What is a Rentcharge?
Rentcharge (also known as “Chief Rent”) originated in the early part of the last century and were a means for builders to develop land without paying a premium to the owner of the Land.
Landowners would sell land to Developers at a reduced capital sum or for no money at all in return for an income from the owners of the new houses and their subsequent owners. This is on Freehold land only and Rentcharges should not be confused with Ground rents (see below)
The person entitled to the Rentcharge is known as the Rentowner.
Rentcharges normally range between £2 and £10 per annum with the most expensive at around £12.60.
The 1977 Rentcharge Act
The 1977 Rentcharges Act abolished the creation of all new Rentcharges, subject to a few exceptions, for example, small developments with shared facilities such as a pumping station or shared accessways.
The shelf-life for existing Rentcharges was capped at 60 years so that all relevant Rentcharges would expire in 2037.
The 1977 Act permitted existing freehold owners to buy out (or redeem as it is technically known) the Rentcharges attached to their property.
A Rentcharge should not be confused with a Ground Rent which only relates to Leasehold properties, especially, although not exclusively, to flats. You do not have an automatic right to buy your Ground Rent.
How Much Does It Cost To Redeem a Rentcharge?
If you know the identity of the Rentowner you can apply to the Department for Communities and Local Government to redeem the Rentcharge. (Department for Communities and Local Government, Ground Floor, Rosebrae Court, Woodside Ferry Approach, Birkenhead, Merseyside, CH41)
The cost of redeeming the Rentcharge will be about 16 times the yearly payment.
Are There Any Problems with Rentcharges When Selling Your Property?
Many homeowners have been paying the yearly rentcharge although many may have forgotten to pay, not been asked to pay or not known who to pay.
As Conveyancing Solicitors, we often have to deal with problems where there is no evidence of payment of the Rentcharge on the sale of a property.
Conveyancing Solicitors usually agree on an apportionment from the sale price of 6 years (the limitation period for a debt) Rentcharge payments roughly between £15 and £75.
The Rentcharge “Scam”?
Many conveyancing deeds which include a rentcharge state that such rent will be payable annually “whether formally demanded or not”.
Rentowners, including a growing number of Investment Companies, have used non-payment as a trigger to impose draconian penalties on unsuspecting homeowners.
A Property is subject to a Rentcharge. The home owner receives a Rentcharge demand purporting to be from the new Rentowner.
The home owner has been paying their Rentcharge annually ever since they bought the property. The home owner asks for proof of ownership before paying to someone else. Proof would only be provided if a £60 administration fee was paid. The home owners refuses to pay this fee.
The new Rentowner goes ahead with imposing a Statutory Lease on the property rather than pursuing its debt through the Courts.
The new Rentowner can use Section 121 (4) of the Law of Property Act 1925 ( the LPA) to create a Lease as security for payment of its Rentcharge.
The sum total of the Rentcharge debt that the new Rentowner could have legitimately claimed through the Courts was only £16.50
The new Rentowner can use the LPA to create a Lease on the homeowners property as security for debt of the £16.50 unpaid Rentcharge.
When the homeowner discovers a Lease has been created over their property, they offer the £16.50 offered in full payment of the outstanding debt.
The new Rentowner can refuse this offer. Property is now subject to a Lease. The power to impose a Statutory Lease remains from the 1925 Act and was not abolished by the 1977 Act. The 1925 Act also permits the Rentowner to claim its fees for creating the Lease and a payment for the removal of the Lease as well. Unfortunately, there is no requirement in the Act for the fees charged to be reasonable. The fees could easily run into thousands of pounds if the Rentowner so chooses.
Caselaw suggest that new Rentowners can use section 121 of the LPA and uphold their right to grant a Statutory Lease once there is 40 days of arrears, provided that the rentcharge remains in existence and even if payment was not demanded.
Minimise Your Risk
There are however a few things you can do to minimise your risk of being caught in the “scam”, which we’ll be discussing in more detail in our next blog article 7 Tips To Avoid the Rentcharge “Scam”.