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  • Buy-to-Let

    Freehold with service/ rent charge

    I'm looking at a property which is freehold and ticks all the boxes, however it has a small service charge (£220 per year) for the common areas and upkeep of the the two parking spaces. My concern is by how much it could increase by, I read leaseholders have some protection but freeholders have none, if this is true then I assume it will have a negative impact on the resale. 

    It seems that currently freehold with a rentcharge is totally unregulated and uncapped, am I just think too much into it and it’s so common now particularly on newer build estates that’s it the new norm?

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    The service charge should not cause you a concern. It’s for maintenance and so really it’s old lifts and block wide boilers which are costly and possibly insurance if there are a lot of claims. I think it’s the housing grants act which says that there cannot be a profit on the service charge. A freeholder can charge his time and of course appoint an agent but it’s not a profit making venture. The ground rent  is another matter, the landlord can, should and will seek to maximise his return but as yours is freehold interest that does not apply.

    You should check with your lawyer the mechanism for the various parties to these common parts to agree future activity/spend. You should have a say and no one property interest dominant (I have seen one party own multiple interests to the detriment of others though!)

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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022


    Hi Stuart

    I think you are missing the point of KLR's question. He/she is not buying a leasehold property with a separate freeholder, but a freehold property with common obligations to/with the neighbours. I too have come across this situation before, enforced by an onerous TP1. I also believe that this is an unregulated situation and potentially open to abuse. The only thing I can say to KLR is that I guess the other freeholders have aligned interests (unlike potentially a leasehold/freehold situation) and therefore the scope for abuse is limited.

    Daniel

    https://www.danielgreenproperty.co.uk

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    Thanks for the prompt replies, yes it a 4 bed freehold house which has a rent charge or estate management charge which covers the common outside area, and yes it's enforced by a TP1 which is frankly plain nasty!  As far as i can see it totally unregulated and if you google the term "Fleecehold" it comes up with numerous cases of charges doubling or even more within a short period, it's only about £200 now but nothing to stop them massively increasing it. Lots of cases where the majority of the charge is admin, near impossible to fight against. Also, the management company who appoints the contractors are nothing to do with the residents, the directors hold over 300 directorships of similar companies so they are a professional outfit, well capable of defending a few residents.

    I'm in two minds now if I should proceed or pull out, one side saying it leaves you open to abuse even there is currently no evidence of it (yet), other side says it's so common on new builds now it will be the new norm and it's just like additional council tax, hopefully there will be some legislation as it impacts so many house owners. There are some Mp's involved now.

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    This is fast becoming a major abuse by developers to add icing on the cake when selling new properties. They are trying to keep money coming in after developing and selling the property. People must walk away from these deals as only this will make them think and with no one buying it will stop. The government has become involved since the Wimpey cases, but nothing really has been done. As you said its open to abuse and bet your bottom dollar they will want to make as much as possible over the coming years. Just walk away , plenty of other opportunities will come along. Next thing they could offer you the freehold of the car parking space at a massive amount in the future. That's probably their longer term aim.The bottom line is you have no control over it and in fact entering into a open end commitment.

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    Cheers, I think I'm getting there. Annoyed as i did ask for the details upfront before making an offer and they said it needs to be looked at during conveyancing but nothing to worry about as they've sold lots on the estate without any issues, not quite true I think. I've spent on solicitors fees now and have a mortgage arranged, it's a real pain. 

    The car parking spaces are part of the freehold and clearly  included in the land registry map, it's the management charge for the upkeep of them, the other main roads have been adopted. I'll go to the agents and tell them I'm not happy and it's certainly worth less to me than the offer I put in, if the offer enough reduction I might consider it, otherwise I'll walk.

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    That's what they said about Wimpey homes. Nothing to worry about, now they have become unsaleable. All you are doing is storing up problems further down the road. If you sell at a later date and the charges are £500/750 per year how much are you going to have to reduce your price to get a  sale.

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    I am no fan of arrangements involving Service Charges & Ground Rent, often required but too often abused. It can be costly and prior to purchasing you want to talk to them, see if they have any plans for big expenditures. 

    There is reform of leasehold which may help in these areas, but not what your describing a Freehold with some T&C attached. As far as im aware.

    In addition you will find it hard to obtain finance on Freehold Flats (im presumeing its flats).

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    _________________________________________________________________________


    My posts are not financial advice, just a rambling guy passing time on a coffee break.
    The team at Bespoke Finance offers advice, including Limited Company Buy-to-Let , HMO Conversion and Cheap Life Insurance.

    _________________________________________________________________________


    No, these are freehold houses (commonly referred to as fleecehold!), not flats, totally unregulated as far as I can see.

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