When A Freehold Still Carries A Maintenance Charge

In the past the distinction between a Freehold and Leasehold  house was simple. A freehold meant that you owned the land on which it was built, with no charges due to a third party other than utility bills and Council Tax. A leasehold meant that you were leasing the land on which your home was built for a fixed term, typically between 99 and 999 years, with a ground rent and maintenance charge payable to the freeholder.

In recent years Local Authorities have become obliged to ‘open their doors’ to the commercial sector providing services that would normally be delivered by those Authorities. When planning permission is granted, the developer has a choice whether to transfer open spaces, drainage ponds/swales (and sometimes even roads) to the relevant Local Authority or to a management company.

Due to the costs involved in adopting and maintaining such features in the early years, a commuted sum is normally requested by this Authority when adopting open space. They do not however adopt roads and drainage features, meaning that the alternative option for the developer is more attractive at the present time. They presently have no control over the service charge levied but still ensure there are adequate controls in place to ensure the management company fulfil their obligation to maintain the transferred areas going forward.

Increasingly charges for Public Open Space are the norm. This means that people buying new homes are typically paying around £200 a year to maintain the public open space on their estate.  This should pose no problem, there are excellent management companies around, and most builders and developers are scrupulous in ensuring that arrangements are fair and robust – they do not want owners coming back to them in tears to come.

But the principle of “caveat emptor” remains. Maintenance companies associated with flats, when the arrangement went wrong, give a good guide as to what to look out for.

1. Does the developer own the freehold, of the public open space, or does the Maintenance Company, or is the land gifted to a Residents Association? The latter arrangement is common and affords maximum control. The first arrangement provides some reassuring oversight, the middle arrangement offers the potential that it could be sold on as an asset.
2. What controls are there over the annual charge? What mechanisms exist for an increase? Uncontrolled or excessive increases in the future would be unwelcome.
3. What happens to the “sinking fund”? In the early years an estate of hundred houses paying £200 a year will pay £20,000 pa. Actual costs will be low. But as time moves on those costs will increase. Ensuring that those funds are banked, and protected, for a “rainy day” is vital, as is ensuring that the company cannot be sold with the fund as an asset.

With Council budgets under pressure, these arrangements for new homes will become commonplace everywhere and are nothing to be worried about generally. However – check the small print!

Gary Longden