Hackney Leaseholders Trapped by Developer's £850k Council Debt
East London homeowners are reporting they are effectively trapped in unsellable properties because their freeholder has failed to pay substantial development fees to the local council. The situation has left leaseholders in Upper Clapton unable to complete sales, with mortgage providers refusing to lend on flats due to the outstanding financial liability.
The Financial Burden on Residents
Richard Bell, 38, and his wife Anna, 34, attempted to sell their one-bedroom flat last year to find more space for their two-year-old son. During the sales process, they discovered that the developer and freeholder, Restoration Hackney Ltd, owes Hackney Council approximately £850,000. This debt consists of £700,000 in Section 106 funding and £150,000 for the Community Infrastructure Levy (CIL).
The council has registered these debts as Local Land Charges attached to the property. This means that if the freeholder were to default or go bankrupt, the leaseholders could become liable for the outstanding amount. Consequently, mortgage lenders are unwilling to provide financing for any prospective buyers, effectively freezing the property market for these homeowners.
Council's Enforcement and Leaseholder Pleas
In September, Richard Bell repeatedly asked Hackney Council to guarantee that it would not pursue leaseholders for the freeholder's debt if the company defaulted. The council declined this request, which Bell claims could have salvaged their sale. "It could have salvaged our deal," Bell told the Local Democracy Reporting Service. He added that another leaseholder's sale is now "circling the drain" as a direct result.
The council granted planning permission for the block on the condition that the developer pay these fees. Although the developer became liable in 2017, an agreement was struck that the Section 106 payment would not be due until the 14th flat was sold. Since the 2018 sale, the council has issued two demand notices for the £700,000 and three letters demanding the £150,000 CIL payment.
Legal Complexities and Lost Funds
In February, lawyers representing the Bell family and supported by most of the building's leaseholders wrote to the council, accusing it of acting "unlawfully [and] irrationally" in its administration and enforcement of the debt. Solicitors Judge & Priestley advised that the statute of limitations has now expired for recovering the £150,000 CIL contributions, meaning that money is permanently lost to Hackney residents.
"That's money toward parks, playgrounds and roads that Hackney residents are never going to see," Bell commented on the lost CIL funds. The Section 106 money of £700,000 can still be pursued, which continues to pose a financial risk to leaseholders.
Council's Stance and Broader Implications
A Hackney Council spokesperson stated: "We understand the frustration of leaseholders facing difficulties selling their properties as a result of the previous and current freeholder not paying substantial contributions due to the council. We have an obligation to make sure all developers that build in the borough pay to help maintain the services and the infrastructure relied upon by residents."
The council explained that it cannot guarantee the debts of a private developer out of fear of setting a precedent that might encourage other developers to avoid their financial obligations. A senior officer noted that the council has held several meetings with the new owner of the site, as the freehold was transferred in 2024 when a new person took over Hackney Restoration.
A Freedom of Information request revealed that Hackney Council is owed roughly £2.9 million in unpaid developer contributions from projects across the borough. The council has secured £1.2 million of these unsettled debts in the past year, but the outstanding amounts continue to affect residents like the Bells.
"We find it baffling and cruel," Bell said. "They could simply guarantee that we won't be held responsible for the freeholder's debt. That would allow us to sell our homes. Instead, they're refusing to do so and using the considerable power they have over our lives not to help us, but to keep us trapped."
The council maintains that it is exploring further legal options to ensure the outstanding payments are made, while continuing to support residents within the constraints of its policies and the need to uphold financial obligations from developers.
