By Sebastian O’Kelly
Has South Somerset council twigged that it can make a fortune out of residents in private estates by playing the ‘fleecehold’ game?
It has set up a company called Elleston for “landscaping and horticultural work” which it hopes will make £2.2 million a year in two year’s time.
Thousands of private estates have roads, pavements and lighting that have not been adopted by the council, so the residents have to pay for them.
On top of their council tax, that is.
Developers and councils have immediately seen the advantage of this: councils save money by not doing the job that they have to do in the rest of the borough; developers have created yet another investment asset class – the management contracts – that can be traded on.
Everyone’s a winner, except the duped house buyers who did not understand the wealth-eroding nature of the management contract.
These are now traded assets, with Green Belt in Glasgow having companies worth around £200. FirstPort, the largest block manager in the country, has also hoovered up a few.
It is not clear to LKP whether South Somerset is naive or mercenary.
LibDem councillor John Clark welcomes the initiative:
“When new estates are built, developers have a choice of seeking adoption of the common public areas by the council or retaining ownership and utilising a private maintenance company.
“With many developers now choosing to take the private maintenance company route [now, why would they prefer that, do you wonder?] and charging residents for the costs, Elleston will utilise our skilled workforce and good practice to ensure that an excellent level of work is carried out.
“The council cannot use public money to maintain private land, therefore Elleston is simply meeting the market need.”
Meeting the market need? Many victims of the ‘fleecehold’ game would say that is a polite way of describing the avoiding of your responsibilities.
Elleston is open for business and here’s what you need to know | South Somerset District Council
South Somerset has set up a new landscaping and horticultural trading company called Elleston which aims to provide a better service for residents, while returning profits to the Council. Elleston has been created by SSDC in response to requests from residents as well as housing developers as there is a demand for high quality maintenance work on private developments and estate land.
No one seems to be asking, why should buyers of new homes – usually for first-timers – have to pay for services which all the other residents in a borough don’t pay for?
In last week’s email dump to chief executives, around 30 outraged letters came from residents in Agusta Park, where Persimmon has been happily dumping first-time buyers into scandalous leasehold houses.
What’s the betting Agusta Park also has a management company because its roads, drains and lighting are not adopted?
It is utterly ludicrous that taxpayers are lavishly funding through Help To Buy multi-million pound bonuses for Persimmon’s executives … and a cushy income stream for the credulous and indolent South Somerset council.
South Somerset district council responds:
Thank you for your email and we would certainly welcome the opportunity to respond to the attached article, as it includes some serious misunderstandings of the role of the Council and Elleston: I would also like to provide some context which may help. South Somerset District Council has an outstanding record as a caring and compassionate council, strongly valued by the communities it serves. It is morally right that we continue to secure the best new developments we can through the planning process and the best amenities for residents.
The law around amenities in private developments
As you will be aware, the planning system does require sustainable, appropriate amenities to be provided as part of new development, but the Government does not require these amenities to be publicly owned. (In an ideal world, there would be sufficient funding available to adopt all amenities across South Somerset, but that is not reality and it is not always possible to negotiate the transfer of land through Section 106 agreements. And of course the more land the Council takes on, the higher the burden on all taxpayers and other services as resources are finite.)
When new estates are built, developers have a free choice of either
• Seeking adoption of the common public areas by the Council, or
• Retaining ownership and utilising a private maintenance company.
Adoption is not a legal requisite and the appropriate payment to cover the costs of adoption and maintenance cannot be insisted upon. Previous smaller sites taken on by the council in the past have only been viable as developers offered to secure the maintenance costs for a fixed term through what are known as Section 106 agreements but there is no legal obligation to do this and this is becoming increasingly rare.
When it has not been possible to secure an agreement for adoption, developers often set up maintenance fees for the land, and put the maintenance work out to tender by private maintenance companies: when developers decide to do this, we have concluded that by tendering for the work through Elleston, we can provide the best possible quality of work while ensuring that vital services accessed by thousands are protected.
Trading companies wholly owned by Councils
Councils are prohibited from directly trading their services and making profits, but government legislation allows them to do so through a separate wholly owned trading company. These companies can make profits that are returned to the Council as dividends, which can be used as additional revenue to improve and maintain services which benefit the whole community and mitigate the loss of funding from central government. The Council’s approach to this is transparent, and is contained within our Commercial Strategy (in the public domain on our website) and Elleston is an example of such a wholly owned company.
Elleston will compete with other commercial providers of maintenance services in tendering in the open market to private landowners. The company can make profits that are returned to the Council as dividends, which can be used as additional revenue to improve and maintain services which benefit the whole community and mitigate the loss of funding from central government.
About Elleston
Elleston has actually been created by SSDC in response to requests from residents as well as housing developers, as there is a demand for high quality maintenance work on private developments and estate land. We believe that developers and residents will receive a better quality service than otherwise might be available. Clearly we need to do this in a commercial way, given the financial pressures we are under, so this is not a cost to the taxpayer.
In addition to land management, Elleston offers a wide range of landscaping and horticulture services, including sports field management, arborist work, fencing and street cleansing. Elleston has been set up by SSDC to ensure a high standard of work for private developments and estate land, not publicly owned land/roads that the council already maintains.
As Elleston tenders in the open market for commercial contracts, some of its operational data is commercially sensitive and remains confidential. However, the overriding aim of Elleston is to meet a need identified with residents.
Some important factual errors and misunderstandings
The article comments on the “hope” that Elleston will achieve £2.2m in profit. The figure referred to is the annual target for income generation from our investments in property and environmental projects, and is nothing to do with the trading companies
It’s worth emphasising that SSDC does not make profits. On some operations we generate more revenue than cost but this goes into supporting other services for residents. This has always been the case even before the Commercial Strategy.
The opening caption in the article refers speculatively to a property in South Cheriton and comments on the adoption of drains, lighting and roads, none of which would be with the remit of a district council.
The article refers to SSDC joining the “fleecehold racket” and avoiding its responsibilities, language which we would strongly dispute.
Related posts:
Milton Keynes cracks down on ‘fleecehold’ scams by housebuilders
‘Fleecehold’ petition launched to stop housebuilders creating YET ANOTHER revenue stream from their customers
Labour MP Helen Goodman fights ‘fleecehold’ rip-offs with Private Members’ Bill
Welsh government grapples with ‘fleecehold’ woes, issues call for evidence closing April 3
We are being ripped off by private estate charges by developers and property predators just like leaseholders, says HORnet
Barratt evacuates Grenfell cladding site Citiscape
We do indeed pay a service charge. It’s very strange, Persimmon say they are handing over the land for adoption, a local councillor tells me they are not… I have arranged a meeting with Persimmon to discuss the POS adoption however the Councillor from SSDC publicly refused to meet saying he represents everyone in the area not just 7 of us and also he is far too busy to meet its a government and legal matter not a council matter.
That’s flimsy. We have contacted South Somerset inviting a statement, and copied in assorted MPs. Including Sir Ed Davey.
When Central Government refuse to properly financially fund Local Authorities (LA) the result is they cut back on what was their responsibility The refusal to adopting the estate infrastructure along with hard and soft landscaping means the LA can still charge Council Tax and another company can make money as well.
The developers now have an estate that the LA has refused to maintain, possibly with both Leasehold and Freehold Housing. Now both Leaseholder and freeholder will pay a levy for the Management of the Estate.
The developer now has another Income Stream:-
1. Sale of the housing Leasehold/Freehold.
2. Sale of the Freehold in the first 2 years to a company from the same group
3. Sale of the lease to maintain the estate to another company from the same group
What have the governments done to prevent these scams?
Set up the toothless OFT and the SFO who arrested a couple of Tchenguiz Brothers then let them go with payment for wrongful arrest and circa £3 million pounds each in compensation.
Typically these Estate Managers such as Firstport Property Services Ltd undertake the maintenance and send out the Management Fees to each residential home. When maintenance fails to be undertaken and the area falls into disrepair resident ask questions. They then are informed they are not entitled to see the accounts and the areas covered by the Transfer Contract.
Recently residents are fighting back and exposing these Estate Managers and they are now grouping together and the fan has been switched on.
Now the LAs have seen the potential of this Income Stream and have jumped on the bandwagon by setting up a private company to undertake what they should have done by adopting and then charging not only Council Tax but also Management Fees so being paid twice.