My wife and I are tempted to purchase a newly built home in a housing development that is being built near where we currently live.
After reading through the developer’s report we discovered that, although the house is freehold, we have to pay an estate administration fee of £450 each year.
When we asked about this they said this was for maintenance of the common areas throughout the property.
But we cannot see anything that is communal. It’s just a collection of houses, each with its own private garden. So I can’t imagine what the money is actually used for.
Red flag: Our reader is concerned about a £450 estate administration fee that will be attached to the new house he wants to buy (stock image)
Essentially, we’re a bit stumped because we assumed that fees like these are typically associated with buying rental properties, not buying a owned home.
We are also concerned that these costs are beyond our control and may increase in the future.
We would like to know if an estate administration fee is normal when purchasing a new build property and if it is a potential red flag that means we should stay away from it?
Ed Magnus from This is Money responds: Estate administration fees are becoming increasingly common in new construction. The encumbrance is tied to each property through the title deeds.
Sometimes the fee may seem reasonable. However, it can often seem like you are paying money for nothing.
Estate administration fees typically cover any communal gardens or lawns, private roads, walkways, car parks and play areas within the new housing development.
Please note that you will also have to pay regular municipal tax.
Fleecehold: Although buyers own the property, they must pay an annual fee similar to what they would expect to pay if purchasing a leasehold property (stock image)
According to the Homeowners Alliance, owners of at least one million newly built homes must pay these inheritance fees without having the opportunity to contest them or take over management themselves.
This is particularly a problem when purchasing a property as you do not want to experience annual fee increases.
In the past, we have received similar emails from readers complaining that their estate administration fees have increased.
Earlier this year, one person complained that their management fee had increased by more than 165 percent in four years.
Whilst leaseholders in England and Wales have a statutory right to challenge unreasonable service charges, freeholders currently have no equivalent statutory right.
There is an option to challenge the charges in district court.
However, most people do not have the means to do this.
This is not helped by the fact that the contract is written by the developer and is often vague.
We spoke to two experts for advice.
Rob DixCo-founder of Property Hub and investment app Portfolio and Sophie Langregional managing director of real estate agent membership organization Propertymark.
Rob Dix answers: Inheritance fees for new housing developments are being levied more and more frequently.
It is likely that the streets and greenbelts are private and therefore require maintenance work – although this is minimal and there are no benefits to be had compared to living on another street – where your council tax covers the maintenance.
The problem with these fees is that there is no way for shareholders to challenge the appropriateness of the estate fees or to jointly assume management of the estate, leaving you to choose your own service providers.
The government published a report in 2019 expressing its intention to introduce these rights, and earlier this year a minister in the Department of Leveling, Housing and Communities confirmed they would do so “when parliamentary time allows” .
Rob Dix, co-founder of Property Hub and investment app Portfolio, says he personally wouldn’t consider the £450 annual fee a warning sign
Of course, there is no indication when that will be, and in the meantime the charges could escalate beyond your control.
However, as I said, these fees are becoming more and more common – and finding a suitable apartment becomes more difficult if you exclude construction projects that are associated with them.
Personally I wouldn’t consider it a red flag, but it mostly depends on how concerned you are about this type of fee and how many other options you have.
Sophie Lang answers: This is an emerging trend that occurs particularly in small private construction projects and is sometimes worrying.
The encumbrance is usually tied to your property via the title deed and will cause delays in resale as it is treated like a leasehold by solicitors.
Such arrangements have no way for those affected to resolve disputes and can potentially result in lengthy and costly legal proceedings if the buyer is unhappy with the increased fees or the service provided in return for the fee.
Sophie Lang, regional managing director at estate agent membership association Propertymark, says it is a red flag due to a lack of protection or redress that could potentially deter future buyers when they come to sell
An investigation by the Competition and Markets Authority is currently on the agenda, but this will take some time.
Companies can sometimes use high-pressure tactics and additional collection fees if you refuse to pay, and they rarely respond to complaints.
Propertymark’s understanding is that it arose because developers were trying to save costs, so they didn’t go into a management company and did it themselves, but it is currently unregulated.
This is now common practice on new construction sites, but for us it is a red flag because there is a lack of protection or redress and this can deter anyone from buying a new building as costs skyrocket – it almost is , like paying double council tax The money is supposed to go towards maintaining the property’s communal areas, even though in reality there are very few communal areas.
People may notice that some developers include a communal children’s play area, but it is never well maintained or built, rather it is used to justify the additional cost.
People pay council tax for rubbish collection, street lights and the council for grass verge maintenance etc.
This is the same thing but by the private landowner. The fees are not clear or transparent and sometimes the fees are unlimited and Propertymark is aware that some lenders refuse to lend on new builds with unlimited fees.
Ed Magnus adds: We’ve looked at a lot of new build details, including from major developers – and most now seem to charge an annual management fee without clearly stating what it’s for, whether it can be increased, and whether it will ever be phased out in the future.
They are often buried in the glossy marketing brochure. You should find out what the new development you are interested in is for and ask key questions about any increases.
While £450 a year is £37.50 a month, what if it increased by 20% a year?
Over a decade this would amount to an estate fee of almost £3,000. Could that happen? Who knows, because the details are completely unclear and that makes it frustrating – and the simple ownership even murkier.
You can see why people in the industry call it a “fleecehold.”
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