Service charges for freeholders in new homes in the UK

There is currently a massive development of new housing taking place in the UK to meet rising demand predominantly being delivered in multi-owned new estates which include a mix of freehold houses, leasehold flats and models of affordable housing. Since the financial constraints imposed by the government on local authorities there appears to be a growing requirement for the new residents to set up private companies to manage communal space contained within. This is unprecedented at this scale in freehold purchase and binds new owners to service charges for upkeep and maintenance and for permissions for development in addition to those imposed by statutory legislation. Purchasers are advised that a limited company will be set up to manage a selection of: green infrastructure, parking, roads, lighting and drains. Each resident will hold a share in this company and will then be responsible for appointing voluntary directors from the estate who can in turn appoint a property management agents.

There is little clarity on what level of service charge will be made to residents on new estates in the UK, the deed of transfer is often lacking in detail regarding the specific services which will be provided. The variance in estate size and design means there do not appear to be any adequate benchmarks in existence or being developed or any suitable parameters for measurement of appropriate sinking funds. There needs to be much more clarity written on deeds and benchmarks developed for specific circumstances so new purchasers can judge value for money.

The legal position around how service charges from free holders can be collected needs to be further explored, there has been statutory change implemented for leaseholders in the area of service charges but as yet freeholders appear unprotected from unscrupulous property management companies, there appeared to be little desire by freeholders to withhold the payment of the charges, but there needs to be some evidence of what happens when your neighbours do not pay?

Although disputes had not as yet arisen, residents could see the potential for disputes and there needs to be some clarity regarding the position for dispute resolution in this complex area. There needs to be a clearer process of transfer between the developers managing the Property Managing Agent by appointing themselves directors of the RMC and the new residents appointing voluntary and appropriate directors. These voluntary directors need clear guidance around expectations from them regarding property management including health and safety, insurance, maintenance regimes and responsibilities. Whilst every company acting as a Property Management Agent was a member of ARMA, they advertise that they provide high standards of leasehold management and admit in their literature that freehold owners are relatively unprotected. With the growth in new housing across the UK it is time for Chartered professionals such as Surveyors to take an interest in this niche but growing area.

Research is ongoing with a very large group (approx. 1,200) of new homeowners experiencing issues relating to freehold service charges providing case studies to be analysed. The impact will come from a good practice guide designed to clarify and improve the management of the issues identified.

Madgwick, Della and Wood, Hannah (2016) The impact of service charges to freeholders on new estates: A case study from the UK. In: The Construction, Building and Real Estate Research Conference 2016, Held in Toronto, Canada in association with George Brown College 20-22 Sept 2016.