New build management companies: what do I need to know?
If you own a new build property, you will probably need to pay an annual fee to a management company. Laura Vanstone, Head of New Build in Coodes Solicitors’ Residential Property team explains what it means.
Communal areas and shared services created in most new property developments are often run by a management company. If you buy a new build home, you are likely to be told that you will need to pay the company an annual service charge. Many people are unsure why this is the case and some are put off buying a new build because of the fees involved.
If you are considering buying a new build property, it is worth ensuring you have an understanding of the management company’s role.
What is a management company?
A new build management company is the organisation that is set up to maintain the communal areas in a development. This could include roads, footpaths, play parks, green spaces and any landscaping. The company will employ gardeners and other tradespeople to carry out maintenance and repairs on these shared spaces. Their services will be referenced in your property deeds.
Management companies are also often responsible for the transfer of leases. In practice, this means that if you want to sell your home they will need to provide documentation, including your payment history. This is to show that the property is being sold free of debt.
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Who runs the management company and how is it funded?
The management company is usually created by the developer. In many cases, homeowners become members of the company. That means that, when you buy a new build, you may sign up to become a director of the development’s management company. This can be a sticking point for some buyers, who do not want the responsibility of being an Officer of the company, which includes attending AGMs.
The company is funded by service charges paid by the residents. It is a non-profit organisation and the service charges are the cost of the required maintenance. This annual fee is usually payable on 1 April or on the anniversary of your purchase. Your first payment is likely to be made to your conveyancer when you buy the property, with future payments being made direct to the management company.
How much will I pay a new build management company?
Service charges vary, but between £150 and £200 a year is fairly typical here in the South West. Most developments charge according to the plot size. That means that, if you own one of the bigger properties on a housing site, you are likely to pay more than someone in a smaller property. In some cases, the owners of houses that are classed as affordable properties will pay a lower service charge.
One reason why some people are unsure about buying a new build is that the service charge can increase over time. While The management company has the right to change its fees, any increase should be in line with inflation. Your mortgage lender will take the fees into account when assessing the affordability of the property you want to buy.
The prospect of paying an annual fee to a management company can be off-putting to some potential buyers. However, these companies provide an essential service to ensure housing estates are well maintained. Almost all modern developments are run by management companies. Therefore, if you are buying a new build property you are very likely to deal with a management company once you have moved into your home.