Your New Build Estate Management Company
If you are considering buying a new-build freehold property, you may have come across the term ‘management company’. A new build estate management company is responsible for managing services, including green spaces and roads on new-build sites and estates. Dubbed ‘fleecehold’ by the media, they tend to arise when the local authority decides not to adopt the new area.
It means buyers are contractually obligated to pay a share of the costs with the other homeowners on the estate to manage and maintain their open spaces.
What is the role of the management company?
The new build estate management company takes care of the service charge together with the delivery of management and maintenance services for a housing estate development. It will mostly deal with shared areas such as footpaths, steps, landscaping, and cutting of grass, and maintenance of open spaces.
The management company’s obligations will be specified in the property lease, title deeds or transfer documentation, which varies from development to development.
Who owns the management company?
They are generally created in one of two ways:
- The developer creates the new build estate management company, which will employ a managing agent to provide or oversee the services provided. The managing agent performs most of the duties of running a property under the appointment, control, and direction of the management company.
- If the development is smaller, it is more likely the owners of each property will take a share in the management company and run it collectively. This option arguably gives property owners greater control of expenditure, however, it requires a substantial deal of time and effort to run such a scheme day-to-day and in reality; they are extremely rare.
What are the costs of a management company?
The management costs may vary from year to year and are linked to the costs incurred providing the services, so they can increase. However, costs should be reasonable and any increase should appropriately reflect the costs the management company incurs.
Critics say the system is open to abuse by management companies because there is no obligation to keep costs to a minimum, or even provide evidence that the services they offer are even being carried out. Homeowners have labelled it a stealth tax and say it is wholly unfair. They believe they are being forced to pay for the upkeep of privately owned public spaces which can be used by everyone, including those who do not live on the estate.
Anecdotally, other homeowners have had to pay up to £2,000 in ‘permission fees’ if they want to make even remedial improvements to their homes.
Aren’t management companies only for leasehold properties?
Leasehold properties are typically more commonly associated with service charges, however, more recently, new-build freehold properties can also be subject to annual management charges. Unfortunately, freeholders do not have the same rights as leaseholders do to challenge unfair or unreasonable practices by their management company.
Are management companies regulated?
At the time of writing, there are no regulations governing management companies. The maintenance charges are unregulated and uncapped, meaning there is unfettered scope for management companies to hike charges as they see fit.
It is common for management companies of unadopted private estates to sell off the contracts to investors, who then pass on the costs to homeowners via a deed of transfer under the Law of Property Act 1925, which obligates homeowners to pay for maintenance of the land.
Will having a management company affect a future sale?
There may be a restriction on the property in favour of the new build estate management company. This means that you will need to obtain the consent of the new build management company to sell the property. This will only usually be provided if all fees are paid and up to date. Some developers are even adding restrictive covenants to property deeds that ban owners from parking certain vehicles on their own driveways, or from erecting satellite dishes on the front of homes. Developers often state this is to ensure all properties on an estate retain a similar look, but those affected say such rules go against the spirit of freehold ownership.
Failure to comply with a restrictive covenant could lead to legal action from the management company or developer.
Additionally, the buyer will also be required to comply with any obligation imposed by the management company and enter into something called a ‘covenant’ confirming agreement when taking over the property. The buyer will be provided with details of the management company’s requirements in a management pack. They may also be required to pay notice fees upon completion of the sale, which can be anything up to £100.
Can service charges be avoided?
If you already own a new build and are paying the charges, realistically, there is very little you can do. You are probably subject to a binding contract. In some cases, it is included within the title deed, which leaves you liable to the charges.
Depending on your deeds, and the management agency’s approach, you may be able to expect an annual statement of account for the charges you pay. Although not all management companies do this.
What can I do if I am unhappy with the charges?
In the first instance, you should complain to the managing agent if one has been appointed. Managing agents report to, and take their instructions from, the management company. If the agent is following their directions, then the agent might not be at fault.
Although leaseholders can complain to a tribunal, this course of action is not available to freeholders. This is the even the case on estates where there is a mix of leasehold and freehold properties and they pay into the same pool of money. The same rights and protections from unreasonable service charges do not apply to freeholders.
Increasingly, homeowners face the unenviable situation where local authorities specify requirements for green spaces, new or improved road infrastructure, play areas, or drainage systems but subsequently refuse to take responsibility for them. This leaves homeowners reliant on management companies to fulfil the role that council tax should pay for. This blurring of duties and responsibilities has led to the exploitation of freeholders at the hands of profit driven developers.