New-build buyers are being urged by law firm Lyons Bowe to get to grips with estate management charges before purchasing a property, with research showing homeowners are not always clear about the costs and obligations involved.
Estate management charges have become increasingly common on new developments. They typically pay for the upkeep of roads, green spaces, drainage systems, play areas and other communal facilities that have not been taken on by the local authority. Instead, they are maintained by an estate management company, with homeowners on the site sharing the cost.
They can apply to freehold as well as leasehold properties. For freehold buyers in particular, an ongoing management charge can come as a surprise, as service charges are traditionally associated with flats and leasehold properties.
Lyons Bowe highlights research by the Competition and Markets Authority, which found that 80% of new homes sold by the UK’s 11 largest housebuilders in 2021 and 2022 were subject to estate management charges. Charges commonly range from £200 to £500 a year, although they can exceed £1,000 on larger or more premium developments.
The CMA research also found that buyers were generally told that a management charge existed, but were not always given enough information to understand how the arrangements would work in practice.
Where can problems arise?
According to Lyons Bowe, the amount buyers pay is only one consideration. They also need to know what the charge covers, how it is calculated, how and when it can increase, who is responsible for managing the estate and how the management company is structured.
There can be legal considerations too. On some freehold developments, the obligation to contribute towards maintenance is secured through an estate rentcharge – a legal obligation attached to the property requiring the homeowner to make specified payments.
An estate rentcharge can give the management company enforcement rights if payments are not made, and some mortgage lenders will not lend on properties with certain rentcharge terms unless protections are in place.
It is something that can come to a head again when the property is sold, as the obligation to pay the charge normally passes to the new owner and there may be fees or administrative requirements associated with the sale.
What should buyers do?
Paul Lyons, managing director at Lyons Bowe Solicitors, says: “New-build homes offer buyers a huge number of benefits, and the presence of an estate management charge shouldn’t in itself be a reason to reconsider a purchase. The important thing is that buyers understand exactly what they’re committing to before they exchange contracts.
“As developments become larger and more complex, there can be questions around estate charges, communal areas and management arrangements. A good conveyancer should identify those issues early, explain them clearly and, where necessary, work with the developer and other parties to find practical solutions.”
Where an issue is identified, the buyer’s conveyancer can seek clarification from the developer or management company and, where necessary, negotiate amendments to the documentation before contracts are exchanged.
Greater protection for owners
The concerns identified by the CMA have led to plans for greater protection for homeowners on privately managed estates, including more transparency over charges and new rights to challenge costs considered unreasonable. The government also intends to address the enforcement powers associated with estate rentcharges.
Until those changes take effect, getting the details checked early gives buyers the opportunity to resolve potential problems before committing to the purchase.
