By Harry Scoffin
Tens of thousands of consumer homeowners face having their freehold houses taken off them by developers if they “fall more than 40 days behind” on estate management payments, an investigation by BBC Radio 4’s MoneyBox has found.
MoneyBox reported on Saturday that the number of houses subject to restrictive ‘rentcharges’ and estate management contracts has surged in recent years.
A freedom of information request lodged by the programme showed that the number of new-build houses listed with the Land Registry as having a rentcharge went from 21,000 in 2013 to 45,000 last year, more than doubling in a 5-year period.
The renewed media scrutiny of hidden ‘fleecehold’ charges comes as mortgage lenders begin to refuse loans on freehold houses written into opaque management contracts for ‘unadopted’ private estates, with the unregulated and uncapped fees preventing some homeowners from moving house.
The programme heard from a couple who have been stung by the new mortgage lender awareness of ‘fleecehold’ issues.
In an echo of the ground rent scandal for leasehold homes, the couple say that whilst they were aware of the estate rentcharge when they bought the property, they had been assured that “it was nothing more than a small service charge”
This is now costing them a lot of money to find a solution to:
“We’re looking close to £4,000 has either been paid out, or will need to be paid out. So probably about £2,500 has gone, never coming back. And we still need to pay solicitors, hoping they will still actually be able to sell our house.
We don’t know, maybe our house is unsaleable.”
Peter Kirby’s fiancé Jen Tweedle suggested this was another case of mis-selling:
“To be honest, we are absolutely devastated. We try not to dwell on it because we have the kids and we are trying to look forward.
But if I think about to the way we were treated by the developer’s solicitors, the sudden surprise of it all, the fact that the term “your home is unsaleable” was thrown around at us, you know you would never buy a house not to be able to sell it again.”
The couple’s buyer approached three different mortgage providers, who all refused to lend on the property.
Of the six lenders contacted by MoneyBox, only one – Nationwide – has an explicit policy on ‘rentcharges’, which requires that the developer must forgo their right to repossess a property for late payment.
Banks fear a lack of security over the houses if the mortgagor was to default on the charges.
Similar to the leasehold scandal, developers’ stooge solicitors are involved.
Conveyancing Association’s Beth Rudolf: you cannot expect solicitors and conveyancers to get everything right
Asked by presenter Paul Lewis whether unsaleable freehold houses is the fault of solicitors and conveyancers, Beth Rudolf, of the Conveyancing Association, initially sought to defend them:
“So, I think the issue here is about what information is available when. I think they said that they had been told about the rentcharge, but that it was described to them as a small service charge.
And the problem is when a conveyancer is advising a client, they are not just advising them about this issue, they are advising them about a multitude of potential issues. For the buyer of a property, understanding which one is the most relevant to them at that most in time is tricky.”
When challenged, Ms Rudolf pointed at the retrospective changes to lenders’ own policies on such properties.
After a sigh from the presenter, she then conceded that key information should be made clear at the outset:
“I think for buyers, they need to know at the point of which they’re deciding whether the property is right for them to put an offer in and, under the law of the consumer protection regulations, that is what should happen. They should be given that information at the point they are viewing the property.
But we know that only 2% of people are provided with that. By the time they get to conveyancing, they’re too busy thinking about their mortgage application, whether they’ve got a local search being done, where they’re going to put the kids into school – there’s no bandwidth to consider what a rentcharge means.”
Ms Rudolf said that the Conveyancing Association “is really concerned” by the explosion of ‘fleecehold’ schemes, especially as it is happening at a time when the government has announced a leasehold houses ban.
“It’s like whack-a-mole, as I’ve said before. It’s just moving [from selling houses as leasehold tenancies] into this now.”
Andrew Whitaker, planning director of the Home Builders Federation was brought on to defend the practice of selling new-build freehold houses with estate management contracts, rentcharges and other fee-generating covenants attached:
“But the reason those charges as put on those estates, as your report stated, the local authorities don’t want to adopt those common areas of new estates – they don’t want the responsibility.”
Ms Rudolph intervened to say that no one disagrees with the principle of charges to pay for the upkeep of private estates.
It is the “draconian remedies” which are “the problem,” she said.
She challenged the Home Builders Federation representative to put pressure on their members to agree to add a clause in their documents stipulating “we will not repossess your property, we will not grant a long lease, we will simply go through the normal debt collection processes”.
Ms Rudolph cited an example where only the day before, one of the Conveyancing Association’s members had been rebuffed by a developer, who had simply refused to remove an onerous clause from a contract even with the knowledge that a lender had declined to issue a mortgage on the freehold property because of it.
The presenter Paul Lewis said that, contrary to the arguments put forward by developer groups, the Local Government Association had told the programme that alternative mechanisms to rentcharges include putting “a capital sum in so it would pay for it in perpetuity”.
“Local councils tell us that they can’t adopt things once a developer has put a management company in place,” Mr Lewis said.
The Home Builders Federation representative went on to suggest that estate management contracts, rentcharges and “draconian” remedies are only put in place by developers because of a well-meaning concern for the stewardship of a site:
“Well, developers don’t want to create problems for themselves and if we can find a solution that doesn’t involve a management company, such as adoption by the local authority or the parish council or the residents themselves, then we will always choose that.
It’s where we can’t go down that route, and we have to put something in place – otherwise these common areas will not get maintained and nobody wants that.”
“Well, I don’t think that’s the experience of some local authorities. They say you choose this, this is your preferred method, because it does give you this income stream, doesn’t it. Isn’t that why developers are doing it?,” Mr Lewis said.
“They sell the houses, they make a vast profit, their chief executives are paid a fortune and now they get an income stream in perpetuity,” he added.
Ms Whitaker rejected the charge, but did not comment on whether developers profit by selling on the management rights to private housing estates to a third-party.
The radio feature was also turned into a news story for the BBC website:
“To be honest we were absolutely devastated by it. You would never buy a house without being able to sell it again”. Jen Tweedle is talking about the moment she and her fiancé Peter realised why their house sale fell through over the summer.