Understanding rent charges.

What is a rentcharge?

A rentcharge is a legal arrangement where a landowner is required to make regular payments, normally annual, to a third party.  That third party is the rentcharge owner, who typically has no other interest in the property. Rentcharges are a historical concept where landowners would sell their land to developers at a reduced price in exchange for a regular income from the new homeowners, known as the rentcharge payer.  

There are two types of rentcharge: 

• Estate Rentcharge: An estate rentcharge is a fee that property owners in certain developments must pay, to cover the costs of maintaining shared areas or communal services, such as roads, gardens, or other amenities within the estate. These charges are commonly applied to new-build properties, ensuring that every homeowner contributes to the upkeep of the development.
  
  
• Historical Rentcharge: A historical rentcharge is a type of rentcharge that was created before 1977, under old legal systems where property owners had to make regular payments to a third party, often as a condition of owning the land. These rentcharges were more common in the 19th and early 20th centuries and are not tied to modern estate management or maintenance costs. Historical rentcharges are set to be automatically extinguished (cancelled) either 60 years after they were first due or by mid-2037, whichever comes later. This means if your property has a historical rentcharge, it will eventually be removed without any action needed from you.

Who has to pay rentcharges?

If your property has a rentcharge, it’s important to stay on top of payments to avoid issues later. Even if you don't receive a bill, you are still legally required to make the payment, which could be as small as £1 a year. Keep records of all payments and any communication with the rentcharge owner to avoid confusion.

If you're unable to contact the rentcharge owner, consider indemnity insurance, which can provide some protection from future claims for unpaid rentcharges. Your conveyancer can help with this. Failing to pay can lead to serious consequences, including potential legal action by the rentcharge owner.

Estate rentcharges 

Estate rentcharges are increasingly common, especially in newer developments. They help ensure that all property owners contribute to the upkeep of shared areas, such as roads or gardens. These charges "run with the land," meaning they apply to future property owners as well.

When purchasing a property, your conveyancer will determine whether an estate rentcharge applies. Keep in mind that mortgage lenders may be cautious about estate rentcharges because the legal rights of the rentcharge owner could impact the lender’s security on the property. This could make securing a mortgage more challenging. In some cases, your lender may require you to meet specific conditions before approving the loan.

Consequences of non-payment

If your property is subject to an estate rentcharge, failure to make timely payments can lead to serious repercussions.

Under the Law of Property Act 1925, if a rentcharge remains unpaid for 40 days or more, the rentcharge owner is entitled to exercise specific legal remedies to recover the outstanding amount. These rights include:

1. The right to take possession of the property and collect any income from it until the rent, arrears, and all associated costs and expenses incurred from non-payment are fully settled; and
2. A right to a lease of the property. 

In addition, to these right other legal remedies may also apply, such as: 

1. A right of re-entry (only available if the rent charge includes an express right of re-entry); 
2. A claim for a debt. 

Change in law 

In response to growing concerns about the fairness and impact of rentcharges, new legislation is being introduced to reform how rentcharges are applied and enforced. This legislation aims to protect homeowners from disproportionate legal actions and limit the enforcement powers of rentcharge owners.

Key reforms include:

• Limiting enforcement rights (but these changes will only apply to certain types of rentcharges).
• Consultation Requirements: Similar to leasehold properties, there will be new consultation requirements for estate management charges, ensuring that contributions are justified and reasonable.

As these changes come into effect, it is crucial for homeowners and prospective buyers to stay informed about their rights and obligations under the new law. Consulting a property lawyer or conveyancer can help ensure compliance and avoid legal issues related to rentcharges.

Although every effort has been made to ensure that the information provided in this article is accurate and correct, the information provided does not constitute any form of advice, recommendation or opinion. DPM Legal Services Limited accepts no liability for any loss or damage, howsoever caused, as a result of any reliance on any information provided.