Be Aware of Rentcharges

24 May 2019

The amounts involved may be very small, but the extent of the Rentcharge Owner’s rights of enforcement might shock a Buyer.

What are rentcharges?

A rentcharge is an annual sum paid by a freehold homeowner to a third party who normally has no other interest in the property. A rentcharge can also be referred to as a 'chief rent'. 'Rentowner': a person who receives a rentcharge payment and has no other legal interests in the properties they collect from

What happens if you don’t pay them?

The document that created the rentcharge will specify what happens in the event of non-payment. Typically it would state that the owner of the charge is entitled to charge interest on outstanding rent and at worst, take possession of the property for non-payment, however in reality that is unlikely to happen as a court order would be required.

If you have purchased a property subject to a rentcharge and were not advised by your solicitor at the time, this would be grounds for complaint. However, to take action against them you would need to show that you have suffered loss as a result of the omission.

Unscrupulous rentcharge owners could in theory not demand rent and then charge late payment fees and solicitors costs so it is imperative that if you know a rentcharge is payable and is actively collected, you take positive steps to ensure that it is paid.

The most straightforward method of enforcement is for the Rentcharge Owner to treat the money as a debt due from the Rentcharge Payer. However, only up to 6 years’ worth of “Rent” will be payable as a debt. Further, a Rentcharge Owner is less able to recover their costs in doing so, and is free to use the further options below first.

The Statutory remedies are, perhaps, the most concerning, and “bite” if the rent has not been paid for 40 days or more. They include:

  • The right to “re-enter” (similar to forfeiture for leases) allows the Rentcharge Owner to receive all of the income relating to the Property (for example, from a Lease), until the Rentcharge Owner and their costs have been paid.
  • The right to grant a Lease to Trustees (“the Trustees”), who in turn try to recover the rents and costs on behalf of the Rentcharge Owner by leasing or mortgaging the Property.

As the Rents involved are often relatively low, the initial debt due is likely to be less than £100. To recover the Property in either instance, a Rentcharge Payer must either:

1. Pay the Rent then owing and the Rentcharge Owner’s (legal, surveyors, etc) costs in connection with the occupational lease and the subsequent surrender of it, or

2. Wait for the income from the Property or the Trustees’ use of their Lease to result in the payment of these amounts.

Given the low amounts involved, the costs can seem grossly disproportionate, and there is no obligation that they are “reasonable”.

I know a rentcharge exists on my property but nobody collects it – can I just wait until I receive a letter about it?

No – don’t do that! If you are aware a rentcharge is payable, try and ascertain who it is payable to and try and ensure it is paid whether a demand is received or not. If the charge has not been paid for many years then the safest option, instead of attempting to contact the rentcharge owner, would be to take advice from your solicitor regarding putting in place indemnity insurance to cover any loss suffered by you.

Be careful to check the terms of the policy however as some policies do not cover the actual arrears, but cover the cost of any action taken by the rentcharge owner for non-payment.

How can Rentcharge Owners enforce their rights?

Traditional Rentcharges may be brought to an end by:

  • Buying the Rentcharge, if the Rentcharge Owner is known and willing to sell it. This must be set out in a Deed and carefully drafted.
  • Statutory redemption, which extinguishes a Rentcharge following a one-off payment to the Rentcharges Unit. However, Estate Rentcharges, variable Rentcharges, Rentcharges by way of tithes and Rentcharges where the Rent cannot be confirmed may not be terminated in this way.
  • For those willing to wait, the Rentcharges which can be redeemed (see immediately above) will be automatically extinguished in July 2037.
  • Adversely possessing the Rentcharge- if it has not been paid for 10 or 12 years respectively depending on whether it has been registered or not. There is some debate about this is now possible, owing to changes to the relevant statute.

If the above options are not available or acceptable, a Rentcharge Payer can consider:

  • Taking the risk- as only 6 years’ rent is payable, where the Rentcharge Owner has been inactive for some time, this is the most common route, although this disregards the risk of paying the Rentcharge Owner’s costs in the case of any enforcement.
  • Putting indemnity insurance in place. You should speak to a solicitor about obtaining a suitable policy and what that will cover.