When it comes to private and mixed tenure housing developments, estate management fees – also known as service charges or rentcharges – cover the cost of ongoing maintenance of communal areas, shared structures and services.

This is usually undertaken by a managing agent employed by a developer where the local council or authority does not ‘adopt’ the contract.

As such, homeowners are required to pay estate management fees on top of council tax.

While leaseholders are afforded some protections against spiralling service charges (the Landlord & Tenant Act 1985 states that anything over £200 has to be consulted on with the lessees) freeholders on private and mixed-tenure estates don’t currently share the equivalent rights to challenge the reasonableness of estate rentcharges.

A petition submitted to the government calling for a council tax discount for private homeowners paying estate management fees garnered over 10,000 signatures, triggering an official response from the Ministry of Housing, Communities and Local Government (MHCLG).

Ceres Brunning who created the petition, wrote: “I don’t see why people paying fees for estate management should pay full council tax like people who aren’t. Surely we are paying for some of the services twice? How is this fair or legal? If the council aren’t responsible for the upkeep of the area then surely the homeowner and the landlords in that area should get a reduction in council tax fees.”

Enhanced protections but council tax payments remain

In its response, the government confirmed it plans to bring forward legislation to give freehold homeowners on private and mixed tenure estates who pay estate management fees enhanced protections to challenge these charges if something goes wrong.

However, it confirmed there are no plans to offer a council tax discount.

The MHCLG wrote: “Council tax provides a significant source of funding to enable local authorities to provide a very wide range of services to the community in their area. These include the delivery of adult social care, providing essential support to vulnerable individuals, children’s services, and waste management.

“It also contributes to the funding of police and fire services, securing the safety of residents in their communities. It has also helped authorities to continue to play a crucial role in funding the delivery of essential frontline services during the Covid-19 pandemic.”

It added that where the local authority agrees to adopt the maintenance contract, sufficient funding would need to be provided by the developer. Alternatively, developers might choose to make their own arrangements to ensure ongoing maintenance.

“Given these circumstances, the government does not believe it is appropriate to provide a specific council tax discount to reflect each individual case where maintenance is carried out by a management company,” it added.

Instead, it pointed homeowners to its range of support for paying council tax bills.

Charges up 1,000%

When it comes to these service charges, the government said it should be made clear to potential buyers what the arrangements are for the maintenance of roads and upkeep of open space, public or otherwise.

“Where these costs do fall to homeowners, the existing arrangements to challenge such fees are limited. That is why the government has announced its intention to legislate to give freeholders equivalent rights to leaseholders to challenge the reasonableness of estate rentcharges. This will include a right to apply to the First-tier Tribunal to appoint a new manager for the provision of services covered by estate rentcharges.”

Beth Rudolf, director of delivery at the Conveyancing Association, said: “Once the developers hand over to the rentcharge owner and have left the site, we have heard of the costs going up hugely eg 1,000%. Buyers should ask for a five-year asset management plan to give them a better idea of future costs and make sure there’s a reserve fund for the big expenses like re-tarmacing etc.

“We have seen some awful examples where the Rent Charges Act has been breached to create an escalating fixed rentcharge as well as a variable service charge. Plus of course there’s that real risk that s.121 of the Law of Property Act says that if the payment is not made (whether demanded or not) the rentcharge owner can create a lease on the property which the owner will have to pay to remove. MHCLG have said it will abolish that but they need to get on and do it. People’s home should be their homes not a stressful anticipation about what will come next.

“Shared living, leasehold flats and freehold private estates, ultimately always has it issues because people either can’t always afford to pay or don’t want to pay for shared amenities but these can be dealt with more effectively when it is in the Commonhold regime than outside that.  Of course on freehold estates better yet is for the shared amenities to be adopted by the local authority so that the community is effectively funded.”

Complaints and ‘Right to Manage’ scheme

Where a managing agent is employed, by law they are required to belong to either The Property Redress Scheme, or The Property Ombudsman which is where complaints about charges can be made.

The response also added: “The government intends to legislate to extend mandatory membership of a redress scheme to freeholders or managing companies who manage communal spaces on private or mixed tenure estates, and who do not employ a managing agent. This will ensure that all relevant homeowners will be covered by a redress scheme.

“The government will also consider how homeowners on private estates could be supported to take on the management responsibility for common areas, shared structures or services should they wish to. We will consider introducing a Right to Manage for residential freeholders once we have considered the Law Commission’s report on changes to the Right to Manage for leaseholders.

“The government is committed to bringing forward leasehold legislation as soon as parliamentary time allows, recognising the impact that Covid-19 has had on the parliamentary agenda.”