Estate Charges on Residential Estates

It’s becoming increasingly common for developers to charge an estate service charge for the ongoing maintenance and repair of open spaces, roads, and facilities for new housing developments.

Traditionally, the local authority would be responsible for the maintenance of these areas but due to their ever-tightening budgets, they are reluctant to take on the costs associated with this. Developers will often find that planning conditions are imposed requiring them to set up a scheme to deal with the ongoing maintenance and repair of the open spaces and facilities.

Developers will typically set up a management company to provide the services. The developer will usually retain a share in the management company and employ managing agents to deal with the day-to-day maintenance of the estate. Alternatively, the developer may place an obligation for plot owners to become shareholders of the management company with the idea that they will take over control and deal with the future repair and maintenance of the facilities on the estate. The latter option provides plot owners with greater control ensuring the maintenance works are carried out as and when required and the costs are not excessive.

The creation of these estate charges can be divided into two parts:

• General estate service charges.
• Estate rentcharges created under the Rentcharges Act 1977 (RA 1977).

General estate service charges are typically secured by placing an obligation on future plot owners to provide a deed of covenant (promise) to pay the estate service charge. A rentcharge creates a charge on the property which is then enforced by the rentcharge owner if the property owner defaults on payment. Estate rentcharges created under the RA 1977 are more onerous and some lenders are reluctant to borrow against a property subject to an estate rencharge due to the risk that if there is any default, the rentcharge owner can grant a long lease of the property to recover the arrears. Rentcharges are a complex area of law, if you’re a developer and are considering setting up your new residential scheme in this manner then please contact us for further advice.

For general estate service charges, the transfer deed to the plot owner will often set out the following:

• The services to be provided, which can sometimes be divided into mandatory services (such as providing street lighting) and services the management company may provide but is not mandatory (such as seasonal displays).
• The amount each plot owner will contribute, sometimes a fixed % is provided or this is stated to be a fair and reasonable proportion of the service costs.
• The date and manner the estate service charge is to be paid.
• A method for how any disputes are to be handled.

Examples of the type of costs include landscaping of any common areas or grass verges, maintenance for any play areas, emptying and maintaining communal septic tanks, and the cost of street lighting.

Unlike leaseholders that are subject to service charges (such as in a block of flats), there is no statutory protection to allow the plot owner to challenge the reasonableness of service charges or the standard of the services provided. If a dispute arises, these typically need to be referred to the small claims court.

If you need any advice on estate charges, please contact a member of our commercial property law team in confidence here or on 02920 829 100 for a free initial call to see how they can help.