Of all the aspects of the media coverage of charges that have been imposed on homeowners, one has been largely unreported: rentcharges and the potential consequences to a homeowner if they don’t pay.
Rentcharges are an historic device which continue to affect freehold land, often residential property.
A rentcharge is an annual sum paid by a freeholder to a third party who normally has no other interest in the property. A rentcharge can also be referred to as a ‘chief rent’.
The ‘rentowner’ is a person who receives a rentcharge payment and has no other legal interests in the properties they collect from.
The ‘freeholder’ – usually a homeowner – is a person who owns their own property and is responsible for paying the rentcharge. Most rentcharges have existed for many centuries, and are part of an historic system whereby landowners who released part of their land for development could charge a regular payment from the people living on it.
Since the Rentcharges Act 1977 no new income supporting rentcharges can be created, other than what are known as ‘estate rentcharges’. Estate rentcharges are sometimes used on new developments to provide a robust mechanism for the recovery of the costs of the upkeep of common parts.
‘Ground rent’, which we have written about before, is a similar concept, but is applicable only to leasehold property. Here, there has been widespread coverage of the adverse impact extortionate ground rents have had on leaseholders, many of them owners of new homes where the developer has created a lease arrangement as a method of additional income.
Once it’s imposed, a rentcharge continues to bind all the land even if it’s later divided and sold off in plots.
The rentcharge owner could require any one homeowner on the land to pay the entire rentcharge amount; they would then later collect the appropriate contributions from the other homeowners also living on the burdened land.
Sometimes, a rentcharge owner can agree to collect the various rentcharge portions individually from each homeowner on their land. This process is known as ‘apportionment’. It could be legal or informal. Most apportionments were agreed informally.
For historic rentcharges, the homeowner can apply to buy out (or redeem) the rentcharge so they no longer have to pay it. If the house is one of a number of houses charged under one rentcharge, the homeowner may first need to get their share apportioned legally.
There is no statutory right to redeem an estate rentcharge – the homeowner would need to negotiate with the rentcharge owner. However, given the purpose of the estate rentcharge, it would seem unlikely that this would be successful.
This is where difficulties may arise. Section 121 of the Law of Property Act 1925 allows a rentcharge owner to grant a long lease of the property affected to trustees, for the purpose of raising income to recover arrears, plus any costs arising from non-payment of the rentcharge and from granting the rentcharge lease. This would effectively prevent the homeowner from living in the property, and also lead to complications with any lender.
There are many cases, for example in the Bristol area, where historic rentcharges that haven’t been collected for some time are now being asked for, leaving householders facing large bills.
Does a property you are interested in buying or one you want to sell incur a rentcharge?
Some insurers will offer indemnity insurance which can be taken out and will cover any rentcharges, should they be levied.
However, beware this course of action. Far better to sort out any potential issue of rentcharges that may apply to a property you are buying before you go ahead with a purchase, or any property you are selling before you put it on the market. Don’t rely on the insurance covering rentcharges.
Once again, the issue of rentcharges shows the importance of using reliable, experienced conveyancing lawyers when you buy or sell a property.
To talk to our specialist property law team, based in Swindon and Cheltenham, please get in touch.
