By Nicola Ashley and Nicola Davies – Directors at ntitle
We have recently been made aware of a situation whereby a lengthy transaction delay was caused by a lender insisting on having a historical rentcharge redeemed and removed from the title. The rentcharge had been paid to date and the rentcharge owner had been located. The Seller had also agreed to pay the remaining rentcharge (approximately £30.00) so that the matter could proceed. However, the lender was insistence that the charge was not only redeemed but also its removal registered at the Land Registry before the Buyers could proceed.
This is unfortunately becoming more common place. In the past these usually nominal payments had not posed an issue for Conveyancers as long as a receipt to confirm payments were up to date was available or in situations where the rentcharge was not demanded or paid an indemnity policy was obtained. However, this has changed with some mortgage lenders now requiring that these rentcharges are redeemed and removed from the Register.
The reason for this change in stance centres around the potential for the provision of the Section 121 of the Law of Property Act 1925 to be used by the rentcharge owner to re-coup outstanding rentcharges. The remedies available include the right of entry whereby the rentcharge owner can take possession of the land and any income from it until the arrears are paid or allow the rentcharge owner to grant a long lease of the property to trustees for the purpose of raising income to recover the arrears in addition to any enforcement costs and the costs for granting the lease.
To grant such a lease would devalue the freehold interest and make it worthless and unmortgageable whilst the lease is in place. This would leave the freehold owner in a precarious position as it was upheld in Roberts v Lawton that there is no obligation on the beneficiary to surrender the lease even if the arrears and all sums were repaid.
At ntitle, it is now more important than ever that we identify to the Conveyancer any such rentcharge so that they can report to the lender as soon as possible, to minimise any delays for the Buyer. By undertaking the title investigation as early as possible in the transaction, these situations can be dealt with swiftly and the buyer can make an informed decision on whether they still wish to proceed at the earliest possible opportunity and not months into the transaction.
What is a rentcharge?
An estate rentcharge refers to a legal obligation or payment associated with land or property. It typically involves the payment of an annual or periodical sum of money to the owner or beneficiary of an estate. Estate rentcharges were created as a means to provide ongoing income or revenue to owners of large estates and are attached to the land, rather than the owner. Rentcharges can last for a specific period of time or they could be perpetual.. While historic, rentcharges still very much exist and are payable until 2037 or 60 years from the date when the rentcharge first became payable. They can, as discussed above, be expressly released by the beneficiary of the rentcharge by deed.
Why does a rentcharge need to be redeemed?
There are various reasons why a lender may want the rentcharge to be redeemed and removed from the title:-
- Termination of Obligation- by removing the rentcharge, the property owner is able to terminate the ongoing payment obligation and remove the encumbrance from the title.
- Simplification of Title- Lenders will also prefer to lend on an unburdened property and by redeeming the rentcharge, the burden is eliminated and simplifies the title making it easier to sell or mortgage.
- Avoidance of doubt- Redeeming a rentcharge avoids the risk of defaulting on payments and eliminates any potential legal disputes, enforcement action associated with non- payment.
How is an estate rentcharge redeemed?
Redeeming a rentcharge refers to permanently extinguishing the rentcharge and releasing the property for any ongoing payment obligations. The steps to consider for a Conveyancer are:-
- Review the rentcharge agreement. Carefully examine the relevant document for provisions relating to redemption procedures, requirements, fees and conditions.
- Contact the rentcharge provider. This could be a Management Company, estate owner or third part agency. It is important to inform them of your intention to redeem the rentcharge and request that they confirm the necessary steps.
- Determine the redemption amount. This must include the principle outstanding amount, any accrued interest and applicable fees or penalties associated with the redemption. The amount may be negotiated, ensuring that rights and obligations are protected.
- Make the redemption payment to the rentcharge provider, once the sum has been agreed.
- Obtain a formal release or discharge as proof that the rentcharge has been redeemed and the property has been released from any future obligations.
- Register the release or discharge with the Land Registry and check the rentcharge provisions have been removed from the title, once complete.
Avoiding delay
It is essential that a rentcharge is reported to a lender as soon as possible in order to avoid future delays in the transaction, At ntitle, we will inform the Conveyancer of a rentcharge in the snapshot so they are aware of the need to inform the lender and make contact with the rentcharge owner.
This is an example of the importance of early identification of title issues and how delays can be avoided by raising enquiries and reviewing the title early on in the transaction and as soon as the contract pack is received from the seller’s conveyancer.
By Nicola Ashley and Nicola Davies – Directors at ntitle
