What is a management company when buying a new build property?

If you’re buying a newly built home, you may have come across the term ‘management company’. We’ve explained everything you need to know about management companies, including their role, who owns them and the cost.

What is a management company?

A management company is responsible for managing services, including roads and green spaces, on new build developments. They can also be involved with certain leases or transfer documents. Like all companies, management companies must be registered at Companies House https://find-and-update.company-information.service.gov.uk/

What is the role of a management company for new build developments?

Management companies take care of the service charge, as well as the delivery of management and maintenance services for a development. In most cases, it will deal with the maintenance of any shared areas such as footpaths and steps, landscaping, and maintenance of grass and open spaces.

The exact obligations of the management company will be specified in the property lease or transfer documentation – it may vary from development to development.

Who owns the management company?

Management companies can be created in one of two ways:

• In the majority of cases, the developer will create the management company, which will in turn employ a managing agent to provide the services. A managing agent performs most of the daily duties of running a property, under the appointment, direction and control of the nominating party.
• Where the estate is smaller with just a handful of houses, it is more likely that the owners of each property will take a share in the management company and collectively run it. This option gives the property owners more control on expenditure, however it requires time and effort to run the management day-to-day.

Can the cost of a management company increase annually?

It is very unusual for a transfer/lease to state fixed management fees, therefore the cost of management/maintenance can be included within the definition of the service charge. This may vary annually, according to the cost incurred, and it can be increased. There is, however, a requirement for costs to be reasonable and any increase should reflect the costs the management company incur.

Each property owner on the estate will pay an annual management fee for services which will vary between estates depending on the size, location and services provided.

Are management companies for freehold or leasehold properties? 

Both types of tenure can have management companies. Leasehold properties are more commonly associated with service charges, however freehold properties on new build developments can also be subject to annual management company fees.

Are management companies regulated?

At present there aren’t any regulations governing management companies in general.

This is likely due to the various types of management companies, including:

• Property management companies (known as 'flat management companies'): formed by leasehold residents who want to purchase their properties’ freehold (however the management company is typically set up by developers).
• Estate management companies: usually deal with new build freehold properties.

Will the management company affect my sale if I choose to sell the property in the future?

When you come to sell, there may be a restriction on your property title in favour of the management company. This means that you will need the management company’s consent to sell the property. This will normally only be provided if all fees are paid and up to date.

The purchaser will also need to comply with all obligations and enter into a covenant with the management company when taking over the property. The management company will detail all of the buyer’s requirements in the management pack. Please note that the purchaser may be required to pay notice fees on completion – this can be anything up to £100.

If you’re buying or selling a property with a management company, our Conveyancing department can help. Please call 0113 264 4414 or email conveyancing@emsleys.co.uk to speak to our friendly team.