Estate rent charges are often a source of confusion for home buyers. So why do they exist?
There was a time when local authorities would take on responsibility for maintaining things like roads and green areas after an estate was built. Since the 1970s, they have sought to limit their spending on this, and the buck has been passed to developers.
What Is An Estate Rent Charge?
The housebuilding industry came up with estate rent charges as a way of ensuring the communal areas of these estates were maintained and therefore remained attractive to future buyers, protecting the value of the homes. These charges might be paid to the original developer of the estate, or to a management company. Their function is similar to the service charges you might pay on a leasehold property. However, they are subject to fewer legal checks and balances.
Leaseholders have statutory protections which ensure that service charges must be of a ‘reasonable’ level – but freeholders subject to estate rent charges have no way to challenge the amount they are asked for other than by bringing court proceedings.
Problems With Estate Rent Charges
The real problem, however, comes when freeholders do not pay the rent charge for 40 days. The developer or management company is legally allowed to enter into possession of the home without serving notice, and to grant a lease on it to a trustee – effectively evicting the homeowner from their property. Understandably, this ability to take away possession of a home is seen as a big risk by mortgage lenders because it poses a threat to their security.
An estate rent charge is usually registered against a property as a way of ensuring that property owners observe a positive obligation related to their property ownership. For example, an obligation to pay towards the costs of the maintenance and repair of the communal areas on a housing estate could be secured by an estate rent charge.
The problem with estate rent charges for property owners is that there is no procedure for challenging the sums requested under a rent charge, other than through the court.
Covenants Rather Than Rent Charges
Although it does not remedy your situation, it is heartening to hear that some property developers and estate managers are moving away from estate rent charges. Instead, they are asking home buyers to enter into a covenant where they commit to paying maintenance charges up until the point that they sell the home, at which point the next buyer would enter into a new covenant as a condition of buying the property.
Drafted correctly, these agreements could ensure that buyers pay for maintenance of the areas around their homes, while avoiding some of the more drastic measures involved in an estate rent charge.
If you are in the process of selling or purchasing a property and would like advice about estate rent charges, please contact our friendly residential property team who will be happy to help on 01904 624903.