'Fleecehold': Estate rent charges and the hidden issues

I received an enquiry a few weeks ago from a freeholder who was distressed as she had received a large bill from the management company employed to recover the estate rent charges for the maintenance of the communal area and facilities surrounding her property. The freeholder felt that the estate charges were disproportionately high and she wanted to know if there was any legal route available to challenge the bill.

An estate rent charge imposes a charge on the land which can be enforced to secure the obligation by the freeholder to pay towards the cost of maintaining the estates communal area and facilities surrounding the property. The freeholder can feel as though they are being fleeced as they have no option but to pay, hence the term: 'Fleecehold'. It should be noted that the obligation to pay is also directly enforceable against any future purchasers of the property.

When purchasing the freehold these charges will be set out in the Deed of Transfer which places a duty on owners to contribute to estate charges, alternatively the estate rent charge may form part of the purchase contract. Estate rent charges are typically more prevalent on newly built estates which have freehold houses situated on them as the developers of these properties may have been granted planning permission from the Local Authority on the condition that they provide public open spaces and make provision for their upkeep. The costs of the upkeep are then passed onto property owners.

A Residents’ Management Company (RTM) may be set up to manage the upkeep of the communal areas and facilities or the RTM can employ a managing agent to act on its behalf. Alternatively, the developer can retain ownership and can carry out the maintenance directly or through a managing agent.

The common complaint about estate rent charges by freeholders is that they are high, uncapped and unregulated.

Challenging Estate rent charges?

Unfortunately a freeholder has limited rights to challenge the level of charges and the standard of service provided. This can be contrasted with a leaseholder's statutory right to challenge the reasonableness of rates and management standards via an application to the First Tier Property Tribunal.

At present the options available to a freeholder is to bring Court proceedings, however it is very rare for actions to be brought as the Court has a very limited role under s2(5) of the Rentcharges Act 1977 in assessing the reasonableness of any charges raised.

If the estate rent charge is collected by a managing agent the freeholder can make a complaint to the Government Redress Scheme (subject to exhausting the internal complaints procedure). All property and managing agents providing property management services in the course of business are required by law to be members of a Government Redress Scheme [1]

There are two Government Redress Schemes:

· The Property Redress Scheme

· The Property Ombudsman

The Government Redress Schemes have the power to make an award to the complainant ranging from an apology, explanation, reimbursement of financial loss or a compensation sum for inconvenience and distress up to a maximum of £25,000. Any compensation payment will be calculated based on demonstrable loss or costs and will take into account any degree to which the complainant has contributed to the failure or loss suffered.

What are the consequences of non-payment?

If a freeholder disputes the charges and the charge is unpaid for 40 days the management company has the power (unless the term is expressly excluded) to take possession of the property, lawfully exclude the owner and grant a lease to a trustee. Section 121 of the Law of Property Act 1925.

Proposed reforms

The Government has considered this vexatious issue on a number of occasions and confirmed that they are committed to:

  • Legislating to give freeholders on private and mixed tenure estates equivalent rights to leaseholders to challenge the reasonableness of estate rent charges reproducing the relevant provisions in the Landlord and Tenant Act 1985.

  • Introduce a right for freeholders to apply to the First-Tier Tribunal to appoint a new manager to manage the provision of services covered by estate rent charges reproducing the relevant provisions of the Landlord and Tenant Act 1987.

Whilst the proposed reforms are eagerly awaited by freeholders, the legislation will only be brought forward once Parliamentary time allows. This is disappointing news for those currently affected by high estate rent charges, however where possible freeholders should consider if the actions of the managing agent constitutes grounds for complaint and would be advised to pursue this option in the interim.

If you are affected by high estate rent charges and require assistance please get in touch here.

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