Housing Developments and Management Companies: Are you buying more than a house?

Many developments will have “open space areas” also sometimes called common areas or green spaces. The concept and requirement of open space areas and, by necessity, the need for management companies is a result of planning regulations that developments must include an area of landscaping, the intention being that it will improve the visual amenity of the site in general.

These are areas which will be owned, landscaped, maintained and insured by a Management Company. When you purchase a house in a development of this kind, you and every other purchaser in the development will own one share each in the Management Company. As a shareholder, you will effectively own the Management Company with rights and obligations connected with the open space areas; and the running and administration of the Management Company. The Management Company will insure and maintain the open space areas for the benefit of all the residents and all the residents will share in the annual cost of doing this. Often a Managing Agent will be appointed to act on behalf of the shareholders in the administration of the Management Company. The Agent will estimate the amount of each purchaser’s annual service charge, based on the areas involved and the level of insurance and maintenance required.

Remember, the Managing Agent is an agent only of the Management Company. It is employed by the shareholders to discharge the Management Company duties in relation to the open space areas. The Managing Agent is entitled to charge an annual fee for the service it provides, which should include administration matters connected with the Management Company such as arranging Annual General Meetings and ensuring that Annual Accounts and Returns are lodged with Companies House.

It is important that you are aware of your responsibility to pay the service charge and participate generally in the running and operation of the Management Company. You are not simply buying a house, but a shareholding in this company. Any sale by you in the future will be subject to the shareholding being transferred to the purchaser from you. Prior to taking any such transfer, you will have to produce information in relation to the management company including evidence that the service charge has been paid to date.

If you have any questions regarding purchases of properties in housing developments, please do not hesitate to contact us.