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Being fleeced on the freehold

Housekeys

We recently highlighted some of the pitfalls faced by owners who had bought the leasehold of their homes. We likened their plight to the notorious mis-selling of payment protection insurance policies a decade ago.

Alarming new reports suggest that the scandal might even have crept into the freehold market, too. A report in the Plymouth Herald on the 1st of October 2019, revealed that those who had bought the freehold to their homes on a managed estate are subject to charges and restrictive covenants. The costs make them every bit as punitive as the terms written into many leasehold contracts.

The freehold scandal

The Daily Mail took up the story of the freehold scandal on the 23rd of October.

It describes two main areas in which some unscrupulous developers are “fleecing” as many as 1.3 million homeowners who have bought the freehold of their properties:

Unregulated charges

  • although the homeowner has bought the freehold of the property, it is situated on an estate which continues to be owned by the developer or some other third party;
  • despite the homeowner dutifully paying the Council Tax designed to cover such expenditure, the developer or other third-party charges a so-called “management fee” for the maintenance of such common amenities as the green spaces, verges, public areas and even the roads and footpaths;
  • when homebuyers purchase the freehold of their home, they do not expect to be hit by such recurring management and maintenance fees – which may cost up to £1,800 a year;
  • some freeholders have even been threatened with eviction from the home they own if such fees are not paid when they fall due;
  • in many cases, the developer is likely to have sold to a third party the right to exercise such contracts;

Restrictive covenants

  • even more insidious – and unwelcome to those homeowners who face them – are the restrictive covenants which some developers have written into the property deeds;
  • restrictive covenants define specific actions which the property owner may or may not take concerning the property – even though there is freehold ownership;
  • some restrictive covenants may make good sense for the community as a whole, but others are clearly scams or money-spinners devised by the developer – or the third party which becomes responsible for their management;
  • thus, some of these covenants prevent homeowners from parking motorhomes or vans on their own driveways or erecting a satellite dish while others require the householder to seek permission for any alteration, refurbishment or extension of their home;
  • to circumvent such restrictive covenants, homeowners may have to pay so-called “permission fees” – which, once again, maybe as costly as £2,000 a time.

Some commentators have argued that developers’ attempts to fleece freeholding homeowners are intensifying in response to recent legislation banning the sale of leaseholds on new-build homes.

Yet the management or service fees and restrictive covenants that are currently attached to some freehold sales are leaving homeowners in a similar predicament in being unable to sell properties which have such punitive financial costs attached.