Surveyors undertaking the mortgage valuations of new build houses on new developments have a number of problems to deal with. The developer’s marketing suite may be very plush but the site itself could be only partly finished so the surveyor dons hard hat, high viz jacket and reinforced boots and proceeds to wade through the mud to inspect the proposed security.
The sales staff in the marketing suite will be helpful and will typically offer a nice glossy brochure showing the completed house but there may only be limited information available about the property title and in particular any specific title covenants or estate charges.
In the past it was rare for estate charges or unusual title covenants to be a valuation issue. Most houses on new estates sold with freehold title were not subject to any periodic charges for site maintenance.
Areas of open space, children’s playgrounds, amenity woodland and grass verges were adopted by the local authority so in so far as the property owners paid for the maintenance of these areas they did so via their council tax.
New housing estates
In recent years all this has begun to change. Freehold houses on new estates are increasingly being sold on the basis that periodic charges are paid to an estate management company which is responsible for maintenance. The maintenance may be confined to grass cutting and general gardening but it could extend well beyond this to include recreation areas, swimming pools and buildings such as gyms.
Pressure has been building for some time for reform of the leasehold system but campaigners are now looking beyond the issues raised by leasehold to include unfair and excessive maintenance charges for freehold properties.
Freehold properties
A bill to cap fees on freehold properties was presented to Parliament in November 2018 by the then Labour MP for Bishop Auckland, Helen Goodman. The bill was not made law but following this the government set up a consultation exercise on the issue.
Helen Goodman claimed that fees in her region were typically in the range £100 to £220 per household and for a development of 100 or more homes this produces a substantial annual income for services that are not always provided well. Helen Goodman estimated that 1.3 million freehold homes in England are affected by these charges.
There is some legal protection for leaseholders but none for freeholders so it is harder for these homeowners to escape unfair charges or challenge the quality of the maintenance work. Helen Goodman cited anecdotal evidence for fees doubling in one year on one development and total payments of £27,000 being claimed on another estate just for grass cutting.
Unfair or excessive charge
Lawyers acting for the purchasers should warn their clients about the potential for unfair or excessive charge, however, this issue may easily be overlooked during the conveyancing process. Surveyors preparing the valuations have to assume that the maintenance arrangements will be acceptable and the charges reasonable but they have no means – or the time – to check this prior to submitting the valuation report.
The future value and saleability of houses on new build estates will depend to some extent on the quality of the maintenance of communal areas and the levels of service charge. If an estate gains a poor reputation for excessive or rip off estate charges and scruffy communal areas this will impact unfavourably on the resale market and hence the mortgage valuation.
Covenants
Another recent development affecting new build freehold houses is the imposition of covenants which require the home owners to pay fees for consent to undertake alterations and there is some anecdotal evidence of freeholders having to pay fees in the thousands of pounds for consent to build extensions.
Against this background it is clearly essential that buyers of new freehold houses get good legal advice and check that they are dealing with reputable developers.
Peter Glover is a chartered surveyor working in London and author of “Building Surveys” and “Buying a House or Flat”
