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Estate rent charges: Beware when buying freehold homes on private estates

Jamie Salvidge
Jamie Salvidge
Managing Director
20 Dec 2016
— Blog
In a private estate, it is common that the homeowners must contribute to the upkeep of the communal areas on the estate.
Estate Rent Charges

Estate charges on freehold properties

This can include private roads, landscaped gardens, and street lighting often referred to as an “estate charge” or “service charge”.

Whilst leasehold owners have significant statutory protection, problematically, freeholders do not share the same rights and protection even though they both contribute towards the same charges. 

Freehold owners should therefore be aware that they have very few options and limited ability to investigate or challenge any charges demanded from them.

Estate charges

Estate charges, or service charges payable by freeholds, are governed by The Rentcharges Act 1977. Whilst this Act prevented any new rentcharges from being created after 22 August 1977, an exception is a rentcharge created by way of an estate charge.

Estate charges are typical in new developments comprising a mixture of leasehold flats and freehold homes. 

A lease allows the leaseholders to contribute to maintenance costs, including estate charges, and the transfer will provide similar provisions to freeholders.

By applying an estate charge to freeholders, the developers or estate managers can recover costs accrued from providing services and maintenance. However, an estate charge is a contractual agreement, and the estate manager will only be able to recover the charges expressly covenanted in the transfer.

Deed of Transfer

A legal document called a deed of transfer is given on the purchase of the freehold property to the new owner. Essentially, it binds the freeholder to pay the charges. 

The transfer should clearly state:

  • What the freeholder is expected to contribute towards
  • The proportion of costs they should pay
  • Dates on which payment is due

If you cannot find your deed of transfer, you may obtain a copy from the Land Registry for a small fee. This will enable you to check your obligations.

Freeholders' rights

A crucial issue for freeholders is that the law makes a distinction between the payment of estate charges paid by freeholders and service charges paid by leaseholders. 

There is substantial legislation giving rights and protection to leaseholds when it comes to unreasonable service charges, which unfortunately do not apply to freeholders who have very little protection, and there appears, in the writer’s opinion, to be a real lacuna in this area of law.

Leaseholders are now used to the fact that a landlord or estate manager must consult before incurring charges; that service charges must be reasonable. Any dispute may be referred to the First Tier Tribunal of the Property Chamber for resolution. 

Perversely, there is no implied test of reasonableness for estate charges, and any dispute or challenge must be referred to the County Court through the small claims court procedure (assuming any estate charge will be under the current £10,000.00 threshold). This means that a freeholder will not be entitled to recover legal cost other than the limited fixed fees available under CPR45.

It seems freeholders on a private estate find themselves in a position of having to pay whatever charge the estate manager decides with little to no room for dispute save for an expensive and time-consuming determination by a District Judge in the County Court. 

Freeholders also have no right to receive accounts or to be provided with information relating to the charges claimed unless express provision is included in the deed of transfer which, in the writer’s experience, is unlikely. 

As more and more estates are built comprising a mixture of leasehold and freehold homes, it is surely time for the law to be amended in this area, with freehold owners granted the same rights and protections as their leasehold counterparts.

Expert advice on property matters

SO Legal has experienced solicitors and licensed conveyancers in Eastbourne, Brighton, Hastings, London and Uckfield, and we work with clients across the UK.

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