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A Time Bomb Waiting To Happen?

There is a well-known shortage of housing in this country and there is a lot of new build housing being pushed in all parts of the country. Much of the building is being built by the big builders who often share the risk of a big development.

However, they often have one thing in common. Inevitably on a new development new roads and new drainage systems have to be built as part of the development and the aim is the roads should be adopted by the highways authority and the drains by the correct authority, usually, but not always, the local water authority.

New developments come with all sorts of restrictions, either payment for local services are due under what is known as a Section 106 agreement or alternatively if the local authority has implemented the scheme, payments are made under a scheme known as Community Infrastructure Levy. Either way it means developers have to contribute to local services. On purchasing a new property it is imperative to ensure that these payments have been made by the developer and if due to be paid in the near future it is important that these cannot be passed onto the future purchaser of any house on the estate.

Now that is not the time bomb.

When an estate is being developed the developers are supposed to enter into a Section 38 Agreement with the local highways authority. If it is intended the roads are to become public highways to build the road up to an adoptable standard and to pay for a bond (ie financial guarantee) so that if the developer goes into liquidation then the bond is sufficient to cover the cost to the highway authority to make the roads up to an adoptable standard and eventually adopting the same.

However, there is a greater tendency for the builders to indicate whilst they are selling the new houses that they are negotiating the terms of the agreement.   Frequently no mention is ever made for the financial bond to guarantee the money for the highways authority to complete the works.

So a competent solicitor should at this point ask for retention from the purchase price to cover this and any possible future cost. However, most of the big builders refuse point blank to even countenance such retention.  Likewise a competent solicitor should at that point ask the Mortgage Company if the position is acceptable.  Such mortgage companies usual response is to place the opinion squarely back on the solicitor’s opinion.

Any solicitor at that point is usually under pressure from the client purchasing the new property.   The clients have usually put down a cash deposit of at least £1000 and often much higher with a 28 day window to exchange so that the clients are desperate to go ahead otherwise they could lose a substantial amount of money.

Often in the transfer of the house the developers insert a covenant i.e. A promise which they say purchasers can rely on.  It says the developers covenant is to make the roads and sewers up to an adoptable standard.   They do not always covenant that the developers will get the roads and sewers adopted, so people buy a new house expecting that in due course the roads and sewers are adopted.    When the development is finished the Developers go off site and the new house owner assumes the road has been finished.

However, it is becoming increasingly common that when that house owner comes to sell, the road hasn't been adopted. Of course over the first five to ten years little maintenance of the road is required and it never occurs to the house owner until they come to sell that there may be a problem.

What can then happen? Well if an original owner, they can go back to the developer and ask them to comply with their covenant, but the developers may well have done so when the road was made up to adoptable standard so that may be not the way forward.  So in purchasing a new property buyers should be aware of this potential risk.

So what happens now? Well everyone in the road is facing the same problem and in those circumstances if the road is just left it will deteriorate, so some roads form private residents associations for the maintenance of the road, but unlike developments where it was always intended that any road is to remain private, membership of the resident's association is not compulsory and there will nearly  always be one awkward person who says that he hasn't got to pay and therefore won't.  This puts a greater burden on the rest of the residents.

In theory, the highways authority could make up the road and ask the frontagers to pay for it. The cost effectively is secured as a local land charge on the property, which would have to be paid off when the property is sold.  However, this could be many years away and cash strapped councils are      not, unless absolutely necessary, going to put the money up front.  The writer has never come across a council do this. The highways authorities don't have enough money to maintain adopted roads as it is.

The problem could be solved in the terms of the planning agreement and documentation if it was a condition of the development  that no house could be sold or occupied until all the agreements and supporting bonds are in place, but the writer has never seen this either as there is always pressure on getting the estate finished.

As years go by, roads age and deteriorate to the detriment of the house owners.

The time bomb is ticking.