Rentcharges are, in theory, a very useful way of securing a positive obligation to pay against freehold land owners. They are mainly now created to cover estate service charges to ensure freeholders will pay common expenses incurred in looking after communal areas of a development and to help ensure positive covenants are enforced which is otherwise very difficult to achieve. However, the recent case of Roberts v Lawton suggests that rentcharges will come under greater scrutiny.
Roberts v Lawton dealt with historic rentcharges of the type used in the late nineteenth and early twentieth century to secure continuing payments to the original seller of freehold land after the land was sold. The fixed sums reserved by these rentcharges are often reduced by inflation to nominal amounts barely worth collecting and rarely demanded and so modern property lawyers tend not to pay much attention to them. We expect that to change.
We now know from Roberts v Lawton of at least one company which owns around 15,000 historic rentcharges and is seeking to profit from those rentcharges. It does so by using an enforcement right designed to cover arrears and so grants and registers rentcharge leases over the charged freehold properties and then demands fees for the surrender of those leases. Arrears in this case were between £6 and £15 and the sum demanded to surrender the leases was £650 per lease.
Once a rentcharge lease is granted the current understanding of the law is that it can only be ended by surrender which naturally requires the parties to agree and for which a fee can be charged.
For so long as the rentcharge lease subsists, the freehold owner may no longer be entitled to possession and the freehold is likely to be unmortgageable and difficult to sell. The freeholder is therefore at significant risk of being held to ransom by the rentcharge owner.
The statutory remedies only apply if there is no contrary intention in the document creating the rentcharge – so what the rentcharge deed says is significant.
The good news is that all Roberts v Lawton considered was the question of whether or not the rentcharge leases could be registered at the Land Registry (and the outcome was they could). There may still be a forum (should a freehold owner emerge who is brave enough to take the issue back to court) for considering other issues, particularly the position of the trustees taking the rentcharge leases and potential objections to the leases, in particular whether the rentcharge was extinguished, and other remedies for the unfortunate freeholder.
Practical steps for owners of property affected by a historic rentcharge include –
- Read the rentcharge deed to check what the remedies for non-payment will be.
- Find out when the rentcharge was last paid (if the rentcharge has not been paid or paid to an incorrect party or acknowledged within the last 12 years it should be possible to prove it has been extinguished).
- If the rentcharge hasn’t been extinguished, find the rentcharge owner and pay.
- Offer payment if an owner emerges. Don’t dispute small sums and if there is any doubt pay and state you will require a refund if the amount deemed is not validly due.
- Start negotiations to redeem the rentcharge and use the new statutory formula for redemption. If you can’t negotiate apply to the rentcharges unit at DCLG for a redemption certificate – guidance and forms here
- Investigate whether to put title insurance in place.