Rentcharges and the Danger of Overlooking Them

21
Oct

Rentcharges and the Danger of Overlooking Them



The dangers of unpaid rentcharges were starkly highlighted in a recent decision in the Upper Tribunal (Roberts v Lawton).  The case underlined the tremendous inconvenience and costs that landlowners can be put to if rentcharges are not paid.  Rentcharges affect many residential properties and despite only requiring annual payments of a few pounds, if not paid, can result in hundreds of pounds of charges and great inconveience to resolve if a rentcharge owner wishes to take advantage of its entitlement.

The Law

Section 121 of the Law of Property Act 1925  sets out certain statutory remedies which are available if the rent is not paid, one of which is the grant of a rentcharge lease – the method used to exploit landowners to the maximum.

If the rent or any part of it is unpaid for 40 days after it is due, the rentcharge owner may grant a lease of the charged land to trustees.  There is no need for any legal demand for the rent to have been made.  The task of the trustees is to raise enough to pay the rent and arrears, together with all costs and expenses caused by non-payment of the rentcharge, by any of the following methods:

-    Creating a legal mortgage or a sale (effected by assignment or sub-lease) of the term created in the land charged or any part of it.
–    Receipt of the income of the land comprised in the term.
–    Any other reasonable means.

 

The facts in this case

Morgoed Estates Ltd (rentcharge owner) bought and managed rentcharges (it owned about 15,000 of them). It was therefore entitled not only to a minuscule income from each of the properties concerned but also to the price of redemption of the rentcharges where property owners decide to bring them to an end.  The landowners, which were subject to some of the rentcharges, were in arrears early in 2013 in sums that ranged from approximately £6 to £15.

The rentcharge owner granted rent charge leases to a director and then sought to register the rentcharge leases with the Land Registry as this would then make the leases enforceable against future owners and drastically reduce the values of the properties in question particularly as under the rent charge leases the tenant of the lease was entitled to possession.

What if there were genuine reasons for not having paid?

During the proceedings, some reasons were given by the landowners for why the rentcharges had not been paid, which included

-    Evidence had not been provided that confirmed that the rentcharge owner owned the rentcharge (the rentcharge owner refused to provide a copy of the 1903 deed that created the rentcharge without payment of an administration charge of £60);

-    The rentcharge owner sent rent demands to the wrong address: the landowner in question was not living at the property. On discovering the landowner’s address the rentcharge owner decided not to bother to send a demand to the correct address but to grant a rentcharge lease straight away.

-    One landowner offered to pay the arrears, but the rentcharge owner would not accept them, because it required not only the arrears of rent but also the hefty administration charge for the grant of the rentcharge lease.

On appeal to the Upper Tribunal it was determined that so long as the rent charge leases were created validly the leases were registerable – and the fact the conduct of the rentcharge owners and their charges were unreasonable did not in itself prevent the registrations.

Limiting your risk

This judgement illustrates the danger of overlooking rent charges either on property you own or on property you are thinking of buying.  Whether or not the rentcharges have been demanded is also irrelevant as it is the job of the landowner to ensure the rentcharges are paid.  When buying a property with a rentcharge you would be well advised to check the position carefully through your conveyancer who ought to be aware of the issues.  Ideally you would ask your seller to buy out the rentcharge before you proceed with the purchase but at the very least where a rentcharge owner is identifiable or has made demands, the rentcharges should be brought up to date (or paid for the previous six years).   Where for any reason the rentcharge cannot be paid, suitable indemnity insurance should be considered.

The only good news (unless you are a rentcharge owner) is that most rentcharges are due to be exinguished on 22 July 2037.  For many, that date cannot come soon enough.