In a consultation paper published on 25 July 2017 the government is inviting feedback on proposals to extend the rights currently available to tenants of long leases to freehold owners on housing estates.
Tenants of flats with long leases have statutory rights to challenge service charges levied by their landlords if they think they are excessive or that inappropriate charges have been added to the service charge bill. Tenants also have rights to be consulted over the arrangements for significant expenditure on communal services and repairs and also have the right to seize control of the management if the landlord’s or manager’s misconduct justifies it.
These statutory rights do not extend to owners of freehold property on housing estates where there are communal areas or services which are managed centrally either by the original developer or a management company.
Although the communal services and management of an estate will not generally include repair and maintenance of the buildings occupied by the residents, the scale of such communal management operations can be substantial and give rise to significant costs. Activities covered by such service charges can include:
- Maintenance and repair of private roads and footpaths within an estate
- Maintenance and repair of privately owned pumping stations for the discharge of sewage
- Management of car parks, cycle storage areas and waste storage areas
- Management of landscaped areas
- Management of play areas, sports fields and other recreational open space
- Management of wildlife havens
Such a change will give rise to added administrative burdens for the managers of such estates particularly where there is no existing element of leasehold occupation. Whilst residents will therefore have greater protection against over-charging for services or mis-management of the communal parts of an estate, such protection will come at the cost of increased service charge bills as the cost of compliance with the regulations will feed through to higher service charges.
This government proposal is being brought forward in the context of the ongoing controversies over unfair ground rents affecting leasehold flats and leasehold houses but the government would be missing an opportunity if those changes were not also accompanied by changes to the law relating to the enforcement of covenants to perform services and to pay service charge so far as they relate to freehold properties.
Owners of freehold houses cannot automatically sue an owner of the communal areas for failure to provide services if the manager is not the original person who committed to carry out the management. The ability to enforce these obligations against new managers depends on each new owner of the managed areas entering into a deed of covenant in favour of the residents to comply with the management obligations.
Similarly the owner of the managed areas cannot automatically sue individual freehold residents for non-payment of service charges (except the original buyer) unless either an estate rentcharge has been created or each new buyer of a house signs a deed of covenant in favour of the manager to pay the appropriate service charge.
If the government is looking to amend the arrangements to give tenants protection against excessive service charges, it should also modify the law to ensure that covenants for delivery of services and for payment of service charges automatically pass on to future owners of the affected land and buildings allowing developers to complete sales without requiring complex legal structures for long term management to be created as part of the transfer deeds.
Such reforms have been requested on many occasions in the past but to date no action has been taken.
The period for replying to the consultation on the proposed changes to the service charge rules (and other issues relating to ground rents for leasehold property) runs until 19 September 2017. The consultation paper is available on the Government website.
For further information please contact Derek Ching on [email protected].
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