Leaseholders in east London have said they are “trapped in unsellable homes” because of an £850,000 debt owed by the building’s developer to Hackney council, who have let it go unpaid for eight years.

The 17 leaseholders, who live in a block of flats in Upper Clapton, have appealed to the council for help but their pleas, including requests for a meeting, have been ignored.

Rich Bell, 38, is one of the owners. He was expecting to move out of his one-bedroom flat last year, having outgrown it after having his first child. He was in a “pretty advanced stage” of the selling process but was halted when the solicitors encountered an issue.

It emerged that the building’s developer, Restoration Hackney, had failed to pay more than £850,000 in Section 106 contributions (payments agreed between developers and local authorities to mitigate the impact of new developments) and community infrastructure levies. This unpaid debt meant that, if Restoration Hackney went bankrupt, leaseholders in the block would be responsible for the bill.

Bell said his lawyers were “convinced for a long time that it was just an administrative error” but it soon “became clear that it wasn’t an error and this was the reality”. At that point, the buyer of Bell’s flat was advised by his solicitors that he would not be able to get a mortgage on the property because of the risk of being liable for the debt. “Understandably, he had to pull out,” said Bell.

Other leaseholders in the block have also been unable to sell their homes because mortgage providers are unwilling to lend on any flat in the building. Bell said his neighbours, including families, have been “effectively trapped in unsellable homes” by the council’s inaction.

“We’re in this position where we’re trapped in the building as a result of the actions of a developer, but the situation is being compounded by the inaction of the council,” said Bell.

The debt has been owed since June 2017 after the 14th flat in the building was sold, before the block was completed the following year, according to the terms of an agreement between Hackney council and Restoration Hackney. The council issued a debt collection notice in October 2018 but took no action for nearly another six years, waiting until February 2024 to issue another notice. The bill remains unpaid. “The council has declined to explain why it has failed to collect this debt,” said Bell.

Leaseholders in the block have appealed to Hackney council to issue a guarantee that they will not pursue them for the freeholder’s debt, which would allow them to sell their flats. The council has so far refused to provide such a guarantee. It has also refused to meet affected leaseholders. “We’re appealing to the council for help on a human level and they’re refusing to help us,” said Bell.

Bell remains stuck in the one-bedroom flat with his wife and two-year-old son. “We feel that we need more space. We’re still sharing a bedroom with him but we would really like to be able to give him one of his own,” he said.

The situation is having an impact on Bell’s family. “We would quite like to have a second child but we can’t have two kids in a one-bedroom flat. That’s just not going to work. It’s taking quite a big toll on our family life and our ability to make the choices we want to make in our own lives,” he said.

He added: “I find it just quite maddening that the actions of this developer and the council mean that I can’t give my kid a bedroom. It’s just quite maddening.”

Bell said the saga “shines a light on the extent to which the leasehold system can trap people in really strange ways. Who expects that you buy a flat and then find that it’s going to be completely unsellable for reasons beyond your control?”

A Hackney council spokesperson said: “We understand the frustration of leaseholders facing difficulty 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. There has been a change of freeholder of the block and neither the previous, nor the current owner has yet paid the amount that is due, despite us contacting and meeting with both.

“We will support residents however we can. Unfortunately, we are unable to guarantee the debts of a private developer as it could set a precedent for other developers to avoid paying debts in the future. We are exploring further legal options to make sure the outstanding payments are made.”

Restoration Hackney did not respond to a request for comment.