Any thoughts on new build ‘Fleecehold’?

Concerns are emerging among prospective buyers regarding additional charges imposed on new build properties, often referred to as ‘fleecehold’ arrangements. These charges, levied by developers or management companies, can include fees for maintenance of communal areas and facilities, sometimes before such amenities are even established.

Uncapped Charges on New Builds

One buyer, Derek, has highlighted a situation where a developer is charging £252 annually for the upkeep of children’s playgrounds and verge maintenance on a new estate. Notably, this fee is payable from the moment the buyer moves in, despite the playgrounds and verges not yet being in place.

What raises further concern is that these charges are neither capped nor subject to a guaranteed limit on annual increases. Derek expresses scepticism about the future management of these fees, especially once the developer hands over responsibility to a management company. Unlike traditional leasehold arrangements, these management companies are not subject to resident control or change, potentially allowing fees to escalate unchecked.

Sales Assurances and Broadband Restrictions

The sales representative for the development has assured buyers that any increases in charges will be ‘reasonable’, though no formal guarantees are provided. This lack of certainty leaves buyers vulnerable to unexpected rises in fees, a situation that some fear could become a ‘cash cow’ for management companies.

Additionally, the broadband service on the estate is initially provided through a company appointed by the developer for an estimated period of two years. This provider is not one of the recognised mainstream broadband suppliers, which could limit options and potentially affect service quality and pricing for residents during this period.

Implications for Buyers and Residents

The practice of charging for services and maintenance before they exist, combined with uncapped fees and limited resident control, raises important questions about transparency and fairness in new build property purchases. Buyers may find themselves locked into ongoing costs that escalate over time without recourse to challenge or reduce them.

Furthermore, the imposed broadband arrangements could restrict residents’ ability to choose their preferred providers, potentially leading to higher costs or lower service standards. These factors contribute to a growing wariness around new build ‘fleecehold’ schemes, where developers and management companies retain significant control over ongoing charges.

What this means for landlords

Landlords considering purchasing new build properties with similar arrangements should carefully scrutinise any additional fees and their terms. Uncapped and uncontrollable charges can affect the long-term affordability and attractiveness of a property to tenants, potentially impacting rental yields and tenant satisfaction.

It is advisable to seek full clarity on all ongoing charges, including maintenance fees and service contracts such as broadband, before committing to a purchase. Understanding the governance structure of any management company involved is also crucial, as this will determine the level of control or influence landlords and tenants may have over future charges.

Source: Based on reporting from Property118

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