"Rent Charge" On A Freehold Property

sparklehorse20

Hi,

I hope someone here maybe able to advise and hopefully put my mind at rest as its causing a lot of worry, on whether we should continue with the purchase?

I am in the process of buying a freehold house ( cash buyer) for me and my elderly mother, it is perfect for us and has everything that Ive been looking for in way of location, distance to work and the house itself for my frail disabled mum.

The house is around 18 years old and was built by Redrow Homes, everything was going smoothly but today I received all the usual paperwork, fixtures & fittings form etc for the house and learnt that there is a service charge which is actually called a "rent charge" to pay, that all freeholders and I'm presuming leaseholders on the estate pay, this was unexpected but not a deal breaker as it looks like it has only increased by small amounts over the years since the estate was built and is currently £120 a year. The current owners have lived there 6 years and the previous owner around 11/12 years from it being a new build with no apparent issues.

However the email our solicitor sent me along with all the paperwork really upset us! He advised that I must take into account that if we buy the property if we ever tried to sell the property we would most likely be only able to sell it to cash buyers only as lenders would be unlikely to accept the risk of taking on a property with this type of "rent charge" because of the terms & conditions? Apparently when this service charge agreement that was written up at the time would no longer be acceptable to any lender  today as the management company could put up the charges to anything they want if they wanted to and as a freeholder I wouldn't have any rights or be able to do anything about it? It also states that if a freeholder doesn't pay the "rent charge" the management company could, take us to court, make the property a leasehold and even take possession! I would of thought that this would be in very extreme cases surely?

Its really put a dark cloud over what was such a hopeful future new home, I just dont know what to do? We want it to be our forever home and dont have an any problem with paying an annual charge.... But I am so worried that it could cause a lot of issues IF we ever did try to sell it?

Has anyone else had this experience of this with Redrow estates. We love the house and really want to live there and be happy, Im not sure what to do? we havent signed any contracts yet so want to be sure we are doing the right thing before we do.

Any advice or thoughts would be appreciated.

Thank you so much. 

 

ONEONEONE

Hello, 

This sounds very similar to an issue I am encountering at the moment and have a similar thread on the topic, which might be worth a read. 

I think you are right to be considering this as a risk - and would encourage to read up on the topic, as it is quite complex and has taken me a while to get my head round it, if you google the term 'fleecehold' or 'estate management service fee' it will give you lots of background.

As I understand it many, if not most newish estates have this issue as roads are often unadopted by the council. The positives in your case are: that the cost is £120 and is relatively low/manageable and it has been established over a long period and not gone up a great deal, which indicates its being fairly responsibly managed. You will want to check and/or get your solicitor to check if a 'residents company' is in charge of the service charge as opposed to a private management company and/or the developer. A residents company would be a positive as the service billing would be run by other residents who have some skin in the game and likely to keep costs low/make sensible decisions. One other thing you can do is ask your solicitor about a deed of variation - the solicitor may be able to get the service company to agree to remove/nullify the clause about possession. Your solicitor is right that lenders are concerned about that clause in particular - and if the service company refused to remove it your pool of lenders would be a lot smaller. 

Negatives: the charge is uncapped so if something goes wrong eg a sink hole (extreme), or if a water pump needs replacing (you might want to check if the drains have been adopted) you could end up with a very big bill. If there is no residents company there is a bit more room for exploitation and profit making. Do check if there is a sinking fund for the management company otherwise unexpected costs could hit hard. 

The final decision will be up to you and risk you want to take, i've been wrangling with this issue as well its a hard one! Another good page to look up is 'HorNet freehold', they have lots of info on the topic and may even be able to give you some advice if you approach them. 

Good luck on making the best decision for you! 

Flugelhorn

We bought a house last year with estate charge (cash purchase) and our solicitor pointed out that many mortgage companies would not longer accept the clauses re possession in the event of not paying the charges, so a deed of variation was drawn up , signed by management company and developers - it was speedily produced as it appears they are doing a lot of these these days. If we want to sell then the current state would be acceptable to mortgage companies

nyermen

The delight of the estate rent charge, and different to normal rent charges in that they aren't being scrapped on the 2037 deadline either.

Some of the terms are amazingly allowed today (they've been challenged at appeal and lost) - the statement can be "pay without any notification", and if the beneficiary sells their claim to someone else, that person can come and say where's my money (with no proof of entitlement), and 40 days later, go straight for a leasehold on the house, rendering it worthless (at least for 99 years).

mat1964

I'm currently buying a new build with an Estate Rentcharge.  The developer has removed the obligations under the 1925 act - which according to my solicitor is the main area of concern when getting a mortgage.  Other buyers have got a mortgage on the same development.