Freehold Service Charges?

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Freehold Service Charges?

You’ve bought a beautiful newly built house on a great estate, and now you’ve moved in, the bills start to arrive. To your shock, an invoice for Service Charges lands through your letterbox.

What’s this? You own your house! The council fixes the lights and sweeps the road, cuts the grass and collects the rubbish – don’t they? – that’s what you pay your Council Tax for, after all isn’t it?

No – in your pack from the estate agent, builder and your solicitor there will have been information on the service charge that is going to be levied on each housebuilder. It is a surprising amount of times that we receive calls from new owners who don’t realise they they, too, have to pay this charge.

So, what is it? Well, many years ago, all new housing estates used to be built to Local Authority “adoptable standards” whereby the local council took over the maintenance and upkeep of all areas not within the freehold of a property – the communal areas. However, many councils now have spending restrictions placed upon them, leaving them unable to cover the cost and so, they don’t take on this responsibility. In these cases, the costs have to be covered by the owners of the houses that have been built.

The developer creates a freehold service charge when your house is first sold, and the provisions that make up the charge are contained in the Transfer Deed which is signed both by the developer and you as the purchaser on completion of the sale. This Deed illustrates exactly what is included in the service charge, how it is calculated (the budget) and the date upon which it is payable.

A management company is appointed by the developer, who undertakes the works to the communal areas and collects the service charge from each owner. This can often be on behalf of the developer directly, or on behalf of a management company set up with each householder owning a share in the company. If you own a share, then all the shareholders can appoint the managing agent to undertake the works.

The land that is deemed communal (ie roads, pathways, ponds, grassed areas, playgrounds etc) will be held in a separate Land Registry Title and this land is transferred to the management company once the last property is sold.

Sometimes, albeit rarely, you will see an “estate rentcharge” has been created and this is a legal way of putting a Legal Charge on your property which can be enforced by the management company in the event of non payment of the service charge. Mortgage lenders do not like this sort of charge and we would suggest you take legal advice in the event that you see this on your Transfer Deed.

The Service Charge liability transfers with the property when you sell your house, and you will need a management pack from the management company to give the purchaser’s full details of what the Service Charge is about.

Can you stop the service charges? The short answer is, no. You can always manage your estate yourselves, but this can often create neighbourhood angst, and communal areas always need insuring, maintaining and repairing. If you aren’t happy with the way the management is being run, however, you can agree with all shareholders to change the company who undertake the works for you. It is worth noting that unlike leaseholder service charges, freeholders do not have the right to challenge the reasonableness of charges or standards of services being provided on a site, but the Government does have this sector within it’s sights and have indicated that they will be introducing legislation to provide those rights to owners.

If you are a developer who needs advice on setting up a Service Charge or Management Company or if you are a group of freeholders and shareholders who are looking to change your property managers, give us a call on 01634 294994.

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