Challenges Freeholders Face From Rentcharges

What are rentcharges?

Originating in the early part of the last century and only applicable to freehold land, a rentcharge is any regular sum of money due on the land to the rent owner, and should not be confused with a ground rent. Historical rentcharges are common in Manchester, Liverpool and Bristol, and work by imposing a charge on the land requiring the rent payer to pay the rent. Whilst rentcharges may seem a historical concept, the problems they pose for freeholders remains an issue to this day.

What problems do rentcharges present to freeholders?

You could be forgiven for thinking that if you own the freehold of your property (mortgage-free), no-one has the right to do anything with it without your permission or even kick you out of it. Unfortunately, as with any bill, rentcharges are fine until you don’t pay them. A rentcharge is binding on a property until it is terminated and can be problematic when it is not possible to trace the rentcharge owner due to historical deeds.

Enforcement of an unpaid rentcharge

Statutory enforcement action is available to the rentcharge owner for unpaid rentcharges, including:

• pursuing the sum as a debt;
• Granting a lease on the property to trustees. The trustees then attempt to recover the unpaid rentcharge by leasing or mortgaging the property; and
• A right to re-enter the property. The rentcharge owner can then receive any income from the property until the unpaid rentcharge is satisfied.

In a recent case, on non-payment of the rentcharge, the rent owner, Morgoed Estates, granted itself a lease of the property. Whilst the court held that Morgoed Estates had legitimately used its statutory right to grant a lease to enforce non-payment of the rentcharge, the court did acknowledge that the grant of the lease was in effect a “stranglehold” on the property owner whose freehold title effectively becomes worthless whilst the lease remains in existence. In this case, the freeholders were forced to pay large sums in return for the surrender of the lease.

The Rentcharge Act 1977 limited the continued validity of existing rentcharges however they will not expire until 2037. Until that time, the challenges rentcharges pose to freeholders remain significant.

What can freeholders do about rentcharges?

The good news is that options are now available to freeholders to deal with the problems rentcharges pose including taking out indemnity insurance; buying (redeeming) the rentcharge attached to their property thereby eliminating the rentcharge entirely; and pursuing a Statutory Redemption, which extinguishes a rentcharge via a one-off payment to the Rentcharges Unit (please note that this is not available for all types of rentcharges).

If you know the identity of the rentowner, you can apply to the Department for Communities and Local Government to redeem the rentcharge. The cost of redeeming the rentcharge is approximately 16 times the annual rentcharge payment.

Should you wish to speak with a member of our conveyancing team regarding any issues you are facing with a rentcharge please call 0161 941 4000 and ask to speak to a member of the Residential Property team, or email lawyers@myerson.co.uk.