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DWF comments on the CMA's enquiry into the leasehold housing market and service charge regimes

27 June 2019
Phil Dunn, senior associate in the Real Estate team at global legal business DWF, comments on the CMA's enquiry into the leasehold housing market and service charge regimes.

"On 11 June 2019 the Competition and Markets Authority opened an enquiry into the leasehold housing market. That enquiry will apparently be considering ground rents, service charges and permission fees.

"It is important to remember that a lease is just a mechanism that makes an obligation to pay those sums enforceable. Given the increasing presence of unadopted infrastructure on housing developments, particularly sustainable urban drainage and public open space, service charge regimes and permission fees are now common even in freehold transfers.

"To avoid prejudicing occupiers, service charges and other positive obligations on individual plot owners must be both set up and implemented correctly. Even with carefully drafted legal provisions, the possibility of abuse in practice is present whether the obligation to pay burdens a freehold or a leasehold house. 

"Of course, many plot owners are actually shareholders in the estate management companies that own and manage the unadopted areas on the estates on which they live. Therefore, it could be within their capacity to change what they are unhappy with.

"Unfortunately, it is highly unlikely that most people buying a home fully appreciate either their rights or responsibilities in this regard. It is difficult to picture a neighbourhood where it would be particularly easy to make future decisions on estate management where that decision needs to be made collaboratively with potentially hundreds of other people, most of who will have no connection with each other beyond living on the same development.

"For a developer to secure a clean exit from a development once fully delivered, it would be useful if concerns such as this could be avoided entirely by public authorities taking ownership of all infrastructure and common parts. 

"However, the direction of travel in this regard has been the opposite for some years, and the political will to reverse this trend seems unlikely to arise.

"To manage potential after sales exposure, developers should therefore ensure that they give careful consideration to both the drafting of documents which set up estate management arrangements, and how those arrangements are initially implemented in practice. Handing over delivered estates for ongoing management in good order may not fully avoid future scrutiny of this aspect of the housing market, but it should at least mitigate risks arising from such scrutiny."

For more information and to find out how DWF could help through our Legal and Connected businesses please contact phil.dunn@dwf.law

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