rentcharges

The problem with estate rentcharges

Problems are being encountered by residential conveyancers acting for buyers of freehold property subject to estate rentcharges, and the purpose of this article is to clarify some of those problems.

This includes clients purchasing freehold houses and the transfer including provision for the buyer to pay for services. Even though the payment is not described or defined in the transfer as an estate rentcharge, is it an estate rentcharge?

If we explore this question, we can see that a rentcharge arises where a landowner is entitled to an income by way of rentcharge or otherwise. I think it can be deduced that payments described as a service charge or anything else can be rentcharges, and estate rentcharges are subject to what we explore below.

Firstly, a requirement to contribute to the maintenance of a private road, play area, or amenity land within a transfer is likely to be considered to be an estate rentcharge with all the problems associated, provided it is annual or other periodic sum charged on or issuing out of land.

Secondly, what is the position if the sum required from the freeholder is payable from time to time? Again, most requirements to contribute payments will be annual or periodic sums. For our purposes, periodic means appearing or occurring at intervals. As a consequence, where the maintenance charge is more than a one-off and payable at intervals – monthly, quarterly or for any other period – then there is a risk of the same being considered a rentcharge.

Thirdly, estate rentcharges are not confined to freeholds. They can apply to residential leaseholds and shared ownership leases.

It can be concluded that in the context of our first problem, payments towards the cost of maintenance can be rentcharges and can be estate rentcharges.

Clients purchasing freehold houses subject to estate rentcharges and conveyancers being concerned about the potential problems associated with buyer default and rent owner remedies.

This problem requires a cautious approach. What advice can be given to practitioners?

Assumptions

Assume anything that involves a contribution to maintenance or repair costs in freehold transactions have the potential to be an estate rentcharge.

Assume anything compelling the rentcharge payer to comply with a positive covenant is an estate rentcharge.

Assume any obligation to pay for repair or maintenance in a residential lease other than a cost within the scope of a service charge to be an estate rentcharge.

Requests for amendment to documents

To ask the builder, developer, or landlord to clarify the position as to whether the payment is an estate rentcharge.

Where the clarification is not received, received in the affirmation, or the position is quite clear that the payment is an estate rentcharge, to ask for the offending provision to be amended so that:

  1. The rent payer has a right of redress if there is a dispute with the amount being claimed. Ideally some form of ADR provision that is binding on the parties and that prevents any form of enforcement action being taken in the interim by the rentcharge owner.
  2. To compel the rentcharge owner to ensure works done are completed to a reasonable standard and that the charge itself is a reasonable charge for the work done and perhaps limiting the rentcharge owner to the recovery of cost incurred.
  3. To compel the rentcharge owner to confirm that the transfer is contrary intent as required by Section 121(5) of the Law of Property Act 1925 to exclude Section 121 (3) and (4) of the 1925 Act.
  4. Where the rentcharge owner refuses to exclude the remedies Section 121 provides, ask the rentcharge owner for a provision that if a lease is created to enforce a rentcharge liability the lease can be surrendered on acceptable terms.

Are we likely to see reform?

The Government published its consultation paper “Tackling unfair practices in the leasehold market” in July 2017 and recommended:

  1. Measures to ensure that the charges that freeholders must pay towards the maintenance of communal areas are fairer and more transparent.
  2. To give freeholders an equivalent right to leaseholders so they can challenge the reasonableness of service charges levied through a deed of covenant or an estate rent charge.

To date we are still waiting for implementation of these proposals.

3 Responses

  1. “we can see that a rentcharge arises where a landowner is entitled to an income by way of rentcharge or otherwise”

    Any authority for your proposition?

    There are additional requirements under s121 of LPA 1925 and within the definition in the Rentcharges Act. They require the sum be “charged on the land or on the income of the land”. A positive covenant by itself surely cannot amount to the burden of a charge?

  2. I tried to sell my property recently but lost my buyer, as their mortgage company would not lend them the money if the rights of entry clause was in the transfer. There is a capped £200 per annum charge to repair a private road, that in my five years of ownership has never been requested.
    The developer refused point blank to remove the clause, I even offered them compensation. I am now out of pocket and worried that I have a house that I will never be able to sell.
    Any advice would be most welcome.

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