Estate charges on freehold properties
In a private estate, it is common that the homeowners must pay a contribution for the upkeep of the communal areas on the estate. This can include private roads, landscaped gardens and street lighting and is 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 or service charges payable by freeholds, are governed by The Rentcharges Act 1977. Whilst this Act prevented any new rentcharges 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 provides for the leaseholders to contribute to maintenance costs, including estate charges, and the transfer will provide for similar provisions to freeholders.
By applying an estate charge to freeholders, the developers or estate managers can ensure recovery of 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.
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 whom 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; and 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 surly time for the law to be amended in this area with freehold owners granted the same rights and protections as their leasehold counterparts.