Why Do I Have To Pay Service Charges On My Freehold House?

Estate charges are most commonly seen on new-build development sites privately owned by the developer (or a management company).

Property owners on privately owned estates are usually required to contribute towards the upkeep of communal areas as the Local Authority does not carry out this work.

Estate charges are levied to help fund services, repairs, and maintenance on the estate.

These costs are shared out amongst the property owners on the estates.

The estate charge is not used to pay for the repair and maintenance of individual properties on the estate but is used to fund services that benefit the whole estate, such as street lighting, maintenance of children’s play areas, the landscaping of gardens and the upkeep of the private roads.

Estate charges are typical in new-build developments, which consist of a mixture of leasehold flats and freehold homes.

A lease allows leaseholders to contribute to maintenance costs, including estate charges, and the transfer will provide similar provisions to freeholders.

There is no restriction on what such companies can charge, and property owners are seeing dramatic rises year on year of their estate charges, especially that inflation is currently driving up prices all around.

Sometimes all the property owners on a private estate pay the same charge, but the figure can vary too.

For instance, estate charges can be calculated according to the number of rooms a property has or its floor area.

The charges can also include a management fee for the estate.

The transfer deed for the property should confirm the amount of the estate charge payable, the date upon which payment is due, to whom the payment should be made, and what services the charge covers.

There would usually be a provision in the transfer to allow the management company to review these charges as necessary without a cap on what they could charge for and how much they could charge.

If you are a leaseholder on a new estate, you have significant legal protection; you must be consulted before being charged, the charge must be ‘reasonable’, and you can refer a dispute to the Property Chamber tribunal if necessary.

However, the same protection is not afforded to freeholders.

There is no test of ‘reasonableness’, and any dispute must be referred to the small claims court – a process which can rack up significant legal fees.

This is another reason why the term “Fleecehold” is commonly used, as it can be seen that management companies are hiking up the estate charges with no recourse by freeholders to challenge the amounts charged.

As well as having no rights to challenge these payments or the level of service, property owners may also find that other members of the public use their estate.

Nothing in practice could stop the general public from entering the estate to use the facilities.

For example, neighbouring properties off the estate use the children’s playground or green areas for leisure.

Is this likely to change? 

The Competition and Markets Authority announced in February 2023 that they would launch a market study into housebuilding and would look at freehold estate charges as part of this.

They would be looking at home management companies are selected and transparency in general around the whole process.

The government has stated that they intend to introduce legislation to regulate the sector; however, no action has been taken to date.

Other groups are also campaigning for regulation in this area, demanding that new build estates be built to a standard so that the local authority should adopt them.