THE CONCERN ABOUT HISTORIC RENT CHARGES
There has, over recent months, been an increased focus on Rent Charges and Estate Rent Charges and they have fallen under particular scrutiny by mortgage companies.
Rent Charges are obligations listed on the title deeds to a property relating to the payment of an annual sum to a third party who has no interest in the property. The reason for the payment can be many and varied including to support a local charity, pay towards the upkeep of a local building or even just be a source of income for the original landowner. Most Rent Charges have existed for many centuries.
Estate Rent Charges tend to focus more on contributing towards the upkeep of something on a development, for example the maintenance of private roads or sewers of the upkeep of a shared open space.
Over recent times, some lenders have tightened their requirements in relation to a property that is subject to a Rent Charge or an Estate Rent Charge. This is an area that has become something of a hot potato in recent years and has become an area that lenders in general are becoming more concerned about.
The basic concern is based on the somewhat draconian measures that can be used to enforce the Rent Charge. If the Rent Charge has not been paid for a period of 40 days then the Rent Charge owner has a statutory right to relief that cannot be declined in court even if the amount owed has never been demanded. Under section 121 of the Law of Property Act 1925, the Rent Charge owner can take possession of the property to use the income from it to recover arrears. Alternatively, they can grant a lease of the property to Trustees to raise and pay the arrears and associated costs. Even more of a concern is that there is no provision in the Rent Charge Act 1977 for the lease to end once the arrears have been repaid. This leaves the freeholder with no choice but to negotiate with the Rent Charge owner for a surrender of the lease as the property effectively becomes unsaleable with the lease in place.
These provisions have been in place for decades but were brought to the fore in the case of Roberts v Lawton. In this instance the owner of the Rent Charge, Morgoed Estates had been acquiring Rent Charges and owned about 15000. These Rent Charges fell into arrears as the sums had never been demanded and the amounts owning were between £6.00 and £15.00. As they were in arrears, Morgoed Estates granted 99 year leases to trustees (the company directors) and sought to have them registered. It was held that these leases were correct and could be registered giving what ‘amounts to a stranglehold on the property owner whose freehold interest is worthless in the presence of the lease’.
The judge in the case described the effect of the provisions as a ‘wholly disproportionate remedy’ but nothing could be done to prevent the action being taken. Each freeholder had to pay in the region of £650.00 to have the lease removed.
This brings us back to the issue of the Mortgage Companies and their more stringent requirements. Most lenders are satisfied if the Estate Rent Charge provides that they be given 21-28 days’ notice of any arrears and any intention to take action. Some now require 2 months’ notice of any arrears to allow the opportunity to remedy the breach and they also require notice of any further action taken regarding non-payment.
Obviously with new developments, we can push the developer to draft any proposed Estate Rent Charge so as to be compliant with the most up to date mortgage company requirements.
With historic Rent Charges, however, there is often an issue as the party that receives the payment may be difficult to locate, especially if the benefit of the Rent Charge has changed hands several times.
With historic rent charges, one option is to redeem it in full. This involves completing a form for the Rent Charge Unit at the Ministry of Housing. They will then attempt to contact the beneficiary of the Rent Charge and then advise you of they amount to be paid to the beneficiary to redeem the charge (normally 16 times the annual amount payable). You will then receive a certificate that can be sent to the Land Registry to have the Rent Charge removed from the title deeds.
If the beneficiary cannot be located, the Rent Charge Unit will advise you how to proceed.
This, however, can be a drawn out process and, in many instances, it may be that you, your buyer or your mortgage company may be willing to proceed by way of indemnity insurance.
In any instance, Chattertons are ideally place do advise you on the best way to proceed if your property, or a property that you intend to purchase, is subject to a Rent Charge.