Restrictive Covenants On Freehold Property Causing Hostility
Homeowners are angry and worried after finding out their new freehold properties they purchased is riddled with restrictive covenants and rent charges.
Traditionally, freehold has always been the preferred method of buying as the homeowner owns the property and the land it sits on outright and does not have to pay any ground rent or service charges.
Whereas, leasehold properties the person owns the property for the length of their lease agreement with the freeholder. Leaseholders have to pay their freeholders ground rent and other service charges, such as upkeep of the green spaces and making changes to their homes.
But as awareness of leasehold properties and the scandalous extortionate fees attached to them spread across the UK, savvy homebuyers tried to avoid buying leasehold properties and opt for freehold instead.
Now, since the ‘leasehold scandal’, the price premium being paid for a freehold property by homebuyers in England is now at its highest since 2011.
The Government had announced proposals to seek legislation which would ensure that all new-build houses are sold freehold.
However, it would seem that homeowners are only finding out after they have purchased their new builds, being sold freehold, come with a myriad of restrictive covenants, which limits what the householder can and cannot do with it.
Plus, once the estate is finished and handed over to a management company, those occupants who have purchased a property on the estate will be charged an annual rent charge on their freehold – covering services such as the upkeep of the green spaces and the maintenance of the roads.
An example of this comes after plucky homeowner, Denise Sullivan bought a new build home from developer Persimmon in Pembroke in 2016 knowing the property was freehold as she said she does not “‘trust landlords and leaseholds. I promised myself I would never get involved with leasehold property.”
Three year later Denise has only just found out some concerning revelations about her seemingly freehold property. Even though she used a solicitor, who was recommended by Persimmon, at the time, she has since discovered that more than a dozen restrictive covenants have been placed on her home – which are a binding agreement and enforceable by a court.
Denise is also worried as Persimmon hold strong legal rights to her property which she is held accountable to annual rent charges once the estate is completed. If she fails to pay the rent charge on her freehold, which is similar to a service charge for leasehold properties, she could be evicted from her home.
Denise will also not have any control over what the annual rent charge might increase to in the future.
Denise is angry because she has now found out that her “freehold isn’t worth the paper it’s written on…“
“If the covenants are that straightforward why doesn’t the developer explain exactly what they’re trying to do with these.
“This is a bomb that’s waiting to go off”.
Persimmon has defended itself by saying the restrictive covenants placed on new build properties is not unusual and it believes it charges reasonable administration fees.
Andrew Melvill, a real estate lawyer with Baker Skelly law firm comments. He said:
“Covenants are intended to preserve the amenity and outlook of the wider estate, and to promote good neighbourly relations and when planning the estate, the developer will need to form a view as to how restrictive the covenants should be.
“On the one hand, an owner may feel that certain covenants are too prohibitive and unduly restrict the use of his or her property; on the other hand, the lack of sufficiently robust covenants might impact on the wider amenity value to the estate.”
“It is a question of judgment in each case but with pressure on the availability of development land, and with housing densities required by the planning authorities, the content and suitability of covenants should be carefully considered by both the developer and the plot purchaser”.
Beth Rudolf, director of delivery at the Conveyancing Association thinks new build housing developers should make sure potential buyers understand the restrictive covenants placed on the property they are buying and any rent charges made clear beforehand. She said:
“People should be enforcing their rights under consumer protection from unfair trading regulations and [developers] should have to make material disclosure over anything that would impact the average consumer,” she says.
“Anyone marketing properties should provide a list of any material facts.
“As for Denise’s service charge it’s right and fair that one should be collected – but she has no control over what is any ‘right and reasonable’ rise in the future.”
As a conveyancer, what is your opinion of this issue? Do you think more clarification is needed by their solicitor and/or developer?