Freehold Management Company Explained

Author: John Garrad

What is a Freehold Management Company?

Freehold management companies are a relatively new arrangement having been introduced within the last 10-15 years and are usually involved in newer estate properties.

Once a development is complete and plots are ready to be sold off, the Developer forms a Management company which they establish to oversee the running and maintenance of the common areas within the residential estate.

What do they do?

Management Companies maintain those common parts of the estate ie grass areas, communal bin areas, childrens’ play areas etc, which have been specifically designated by the Developer at the time of construction.

The Management Company sometimes deal with these tasks themselves and others choose to employ Managing Agents to act on their behalf.

A Management Company is in addition to a Local Authority and although they carry out similar duties, they work alongside each other and therefore council tax is still payable in addition to the maintenance charges administered by the management company. Most Management Companies charge individual property owners anything from £200 up to £500/£600 per annum or more for the upkeep of the communal areas.

What happens when you buy or sell with a Freehold Management Company?

At the time of the first sale of a plot, the Developer imposes restrictions on the deeds which can sometimes restrict or forbid future home owners to carry out certain tasks on their property. Details of restrictions imposed by Developers are contained within what lawyers call “the first Transfer” (technical term TP1!) meaning it is the first transfer of the property from the developer to the new owner. Those restrictions are then in place for all future owners to abide by. In addition to this and most importantly the first Transfer will contain a request to the Land Registry to put a restriction in the ownership register to the effect that no new owner can be registered without the Management Company’s consent.

It is interesting to note that sometimes, if for some reason a Management Company is dissolved, property owners have in the past joined forces to form their own management company. This involves one person being nominated Director who oversees the day to day running of the company and ensuring the services and maintenance are kept up to date and that annual maintenance charges are collected from property owners on a yearly basis.

When property owners wish to sell their home, they will be required to obtain a Freehold Management Enquiries Pack (usually abbreviated to FME1) from the Management Company. Costs vary from company to company but can range from £200 – £500. This then needs to be sent to the individual’s lawyer handling their sale for forwarding on to the Buyer’s lawyer. It should be noted that FME1s are valid for a period of 6 months and if a transaction has not completed during this time, a seller may be asked to obtain a new management pack or confirmation that all information contained in it remains accurate.

So as to ensure that the new purchaser becomes a member of the management company, the purchaser’s lawyer has to follow certain compliance procedures to ensure their client successfully gets registered at the Land Registry. Such procedures involve the buyer signing documents confirming they agree to abide by the terms of the restrictions originally imposed by the developers when the property was first sold.

At completion of a purchase, the buyer’s lawyers needs to notify the Management Company of the transfer of ownership, submit a signed deed of covenant and request a restriction consent letter and for all of this the management company make a charge which can vary, but is usually in the region of between £300 and £700 which covers their administration fees for amending their records and issuing the new owner with either a share certificate or membership certificate and the Land Registry consent letter.

The new owner should retain their share certificate/membership certificate safely in the event of a future sale, as this is usually required to be returned to the Management Company.

Please note this article is provided for general information purposes only to clients and friends of Hayward Moon Limited. It is not intended to impart legal advice on any matter. Specialist advice should be taken in relation to specific circumstances. Whilst we endeavour to ensure that the information in this article is correct, no warranty, express or implied, is given as to its accuracy, and Hayward Moon Limited does not accept any liability for error or omission.