Developers Charging New Build Freeholders Fees Similar To Leasehold – With Freeholders Unable To Dispute Charges

Developers have replaced exorbitant leasehold charges with freehold charges on new builds, prompting growing concern from experts, campaigners and MPs on its profit model.

Freehold laws are being misused by some developers in a bid to replace missing revenue from tighter regulation on leasehold laws, with new build homeowners forced to pay higher fees or risk being taken to court.

Dubbed ‘the next PPI scandal’ by MPs and the media, those who have purchased a new build with a freehold have far less protection than leasehold holders.

Older freehold houses typically do not have service charges and ground rent, unlike leasehold. However, service charges are common on new housing schemes, where there are shared services like roads, green spaces, play areas and parking.

Freeholders are more likely than leaseholders to be able to take control of their management company, and eventually have more oversight and control of costs. The problem arises in the short to medium term when homeowners are charged high fees unexpectedly.

Some fees for new build freeholders include charging fees to permit sheds or other home improvements, or even an administration fee for selling their house. Even fees for estate services can be arbitrary and objectively unreasonable, costing homeowners up to thousands of pounds and even making properties difficult to sell.

A cross-party group of 30 MPs had a bill ready to address the issues, including forcing developers to build estates on areas that could be adopted by local councils and for management fees to be regulated, but the bill was dropped when Parliament was prorogued earlier this month.

A House of Commons briefing paper from August this year said it planned to reform freehold laws within a year, but residential property experts at law firm Irwin Mitchell remain sceptical at how this timeframe will proceed.

Expert Opinion

“Clearly it is essential that people buying new freehold homes are given the same level of protection against unfair or extortionate charges as those buying leaseholds.

“Legislative change is in practice a difficult and time-consuming process, as seen with the much-heralded regulation of property agents, which still looks as though it will take the Government at least another two years.

“It is essential that profits can and should be made by house builders at the point of sale. However, the industry must also now accept that establishing new and continuing income streams where no value is given, is a model that belongs in the past.” Jeremy Raj - Partner

Clive Betts, chairman of the Commons housing, communities and local government committee, has previously said some property charges are acceptable if they are explained to buyers, which experts at Irwin Mitchell agree with.

Jeremy added: “Equally the house buying public has to appreciate that home ownership, including benefitting from enjoyable and safe shared spaces and facilities, involves ongoing expenditure and that they should budget accordingly. Some of the most popular places to live are tightly regulated, and retain their special characteristics as a result.

“This inevitably involves additional cost, and the key is good forecasting and information up front. It pays to ensure that your legal advisors are thorough and experienced.”