… While Milton Keynes deplores ‘fleecehold’, South Somerset sets up for-profit company to cash in
… CMA chair Lord Tyrie considering inquiry
By Harry Scoffin
Milton Keynes is giving hope to homeowners caught up in “fleecehold” estate contracts by threatening compulsorily to purchase the maintenance companies and hand back the land to residents.
The move comes after the local authority declared last July that it would use “all powers at its disposal, to ensure that future public open space in new housing developments is transferred to either Milton Keynes Council, parish councils or the Parks Trust”.
Fleecehold management companies have been set up to maintain communal spaces which have not been adopted by the local authority.
But they have also become the latest tradeable asset created by plc housebuilders similar to freeholds of leasehold properties.
They have aroused the attention of the Competition and Markets Authority.
Its report in February on the mis-selling scandal of leasehold houses with aggressive ground rents included reference to “fleecehold”. It said:
“The Secretary of State for Housing, Communities and Local Government,
a number of MPs, and members of the public have expressed concerns
about freehold mis-selling – so called ‘fleecehold’. This is a separate issue from those presently under investigation as our current focus is on issues in leasehold home ownership. As the CMA’s Chairman, Lord Tyrie [former Tory MP Andrew Tyrie], has said, the CMA will in due course consider whether to investigate freehold mis-selling, assessing the matter against its prioritisation principles.”
While Milton Keynes council is unable to outlaw fleeceholding, it can use existing powers to nudge housebuilders into handing over management responsibility for new sites to the council or residents themselves.
Cllr Peter Geary (Conservative) said:
“I don’t think it is an easy problem to deal with but we cannot have a situation where people are effectively being taxed twice for works to be done to their landscaping.
“I hope that this council would at the least be able to guide developers to the fact that we do not like this system in Milton Keynes. We can’t legislate but I hope the cabinet member will be able to take this up with officers and try to find a solution for people both now and in the future.”
Cllr Martin Gowans (Labour) added: “This is a cross-party issue, we are all on the same page. The legislation does not allow us to prevent it, but we can find other ways for it to not happen.”
A council has committed itself to doing all in its power to stop so-called “fleecehold” in Milton Keynes – where residents receive two lots of bills for estate jobs like grass cutting. The issue affects thousands of residents in MK, where developers have set up management companies, which then go on to charge for services that the borough, parish councils, and the Parks Trust also provide.
Last month the council’s cabinet signed off on a recommendation to have annual reports on repeat offenders who refuse to step away from the revenue-generating schemes for new developments:
“That Cabinet be updated yearly where specific developers choose not to transfer landscaping to the Council, with the purpose of deploying management companies or similar, as noted from their submitted management and maintenance strategies.”
Cabinet members have also asked for evidence from ward councillors and town and parish councils of developers and management companies “exploiting residents” to be compiled and sent to them each year so they can monitor the situation going forward:
“That the Cabinet receive annual reports where developers / management companies have been highlighted by Ward Councillors and Town and Parish Councils to be exploiting residents, in order that the Cabinet can consider the evidence on a case by case basis and whether the use of Compulsory Purchase Order powers would be an appropriate course of action to be considered.”
They have also ordered an investigation into “existing management company arrangements”.
Compulsory purchase option on the table in battle against ‘fleecehold’ management companies in Milton Keynes
So-called “fleecehold” arrangements are when developers create companies which charge leaseholders and freeholders for maintaining amenity land. Milton Keynes Council’s cabinet is to be presented with annual reports about developers or management companies where there have been complaints about them exploiting residents.
Milton Keynes’ robust opposition to fleecehold is in stark contrast to South Somerset, where the Lib Dem council has provoked fury among residents in new homes for not adopting open spaces and setting up a for-profit private company to run them.
Milton Keynes accepts that compulsory purchase “would be time consuming and costly arrangements, potentially 12 to 18 months and c£100k in legal fees per location”.
The option is discussed in a council briefing of March 24. It finds: “Like for most other local authorities, the best current outcome(s) continues to be found in early engagement and negotiation, albeit this cannot fully mitigate against ‘fleecehold’ activities in Milton Keynes.”
The note suggests that the proliferation of private estate income streams through fleecehold goes against six key principles: accountability; best value; control; democracy; equity; and finality.
The briefing document, however, admits that the council has no ability to “force developers to enter into s.106 agreements to transfer open space to the Council (or another body) and pay a commuted sum for maintenance – this would be an unlawful planning obligation under current Local Plan Policy and relevant Government Legislation.”
It concludes with a warning that “to do nothing would see the continuation of a mixed solution between a ‘fair and justifiable deal’ for residents and commercially exploitive positions of ‘fleecehold’”, and the suggestion that council officers will investigate whether the Local Plan for Milton Keynes could be reworked to hedge against developers seeking to transfer ownership of communal spaces for future private housing estates to their long-term business partners.
Milton Keynes’ decision to try and stop the growth locally of the “new cash cow for developers” has been praised by campaign group HorNet.
A HorNet spokesperson said that fleecehold on new private estates is “a UK-wide systemic problem” which involve abuse of section 106 agreements in England and Wales and Section 75, the Scottish equivalent.
In comments to Leasehold Knowledge Partnership, HorNet’s Martin Foulds said:
“We hold on to the hope that other councils will take note of the positive steps that Milton Keynes are reviewing. All councils in the UK have had monies from our estates through Section 106 and even CIL private consultations. Councils for too many years now have been putting a greater emphasis on the monies that can collect rather than the full viability of many estates should have been able to achieve (unadopted facilities). Councils should be taking a greater lead on this and have missed every opportunity. At the moment councils have been treating estates like ours with distain while continuing to rubberstamp developments and sell out our viabilities.”
“We hope that this article will lead to greater pressure being thrust on councils, even the Westminster Government, to react in a positive way, and not to just sit back in negativity, complacency, and complicity as they have, shifting blame.”
In response to complaints that that the UK government is dragging its feet over fleeceholding, having failed to change the law despite mounting concerns in recent years, the minister of housing Christopher Pincher confirmed in a written answer last month:
“The Government is committed to promoting fairness and transparency for homeowners and ensuring that consumers are protected from abuse and poor service.
The Government is aware that homeowners could be subject to a possession order or the granting of a lease of their home by the rentcharge owner over rentcharge arrears. As part of our leasehold reform work we have committed to repeal Section 121 of the Law of Property Act 1925 to ensure homeowners are not subjected to unfair possession orders. This will be pursued when Parliamentary time allows.
The Government also intends to legislate to ensure that freehold homeowners who pay estate rentcharges have the right to challenge their reasonableness and to go to the tribunal to appoint a new management company if necessary.”