Fleecehold estates: like the Post Office scandal but affecting more people

The Leasehold Bill currently going through Parliament potentially offers a chance to put right an outrageous scam

Across the country many people are moving into new build homes, only to discover something nasty which they didn’t expect.

Often the first they know of it is when a large bill comes through the door, from an obscure company they’ve never heard of.

The bill demands that they pay a large sum for the maintenance of their new estate, and warns them that they could lose their house if they don’t pay up.

These bills can be of a scary size, and the bills often escalate sharply over time.

To add insult to injury, residents often find that the work they are paying for isn’t actually done, and then find that trying to get any redress is impossible: the firm sending the bills is opaque and uncontactable. People are sometimes billed for baffling things.

This “private estate model” is often referred to by unhappy residents as Fleecehold. (from “Fleeced” + “Leasehold”)

A huge number of people are already affected. Though there are no good figures, about 20,000 new housing estates are affected, and somewhere between 1 million or 1.5 million homeowners.

Many residents describe it as like paying a “second council tax” - and in a sense that’s exactly what it is. But unlike your local councillor, you may find you have no legal way to get rid of the company that is sending you the bills, no matter how badly they perform.

And the problem is growing fast. According to an excellent review by the Competition and Markets Authority,

“over the last five years 80% of the freehold properties built by the 11 largest housebuilders – representing around two-fifths of all new builds across England, Scotland and Wales – are likely to be subject to such charges. Local authorities in England, Scotland and Wales that we have spoken to have confirmed that such arrangements are now the norm and that they do not typically seek to adopt open public spaces.

And the problem seems, if anything, likely to accelerate further. The CMA note that:

we have heard that there is an accelerating trend of non-adoption of public spaces and that this will accelerate further in light of Biodiversity Net Gain requirements imposed by the Environment Act 2021

How the fleecehold scam works

Back in the good old days, when life was simple, developers would build a new estate. Then, when it was finished, and once the council checked everything was up to standard, the council would adopt the roads and common parts, and the developer would make a payment to the council to look after it. The local council would then maintain the roads and paths, trim the verges and so on. If there was a problem, you could call the council or your elected local councillor.

Under fleeceholding it works differently.

The developer and council agree that instead of the council looking after the common parts of the estate, a stand-alone company will do this instead. Sometimes the developer plans for this company to be handed over to the residents eventually, and sometimes they keep control of it themselves. The council will get to keep more of the money from the developer, and not have to maintain the estate. The developer pays less than they would otherwise. So the developer and the council effectively split the benefit, while residents of the new houses get shafted, and have to pay a big bill.

In the real economy, having loads of little stand-alone firms maintaining tiny plots is deeply inefficient way of running things. On most roads in my constituency in the summer, you can see people from the local councils going round from street to street cutting the verges and the like. They just drive their mowers from one street to the next.

In contrast, on one of the fleecehold estates in my constituency a man drives over from Oldham (two and a half hours away), cuts a small area of grass, then drives back again. This is not a sensible way to do things. A huge part of the bills people face - maybe half - are accounted for my “management costs”. Some of these costs are padded to make a profit. But there are also real, unnecessary costs from running a zillion little schemes for different estates.

Things are often compounded as the shared spaces have been created in ways that are not up to the standard that a council would expect if it was going to adopt the space itself, so residents are lumbered with extra costs to put things right. The fact that so often things are not up to standard led anti-fleecehold campaigners to recently describe the problem as a “ticking timebomb” - as these estates age, the substandard work will lead to higher bills.

The origins and growth of the fleecehold scam

Developers are always on the lookout for ways to make more money and cut corners.

My experience as an MP is that although there are some good developers, a large number are absolutely unreal in the extent to which they are happy to shaft their customers and move on.

One set of opportunities developers have discovered involves exploiting our unusual and archaic system of “leasehold” and “freehold” property ownership.

Leasehold is a method of owning property for a fixed term but not the land on which it stands. It is really a long-term tenancy, giving someone a right to live in the property for a specified number of years in return for payment of a lump sum - but unlike a normal tenancy it can be bought and sold throughout that period.

The Freeholder can charge the Leaseholder for certain services in common and also has been able to charge a “ground rent” - a payment which is not in exchange for any service. For these reasons Leasehold is particularly common for flats.

In other countries like the US and Australia flats are managed though a system often called commonhold, which gives residents a share of their freehold, rather than making them tenants of their freeholder.

For flats, the issues about leasehold came into very sharp focus after Grenfell, with large numbers trapped in flats they could not sell, and/or facing massive bills from the freeholder to fix cladding.

But there are also problems for houses. The opportunity to keep hold of the freehold and charge residents ground rents and service charges looked pretty appealing to developers in search of new ways to profit, and so the leasehold model was increasingly applied to stand alone houses not just flats.

The proportion of new-build houses sold as leasehold rose from 7% in 1995 to a peak of 15% in 2016. This caused a huge amount of grief, with many residents feeling duped, or finding they could not sell their house or worse. Starting with the 2017 white paper the government started gearing up to clamp down on this. So the industry has moved on: proportion of houses sold as leasehold has subsequently fallen, and was less than 1% in December 2022. The forthcoming Bill will finish off the leasehold houses scam.

The problem is that the industry has found a more subtle way of making money. Instead of the house itself being leasehold, the estate could be privately managed, rather than adopted.

Typically on fleecehold estates there might be freehold houses, but the estate management charge is secured legally by something called a “rent charge”. What most people do not understand is when they buy is that if they withhold their estate management fees, their property can be converted from freehold to leasehold.

The Leasehold and Freehold Reform Bill

This particular article is mainly about private / Fleecehold estates, but of course there are other massive, fundamental problems with Leasehold, which go much wider. The issues have been highlighted by those trapped in flats and facing massive bills for cladding replacement which they cannot afford. But there are masses of other abuses of the system. There are now about 5 million households in leasehold properties, and I will return to some of the wider issues with leasehold in another post.

The Leasehold Bill currently going through Parliament offers a rare chance to fix some of these things. It’s the first bill reforming these issues for 22 years.

The Bill before Parliament will do some very good things.

Michael Gove and ministers like Rachel Maclean and Lee Rowley deserve massive credit for getting this Bill introduced at all: a vast blob of rentiers has been lobbying furiously against it.

Credit is also due to Richard Fuller MP, who organised about 30 of my Conservative MP colleagues to write to the PM to press for this Bill.

So far the Bill will:

• Effectively ban the sale of new leasehold houses (but not fleecehold estates).

• Extend Leaseholders rights in various ways (making longer durations the norm, reducing future ground rents to a peppercorn, improving access to redress, making it easier to take over Freeholds even in mixed developments with retail in)

• Require transparency over leaseholders’ service charges – so all leaseholders receive better transparency over the costs they are being charged by their freeholder.

• Ensure a rentcharge owner is not able to take possession or grant a lease on a freehold property where the rentcharge remains unpaid for a short period of time.

• Grant freehold homeowners on private and mixed tenure estates the same rights of redress as leaseholders – by extending equivalent rights to transparency over their estate charges and to challenge the charges they pay by taking a case to a Tribunal, just like existing leaseholders.

These are all good - but there are numerous ways the Bill could and should go further. The Committee Stage of the Bill has been fascinating.

In Bill Committee residents’ rights groups have given compelling evidence about the human cost of the Fleecehold scam.

Numerous groups including “Free Leaseholders”, and residents group HORNET (The Home Owners Rights Network) made a powerful case to abolish the Fleecehold estates model entirely. As one of the witnesses in the Bill Committee said:

“This is my property. It is my hard-earned future for my family and kids, and no management company should have any rights over it. I feel that the model should be abolished altogether… [] Normal homebuyers are not qualified to manage estates. If we are given the right to manage, if we are looking at a development of over 100 homes, it is really hard to get in touch with 100 people who will agree and be on the same page. It is not workable.”

Let me add a few examples from my own constituency.

1) Meet Karen

Karen is an extremely nice lady who moved to a new built Barratt house in my constituency because she and her husband were fed up doing endless DIY on their old house. A new build would free up time to enjoy life - or so they thought.

Instead, she finds herself spending huge amounts of time fighting a Fleecehold company called FirstPort (who are so notorious there’s a national residents action group just dealing with them). She spends a lot of time trying to help other residents with their legal battles. As she explains:

“all the first purchasers of the 120 freehold houses prior to purchase were not told that we would have to pay an annual “rent” charge to have the grass at the pond cut and repairs to the perimiter fence carried out. We weren’t all told until we reserved our “plot” and paid over our non-refundable 10% deposit. The sales force never mentioned anything. We were given a copy of the TP1 (Transfer of part of registered title document) once we had appointed their nominated solicitors. It mentioned rent but the word “rent” wasn’t used by anyone we spoke to. It was referred to as a ‘maintenance charge’, if it was referred to at all. I didn’t fully understand what ‘rentcharges’ meant until about four years after we bought.

Barratt’s encouraged us to use their nominated conveyance solicitor for which in return we got £500 towards our legal bill. We were fools to do this, but money was tight and we were told that solicitor knew all the rinky-dinks and nuances of the estate etc and that we’d be daft if we didn’t use them.

FirstPort didn’t do or arrange any grass cutting or anything by way of a service for the first two years… In 2017-2018 the bill was £35.06 (they wanted £59.25).

For 2024-2025 it will be £74.64.    

Our bill for the year includes:

• Property Damage & Public Liability Insurance inc IPT   £720.00

• Terrorism Insurance inc IPT   £14.00

• Grounds Maintenance    £1,058.00

• General Maintenance    £100.00

• FirstPort’s Management Fees    £6,085.00

• Audit/External Accountant’s Certificate and Fee. £306.00

• General Reserve.   £200.00

• Health and Safety Risk Assessment.   £474.00

This comes to £74.64 per house.

In the months of December, January and February each year I must spend more than a couple of days a week working on this. It’s like having a part time job. I didn’t move house to face the possibility of having to be a director of a residents’ “Right to Manage” company. This is one of the remedies being put forward in the Bill. I spend enough time working for the estate as it is. I want full adoption of communal/ public amenities and facilities by the local council…as it used to be.

You may be asking, “why are they having to pay terrorism insurance for a fence?” And that is a very good question.

2) Meet James

James is another constituent of mine. He has also spent a long time trying to get the developer to put right problems on his new build estate. People in his estate pay around £400 a year for a company to cut grass and maintain a playground and some trees in the estate. When it was initially constructed there were numerous problems with the green space: trees weren’t put in properly and blew over. The grass died, the playground wasn’t done right, the gravel paths washed away… and so on. As James says:

“Councils should be adopting new estates… I would say it has been about 50 days’ work for me over the first couple of years. We moved in in 2018 and it wasn’t really sorted until 2021 - in fact it is still going on.

Had I not been proactive we would have ended up being short-changed. The expectation is that residents will all work together but sometimes there is no-one to do that. We are still working to get the land transferred to residents but there are still problems to solve and then we will need to find directors for the company.”

3) Meet the residents of Hursley Park

People who moved into Hursley Park in my constituency have had no end of problems with their developer, who is currently refusing to meet with them to discuss the problems. Quite apart from leaking roofs and other problems with their homes, they have spent huge amounts of time having to fight to put things right on their estate. Paths have been done on the cheap (gravel, not the promised tarmac) and become a muddy quagmire. Furnishings like benches have been replaced with cheap alternatives and crumbled in the rain. Planned hedges weren’t put in. A road used to build the estate was simply covered over and water now pools there.

Due to a legal error by the developer, they have managed to gain control of the residents management committee, but are still, after three years of effort, trying to get the developer to make good the problems, so they don’t face bills for years to fix these things. Many say they would rather not have to run their own estate.

4) Meet the residents of Devana Way

People moved into nice new houses on Devana Way about five years ago. The prospectus showed a beautiful tree-lined street. And when they bought their homes and moved in, the trees had indeed been planted. The estate was nice. Life was peaceful.

Until… one morning people working for the developer turned up unexpectedly and ripped out all the trees.

It turned out that in this case the developer did want to get the road adopted, but planning permission had been granted without a number of issues being resolved.

The County Council didn’t want to look after street trees, and would certainly want paying to do so. So the developer hit on a simple money-saving solution: just rip the trees out!

After a lot of back and forth we got the developer to put a bunch of trees back in. But I found it astonishing that such issues aren’t resolved before work starts.

5) Meet the residents of Farndon Fields

Farndon Fields is new build estate which has been built over the last decade by multiple developers including Redrow and Avant.

Courtyards and shared spaces in the development were not adopted by the council. Astonishingly each individual courtyard was made into its own financial entity, and handed over to a company called Chamonix, which turned out to be very difficult to contact.

One resident in the new Farndon Fields estate was asked to pay hundreds of pounds for the maintenance of a car park – but that so-called “maintenance” only involved a couple of minutes of work over a whole year.

One of my constituents wrote at the time:

“Despite fully understanding what we had bought and our responsibilities, I have found Chamonix to be a faceless organisation, supplying little or no information with their demands for payment. 

On one occasion I was continually asked to pay an invoice which I had previously paid and despite sending proof of payment two or three times, I was told court action would be taken. I replied welcoming this and advising them that I would counterclaim for stress and my time. I then received an apology letter from the financial director and compensation of £50.

I am now fighting a charge for work carried out for £367.90. The initial invoice gave no explanation, just a demand for payment.”

Thankfully residents managed to wrest control back off the company after a huge amount of effort. Probably just in time, as Chamonix has now become part of… FirstPort.

…. But I could go on and on. These are just some of the cases I’m aware of in one small area. From charging residents for “terrorism insurance” for a fence, to ripping out newly planted trees, to charging residents for work that never happened, the absurdity and unfairness of the Fleecehold scam is obvious to everyone who encounters it.

There are plenty more examples from the debates on the Bill so far, and numerous MPs have talked about the way fleeceholding has ripped off constituents - some of the recent debates are summarised here.

Examples raised during committee stage of the Bill included charges for maintaining a park that… doesn’t exist, and one ingenious Fleecehold firm charging residents for the maintenance of land it doesn’t own, and for work done by the council.

If the people who sold Timeshares in the ‘70s, or did rogue wheelclamping in the ‘80s or sold dodgy UPVC windows in the ‘90s were around today, they would certainly be working in Fleecehold.

Ideally, we should go back to the norm that all estates are just adopted, unless these are exceptional reasons. But can the Bill get us there, or close?

Strengthening the bill

My colleague Rachel Maclean MP has written about some of the ways the bill could be strengthened.

There is a debate about the legal scope of the bill, and whether a “ban” on fleecehold estates would be in scope for an amendment.

For this reason my colleague Richard Fuller MP, has already proposed a neat amendment in Bill Committee that would collapse the fleecehold model, not through a direct ban, but by preventing firms charging for services usually paid for by councils. If the first best solution isn’t possible, something like this could be a good fall back.

While Richard’s amendment wasn’t accepted on 30 January, I hope ministers will find a way to accept something like this and bring about an end to this scam.

If we can’t collapse this model now (we should) there may be second best options.

For starters could make it easier for residents to get control. Liam Spender from the Leasehold Knowledge Partnership noted during Commons committee stage that, “The lack of right to manage for fleecehold estates—for estates subject to management schemes—is one of the most obvious omissions in the Bill.”

We could also end the threat of forfeiture that means people feel they have to put up with being ripped off because they are scared of losing their homes.

My view is that this scandal is so bad that the Bill needs to hit this as hard as possible.

Conclusion

After the Post Office scandal, there has been a lot of discussion about how such a level of mismanagement and abuse was allowed to go on for so long.

The Fleecehold scandal is very similar to the Post Office scandal, in so far as many people are worried sick and facing unfair financial penalties as the result of appalling corporate behaviour.

The main difference is that this scandal directly affects a lot more people.

Further reading:

DLUHC, Guide to the Leasehold and Freehold Bill

Commons Library, The Freehold and Commonhold Bill

Commons Library: Leasehold reform, what’s happening when?

Hansard: Committee stage evidence

Free Leaseholders Campaign on twitter

Leasehold Knowledge Partnership

National Leasehold Campaign