Estate rent charges are a way to ensure that the upkeep of communal areas and services on residential estates is maintained.
They have become increasingly popular in the last 40 years, primarily because Local Authorities shifted the burden of maintaining communal areas onto the builders developing the estates. Developers in turn passed that burden onto the people who bought the properties on the estate.
Each property owner has an obligation to pay a service charge to either the developer or, more usually, a management company, to cover the costs of maintenance of common facilities, such as grassed areas, playgrounds and often the actual estate roads.
It all sounds very fair and reasonable … until it is not. There is no easy mechanism to challenge the charges raised by the management company, even if the maintenance they are carrying out is substandard or even nonexistent. Your only recourse is via the Courts, and this can be slow and expensive.
If you stop paying the charge in protest, then after 40 days you run the risk of being evicted from your property by the management company. It is a very harsh remedy but an effective enforcement tool for the management company if a freeholder is not paying their share.
This means that many lenders are cautious about providing mortgages for properties subject to estate rent charges – which in turn makes them more difficult to sell and therefore reduces their value.
There are alternatives to the rent charge – such as a Deed of Covenant to pay the charges. Some developers and estate managers are now moving in this direction and away from estate rent charges. The covenant generally means that the home buyer commits to paying maintenance charges up until the point at which they sell their home, and the new buyer enters into a new covenant on purchasing the property. This does not carry the same risk of eviction and should be discussed with your legal advisor as an alternative if you are thinking of buying a property with such a charge.
For more information and advice when buying or selling a property, contact the Hibberts team here.