This all comes into force once the development is completed, directors have to be appointed from the residents and so on. With a third party management company, nothing is "set up", the developer just appoints them and off they go.

We have a residents management company on the development we are moving to. However, the developer has already set up a limited company and we were given all the details of the company and how it will work as part of our documentation when we started the purchase process. In the mean time, the residents are reimbursing the developer for ongoing maintenance based on a budget they have given us.

The TR1 should make it clear what is happening, a quick read of this should make it clear. If it's a third party management company there should be a section on appointing and replacing the management company. Your solicitor certainly seems to be pretty poor if they cannot clarify this. If I were you, I would call the developer to get this question answered. It makes a huge difference to your potential exposure here. 

Dev_MK

My solicitor seems to think their only job is to let me know there is a rentcharge and so far many many of my questions were met with patronising responses from them and asking what I am worried about ( after I clearly stated what beforehand ). Then they said it is what it is some people are fine with it some not. You decide. I'm a first time buyer with no experience dealing with solicitor but that does not seem enough to me. I keep chasing them about it. I found out that some nearby houses had paragraph added that management company must notify bank in event of rentcharge not being paid. That would allow bank to pay amount due and save us from any action against us like repossession or lease put on land. I will try do achieve the same. I can't really put all my TR1 here but it's mentioned several times amounts charged should be reasonable but it seems to be missing in few places too. Overall very confusing and good solicitor would be very useful. All in all our conclusions so far were that as long as we are able to achieve those changes to TR1 mentioned above the only concern left is the amount we will be charged per services and how will it grow? That is something I will try to find out. If that's sorted my assumption is that it's alright to proceed with purchase? 
Is it ok if I contact developer myself? Or it must be done by my solicitor?