After spreading the scourge of leasehold houses around the country; squirrelling in ruinous ground rent terms in leases; selling revenue-generating freeholds to anonymous offshore private equity punters; building unsafe apartment blocks with elementary mistakes, like absent fire-breaks; what’s next on the agenda for our extraordinary – and hugely subsidised – plc housebuilders?
Could it be, say, packaging up shared ownership contracts as new investment vehicles, akin to ground rents? Or working the angles of “for profit social housing”, a concept surely akin to aetheists for God?
Fleecehold, the creation of complicated, unaccountable and unchangeable management companies on new estates, is a wheeze with obvious attractions. Not least, it is immensely popular with local authorities, who spare themselves the expense of adopting new roads etc … without in any way reducing the council tax burden for those who buy these properties.
South Somerset council has set a high bar here: by entering the fleecehold business of unadopted estates with its own for profit company (see below)
At last something is being done about this racket – where Glasgow-based Greenbelt Group Limited is one of the eager purchasers of these companies, as is FirstPort.
The Competition and Markets Authority has launched its Housebuilding Market Study, and any one living on a fleecehold estate should certainly share their views.
There will be future opportunities for this as the inquiry continues, but first off are invited comments on the scope of the study, which needs to be in by 20 March:
At this point, fleecehold victims may want urge the widening of the CMA investigation to go beyond simply mis-selling by housebuilders.
Sometimes management companies are supposed to be handed over to the residents – but as with residents’ management companies in blocks of flats, this does not happen. Managing agents stall this as much as they can, and discourage leaseholder control until the block’s warranties are all safely past.
A proposal for right to manage of private estates was aired by the Welsh government after residents raised a petition urging local authorities to adopt communal road, street lighting, drains and the rest – with a reduction in local taxation if they weren’t. The call was backed by Hefin David, member of the Senedd for Caerphilly, but it did not progress.
Professor Susan Bright, who heads land law at Oxford University and who has written a paper on fleecehold – or “privatopia” – available here, wants the CMA to explain why fleecehold has taken off.
“Is it austerity, or developer opportunism for more money making?” she asks.
“There is also the question of standards. Not getting the infrastructure adopted means no need to build to adoption standards. This could be changed, perhaps by the way that planning permission is granted. And then there are longer term costs: over time bills will go up or things will be neglected. Is the model sustainable?”
She also urged further research into the sector with thorough data to understand the scale of the “fleecehold” issue.
The CMA study is not looking looking solely or even principally at leasehold, it is concerned with the supply of housing, including the constraints of land banks and planning. But consumer misgivings are also included, which is why victims of the fleecehold system are invited to participate in the investigation.
The statement of scope of the investigation can be read here
The most relevant fleecehold section reads:
“As regards charges made to freehold owners on residential estates:
a. How transparent are estate charges and covenants (including how they may change over time) to prospective house buyers on freehold estates at all stages up to the point of sale?
b. What influence (if any) do homeowners have over the companies managing their estates?
c. Post-sale, what safeguards exist to ensure the quality of the management service or that the estate charges applied are fair, reasonable, and transparent?
d. Are freeholders’ rights (including to redress) in relation to estate management services and charges, and how covenants are applied, adequate? If not, what are the key gaps?
It is not spelled out that this includes leasehold houses.
Leasehold house owner at Steinbeck Grange in Warrington feel deeply let down by the CMA ground rent mis-selling investigation, which let Barratt off the hook for selling on the freehold to their homes to Italian Count Luca Rinaldo Contardo Padulli di Vighignolo, of the hedge fund Camomille Associates, which owns wallace Estates. FirstPort provides the management, which the leaseholders claim over charges them.
The sales were carried out pre-2010.
Local Conservative MP Andy Carter described the inaction of the CMA as “a missed opportunity in the Westminster Hall debate of 28 February:
“Residents not only have to pay fees but run into difficulties when they try to approach the freeholder. They are faced with complicated, protracted processes, in which they cannot even get information about the leaseholds for their homes without having to spend money. If those constituents are trapped in leasehold, it makes selling those properties incredibly difficult. A number of solicitors have approached me in Warrington to say that they had been asked to act for people buying the properties and had advised them not to. Developers had then recommended solicitors who disappeared overnight, so that the process could go through. That strikes me as a real scandal.
“The Competition and Markets Authority looked at this situation for two years and did not really conclude anything. I say to the Minister that that was a missed opportunity for a deep dive into what is going on, not just with developers but with freeholders.”
Justin Madders, Labour MP for Ellesmere Port and Neston and co-patron of LKP (and co-chair of the APPG on leasehold and commonhold reform), echoed this sentiments, stating:
“I also think that estate management companies on new-build estates, whether they are leasehold or not, need to be tackled, because the opportunities to inflate charges exist there almost as much as they do in a block of flats. Much as with leasehold itself, I do not accept that these arrangements are needed at all. The fact that developers choose not to pay a sum to the local authority for the financial commitment that is needed to maintain communal areas, instead saving themselves money by passing on the charge to homeowners, is another example of the rapacious nature of many in this sector.”
In January 2022 Professor Bright wrote a paper on private residential estates in England and Wales, noting that “fleecehold” as a term came into currency in 2017 as “a clever campaigning tool”, in fact, coined by the activists in National Leasehold Campaign.
Professor Bright wrote: “The trend has been towards estates in which the developer sells houses, using either leases or freeholds, but retains some ongoing management role. This might involve, for example, the homeowner needing developer consent to do something, such as extend or sublet the property, and a “permission” fee is payable. Or, as appears common, infrastructure such as access roads or play areas, is retained by the developer and the costs of maintenance passed onto homeowners through an estate charge, rather than being adopted by the local authority to be maintained at public expense.”
Her paper was based on a “small (non-representative)” study of eight estates, with interviews with six homeowners who used terms such as “fake freehold” to describe their homes.
Professor Bright referred to the “creeping privatisation of many modern housing estates” that are not adopted by local authorities.
The home owners were often “poorly advised during the conveyancing process [so] the covenants and charges may come as a surprise and generate a strong sense of injustice and frustration”.
Professor Bright added: “On modern private residential estates it is the developers who impose the terms and conditions without any public oversight and without any need for terms to be justified with reference to the character of the area.”
Private estates had caused issues in other jurisdictions, with Professor Evan McKenzie, of the University of Illinois, stating that private estates in the US had had “significant social and political consequences” that were inadequately “considered by government and academics”. Professor McKenzie was particularly concerned at covenants that can create “modern variations of feudal serfdom”.
In 2020 the Welsh government called for evidence of practices in private residential estates and found an array of dubious charges. Astonishingly, only 15% of respondents were leaseholders.
Nonetheless, an array of “administration charges” had been applied to change names on the deeds of covenant; obtaining permission for altering the property; providing a management pack for sale; and for setting up a direct debit (annually).
Examples included £46.34 (for a certificate) to £300 (for management pack). Many management companies were also hasty to charge late fees (eg a £60 charge for late payment).
An earlier survey of purchasers of leasehold houses found that on average, freeholders charged homeowners £1,422 to enquire about installing double glazing, £887 to change the kitchen units, and £689 to replace the flooring. Some even faced charges for changing the blinds (£526), and installing a new front door (£410).
On buyer said his solicitors “did not point out any of the obligations or explain really that leasehold meant I didn’t own my own home. There was nothing at all raised by them about any obligations or what a breach in those obligations would mean because that’s the greatest thing. Any breach, or if you owe
money for three weeks or more, I’m what they called an assured shorthold tenancy- I know now
that I could lose my home. That is something that they should have explained and they certainly
Last month Guardian Money revealed how thousands of homeowners, who bought on “unadopted” private estates, face escalating costs after developers sold off management contracts to private companies in what many describe as “fleecehold”. Following our report we were contacted by many homebuyers with tales of woe – but one name seemed to feature more than any other: Greenbelt.
Professor Bright noted: “The Welsh consultation response is also littered with complaints from respondents about costs, and the quality of services (“awful quality of workmanship”; the “estate is a mess and very run down”; unadopted roads that “are unlit and dangerous at night…. Full of pot holes”, “uncapped, inflated charges”).
Nonetheless, more than a third of respondents to the Welsh government report “had had action threatened or taken for non-payment of including additional fees and penalties, legal action, bailiffs, damage to credit rating, reporting to lenders and having charges added to mortgages, and report of
threats of losing the property”.
One house owner said: “I had no idea that as a freeholder I could have covenants and restrictions and charges for goodness knows what else placed on me…. I’ve been sold a leasehold house under the guise of a freehold one.”
Professor Bright concludes: “A possible way to evaluate the recent growth of PREs is to ask whether they meet standards of efficiency, accountability, sustainability and fairness. It is clear from this small study that there are serious concerns in relation to each of these. For homeowners there is often poor pre-purchase advice which means that they are shocked to learn about restrictions on their use of the home, the need to get consent to do things that many homeowners take for granted, and the requirement to pay an estate charge on top of council tax. This is not what many understand ownership to be. Further, these charges are unregulated, there is often little transparency and it is difficult to challenge them.”
And here is an ironical twist to the fleecehold debate: South Somerset council seems to have entered the game on its own account: saving money by not adopting communal spaces, but having a separate for profit company to manage them.
In these circumstances, the owners of these homes are paying councils twice: once through estate charges and again through council tax: