The next great scandal for the housing market is fleeceholds, warns Conservative member Lord Moylan.
The term “fleecehold” is used to describe properties that are a combination of freehold and leasehold. Typically this means that, whilst you own the building and the land it is built on, there are additional fees known as estate fees or service charges. These charges are meant to cover the costs of maintaining such things as private roads, playgrounds and communal spaces.
The spotlight on fleeceholds comes from the creation of the Leasehold Bill which is working its way through parliament. The long-awaited reform has made it through Parliament as it shut down ahead of the General Election on 4th July. The Leasehold and Freehold Reform Act officially received Royal Assent, but sadly fell short of one of its key objectives: capping ground rents.
46 Tory MPs called on Housing Secretary, Michael Gove, to include a ban on fleeceholds, while Mr Gove has labelled leaseholds “an outdated feudal system that needs to go”.
The purchase of a new build home puts the home buyer on the property ladder. However, the additional conditions within the contract means that owners of freehold and leasehold properties alike are effectively stuck in a tenant-landlord relationship, as the grounds are owned by private companies.
The private estate model has been used in the last five years for 40% of all new build developments in the UK. The Competition and markets Authority (CMA) recommends ending this model and replacing the system with public amenities operated by local councils.
The homeowner has no control over the fees charged by private management companies, which can be raised exponentially. Helen Goodman MP said that freeholders had no legal recourse in the event of a dispute and called for a cap on charges.
Housing minister, Baroness Scott of Bybrook, said the government recognises that fleeceholds are a problem, and that “it’s not right” for homeowners to be held in contracts with management companies, which could charge unreasonable fees, with no real way to hold them to account.
The independent cross bench peer said: “Sadly, there are all too many examples of misselling, exorbitant service charges, lack of transparency and accountability” and “overpriced leasehold management”.