Service charges – or estate management fees – for homeowners living in new-build properties are commonplace.

But the practice is contentious, with residents paying for the upkeep of communal areas of estates, on top of their council tax, often finding they have little control over how much they're charged or where the cash goes.

So what are these extra costs, what do they cover and, most importantly, what can you do if you’re unhappy with the bill?

What are service charges?

Service charges used to be most commonly associated with leasehold properties.

If your home is leasehold, it means you own the property but do not own the building or land it is on, so it was commonplace for leaseholders to be charged additional fees to maintain communal areas such as those within a block of flats.

However, as the number of new estates has grown, so has the demand for service charges - or what are often called estate management fees.

Here, homeowners living in new-build freehold properties – where they own both the building and the land it sits on – are issued with extra monthly or annual charges to cover the upkeep of communal areas which haven’t been adopted by the council.

New-build estate charges

National planning requirements will ensure that any new-build estate comes with its fair share of green open space.

But as developers look for ways to reduce the impact of a development on surrounding infrastructure, it is increasingly common for them to pass some areas that require constant attention not onto local councils but instead to private management companies.

It means that most newly-built homes now come with an estate charge attached, which covers the cost of this maintenance.

Recent figures from HomeOwners Alliance, a group which champions homeowners, estimate that more than one million owners of newly built properties are now subject to such fees.

Who pays?

Residents may be subject to an estate charge – whether they are freeholders or leaseholders – and live in a flat or a house.

Meanwhile, the fees for social housing tenants are collected via their rents and if there are commercial properties on the estate these will most likely pay via lease fees.

The developer of an estate will usually enter a contract with a management company, who will organise the maintenance work and recover the costs from residents. And sometimes, the developer will set up what is known as a Residents’ Management Company (RMC), that will take ownership of the communal areas, with the RMC then appointing a company to work on its behalf on areas not handed over to the local authority.

What is covered?

Estate management fees on new-build estates can cover the upkeep of all types of communal areas.

This could be grass cutting and general maintenance of parkland and woodland areas, through to perhaps the upkeep of a children’s playground or sports court.

It might also include the maintenance of verges, roads and pathways that haven’t been adopted by the local highways department.

So what’s the problem?

In the first instance, many people view it as unfair that residents may be forced to pay for a play area or park that everyone – regardless of where they live – is then free to come and enjoy.

As most new estates are not privately gated communities – and include many public open spaces – it means local people are often left footing the bill on top of their council tax payments for a public amenity available to all.

There is no reduction in your council tax payment even if you are also bound by an estate management fee.

But there are also few restrictions on what companies can charge.

And as time goes by residents often report, say those against the fees, that they have little say over how much they pay from year-to-year and for what level of service.

Paula Higgins, CEO of HomeOwners Alliance, explained: “The rise of privately owned and managed new build estates over the past 20 years has lead to freeholders on new housing estates paying an extra new build estate management charge on top of their council tax.

“But not only that, owners can see these charges rise year on year and have no rights to take control back.”

Estate fees and mortgages

In its guide to buying a new home, consumer website Money Saving Expert advises potential homeowners to be clear and cautious with estate management fees.

The website warns that residents could be required to contribute anything between a few hundred pounds to thousands each year for the maintenance and upkeep of communal areas.

Perhaps more importantly, advises the guide, lenders may also want to take into account the price of any estate management fee when looking at your mortgage application and how well you can afford repayments.

So the advice where possible, is for people to understand what is and isn’t covered in the charge, how regularly it will need to be paid, and what the likelihood might be of the charge rising.

What happens if you don't pay?

While long leaseholders who pay service charges in England and Wales, says the government, have a statutory right to challenge unreasonable charges or the standard of work carried out, freeholders do not currently have an equivalent right.

If you don’t pay your estate charge because you are unhappy at either the price or the level of service you are getting for your money, you may incur the threat of court action alongside debt collection charges, warns HomeOwners Alliance in its own guide to the charges.

In a worst case scenario you could also be at risk of repossession under the 1925 Property Act.

Can you lodge a complaint?

If a managing agent or property management company is employed to take charge of the maintenance and upkeep of a new build estate you may be able, as a freeholder, to lodge a complaint for an independent person to investigate.

All agents and property management companies in England are required by law to be a member of a government-approved redress scheme, enabling homeowners to complain about a service they are receiving to an independent body. You can find out more about that here.

For those who are really unhappy, there may be alternative redress through the small claims court. But this process can be time consuming and costly with those pursuing a case at risk of significant legal fees.

Is more reform on the way?

In February 2023 the Competition and Markets Authority announced a review into competition issues within the housing market.

As part of this, it is expected that the CMA will delve into the transparency of freehold estate charges and agreements and whether the obligations and costs on new home owners are considered both reasonable and fair.

The government too, prior to the pandemic, indicated that it too would look into the obligations freeholders are bound by and what control they have over requests for money - and there are hopes that a Leasehold Bill will be included in the King’s Speech this autumn.

In response to a parliamentary question in March 2023, housing minister Rachel Maclean responded by saying: “When parliamentary time allows, the Government intends to legislate to ensure that freehold homeowners who pay estate rent charges have the right to challenge their reasonableness and to go to the tribunal to appoint a manager to manage the provision of services.”