Inadequate solicitors advice possibly leading to homeowners trapped by ‘fleeceholds’

New housing estate with communal areas
New housing estate with communal areas

A crisis on a scale compared to the recent PPI scandal has left home owners and MPs alike wanting answers, as new home owners are being lumbered with annual charges that they feel they did not sign up for. Owners of brand new houses are being asked to pay for annual charges that they didn’t expect. Some house buyers have said they are effectively being taxed twice over for the upkeep of fledgling neighbourhoods.

The additional charges on freehold property have been branded as ‘fleecehold’ and some have demanded it be stopped.

Sometimes estate or neighbourhood fees emerge when a local council decides not to maintain a new space which leaves builders or administration firms with the maintenance of roads and associated green spaces. These companies use a deed of transfer under the Law of Property Act 1925 to pass on the costs to homeowners, who must then pay for the ongoing maintenance, whether their property was bought freehold or leasehold. This ‘estate charge’ or ‘service charge’ is paid in addition to the full council tax charge, even if the council doesn’t maintain that street.

Critics say that these properties are being mis-sold with no clear information provided to buyers about the potential additional costs that could be incurred or the fact they may be increased. Homeowners have said they feel like they are in a ‘tenant-landlord’ relationship, despite being homeowners.

Terry Stringer from Bromsgrove in Worcestershire moved into his freehold property in 2015, but says he feels “abused and ripped off” about subsequent upkeep costs. He said moving into his property was “probably the worst mistake” of his life. The duty of care for Mr Stringer’s property was taken over from the house builder, Bovis Homes, by SDL and their charges haven steadily risen.  The yearly upkeep divided between the 80 properties on the estate has grown from £12,000 to £32,000, and currently costs families around £400 per year. Despite this, Mr Stringer said the area had not been well maintained and residents had seen little benefit.

There is little residents can do if they are already in a situation of binding contacts between the builders and the upkeep firms. Buyers need to be armed with all the facts before purchasing a new home but there is often a lack of clear information on these hidden costs and obligations. 

Helen Goodman MP wants to raise the profile of freeholder’s plight with this ongoing issue. She has said that a slow ‘trickle’ of complaints about the issue has grown into a ‘flood’ and says something must be done with many individuals feeling they have been misled. In Wales, Hefin David AM has called on the Welsh government for a cap on the charges to residents as there is no regulation on the amount of money homeowners can be charged for maintenance work by housing developers.

Management companies are under no legal obligation to keep costs down or provide evidence that the services they charge for are being carried out. The home buyer may find that when the management contract is sold on the bill gets higher.

In a recent parliamentary debate about private estates Kelly Tolhurst MP said that local homeowners who had bought their homes from Taylor Wimpey and Bellway were now in dispute with management company, SDL Bigwood. She criticised Hyde Housing Association and London & Quadrant in particular; the latter for trying to charge for street lamps and street cleaning that was to be undertaken by Medway Council.

The campaign group HORNET (Home Owners Rights Network) has a database of over 400 estates which represents over 80,000 households paying an average estate charge of approximately £250 per year, although this varies widely. HORNET is fighting for a fairer deal for all home owners on privately managed estates and its February statement calls for government to start a dialogue on ‘precisely what is happening on the ground and work to create a balanced and fair system for everyone’.

Leaseholders have limited statutory protection but freeholders do not have many options. Cases can be taken to court but that is a potentially lengthy and expensive option. Home owners who refuse to pay risk losing their home and arrears are normally recoverable as a debt claim in county court. The rent charge owner could even take possession of the property so seek legal advice on where you stand.

This problem may possibly have arisen from inadequate legal advice. It is a purchaser’s solicitor’s responsibility to make sure their client understands the contractual obligations of their purchase.

The contract in place appears to be appended to the deeds or form part of the contract of purchase. Therefore, could conveyancing solicitors be answerable for their clients’ suffering?

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