Beware of Rentcharges and the perils of ignoring them

It is uncommon to come across rentcharges, but the recent case of Roberts v Lawton illustrates the harsh nature of the powers granted to rentcharge owners and the risks to a land owner of ignoring the rentcharge.

What is a rentcharge?

A rentcharge is a legal interest in land and should be registered at Land Registry with its own title and noted against the title affected. Once registered it is binding on all future owners of the land.

Although the Rentcharges Act 1977 prohibited the creation of new rentcharges, there are thousands of historic rentcharges still in existence. These will continue until they end in 2037. It is also possible under the Act for the owners of land subject to a rentcharge to compulsorily require the rent owner to ‘redeem’ the rentcharge (i.e. end it on payment of a sum calculated according to a statutory formula).

A typical rentcharge payment may be only two or three pounds a year, so it is not unusual for land owners subject to a rentcharge to think they can reasonably ignore such a small amount and leave it unpaid.

There is a second type of rentcharge known as an ‘estate rentcharge’ designed to make positive covenants in freehold land binding on successors. These are permitted and will remain enforceable after 2037.

Enforcing rentcharges

The owner of a rentcharge has extensive rights to recover the sums due. The owner can take possession of the property and use the income from it to clear the arrears. Alternatively, the rent owner can grant a lease of the property to trustees to raise and pay the arrears and associated costs. The rights arise if the rentcharge remains unpaid for more than 40 days even if it has not been demanded. Furthermore, there is no provision for a lease to come to an end when the arrears are cleared, or once the rentcharge has been redeemed.

In Roberts v Lawton, several property owners had not paid their rentcharges in which the arrears ranged from £6 to £15. The owner of the rentcharges then granted leases of the properties to trustees for terms of 99 years and tried to register the leases at Land Registry.

The case concerned whether the leases were capable of being registered at Land Registry. The land owners had claimed that the leases could not be registered as they were in effect a mortgage on the property. However, the Upper Tribunal disagreed with that view. They were not mortgages. They were leases in their own right and were thus registrable at Land Registry in the usual way.

Effect of the case

The case confirms that a lease, once granted, is a permanent arrangement. The grant of the lease effectively freezes the property in the hands of the freehold owner. They could not sell with the lease in place and have no choice but to negotiate with the rent owner to surrender the lease. In the Roberts v Lawton case, the rent owner would be prepared to do so only if its costs amounting to more than £650 were paid.

The judge in this case described the effect of the provisions as a ‘wholly disproportionate remedy’. That is the law as it stands though and is an area that the Law Commission might wish to review.

"If you are buying a property subject to a rentcharge, you should understand the importance of paying it on time even if it is not demanded. However, it may be best to redeem it as soon as possible," advises Trainee Solicitor Clare Hallett.

Our Conveyancing Team, based in Christchurch, also cover Bournemouth, Poole and the New Forest. If you have any questions, you only have to ask us at Frettens. Please call 01202 499255 and Clare or her team, will be happy to chat about your situation.