A Rentcharge (or Chief Rents as it can also be known) was, prior to the Rentcharges Act 1977, a method used for builders to build developments on land that they did not own without paying the landowner or by paying the landowner a reduced price for the land. The landowner would either sell the land at a reduced rate or would permit the development on the land and, in return, would take an income from each of homeowners that had purchased the properties constructed. The Rentcharge is a nominal sum, usually just a few pounds, collected annually. A Rentcharge should not be confused with Ground Rent payable on a Leasehold property.
If a property that is the subject of a Rentcharge is sold, the new owner is liable to pay the annual Rentcharge. The person(s) or company with the benefit of the Rentcharge is called the Rentowner and the Rentcharge can be transferred to another party, therefore the Rentowner is not necessarily the landowner.
Section 2(1) of the Rentcharges Act 1977 prohibits the creation of any new Rentcharge and stipulates that all existing Rentcharges will expire in July 2037. Furthermore, the Act provides a mechanism for redeeming the Rentcharge; this means that a property owner could pay a lump sum and, after that, no further Rentcharge payments would be payable. A Government Guide to redeeming a Rentcharge can be found at www.gov.uk/guidance/rentcharges. Section 2(2) of the Act states that any new Rentcharge shall be void. However, there are exceptions set out in Section 2(3) of the Act, the most common of which being the Estate Rentcharge.
An Estate Rentcharge is a common form of Rentcharge used commercially in new developments. The developer will use the Estate Rentcharge to ensure that the covenants affecting the property, imposing a restriction on the use of the property and thereby ensuring the value and enjoyment of the adjoining land or properties will be preserved, can be enforced by the Rentowner. The Estate Rentcharge is also a means of ensuring that the property owner contributes to the cost incurred by the Rentowner in respect of the provision of services, maintenance/repairs and, if necessary, effecting any required insurance.
A person owning a property that is subject to a Rentcharge should ensure that the Rentcharge is always paid up to date, as there can be serious consequences for non-payment of the Rentcharge. The Rentcharge will be payable whether formally demanded or not, so the lack of a demand is not a sufficient defence for any non-payment. If a Rentcharge remains unpaid for a period of 40 days or more, the Rentowner can remedy the non-payment by exercising their right to re-enter the property or by granting a lease of the property to trustees.
In the case of Morgoed Estates Limited and others v Lawton and others 2016 the owner of the property had been paying the Rentcharge every year during their ownership. However, the owner received a demand from Morgoed Estates Limited for a back payment of Rentcharge. When the property owner requested sight of proof of ownership of the Rentcharge from Morgoed Estates Limited they were advised that the information would be provided if a fee of £60.00 were paid. The property owner refused to pay and Morgoed Estates Limited proceeded to impose a Lease on the property rather than taking court action for recovery of the debt. Under Section 121(4) of the Law of Property Act 1925 Morgoed Estates Limited as the Rentowner was entitled to create a Lease to secure payment of the Rentcharge debt. The Rentcharge debt was in fact less than £20.00. The property owner offered to settle the Rentcharge debt, but the Morgoed Estates Limited refused their offer of payment.
The property owner took Morgoed Estates Limited to Court and initially the Court ruled that the Lease was not registerable at H M Land Registry and the debt could only be protected by a Notice. However, upon appeal by the Morgoed Estates Limited, the Court overturned the decision and therefore Morgoed Estates Limited could impose far greater costs upon the property owner to remove the Lease from the property.
his means that the property owner would pay a lump sum and, after that, no further Rentcharge payments would be payable. A Government Guide to redeeming a Rentcharge can be found at www.gov.uk/guidance/rentcharges
If your property is the subject of a Rentcharge, you should ensure that:
- The Rentcharge is paid up to date, whether demanded or not, and ensure that you retain evidence of all payments.
- If the Rentcharge has not been demanded, make checks to ascertain whether the Rentowner has changed.
- If you receive a demand for payment of the Rentcharge and it is not from the known Rentowner email or write (by recorded delivery) to the new Rentowner and ask for evidence that they are entitled to the Rentcharge payments.
- If any new Rentowner requests an administration charge for their response, pay it and obtain the information.
- If possible, redeem your Rentcharge.
This article was prepared by Louise Evers, a Property Advisor that works in the Property department at WBW’s Paignton office. If you would like to contact her to discuss anything mentioned in this article or for any property related query, please call her on 01803 407628 or email firstname.lastname@example.org.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.