Rentcharge Redemption

Rentcharges are found commonly in Bristol, Bath and other cities and originated in the early part of the 19th century or indeed earlier and were a means for builders to develop land without paying a premium to the owner of the Land.

Landowners would sell land to Developers at a reduced capital sum or for no money at all in return for an income from the owners of the new houses and their subsequent owners. The person entitled to the Rentcharge is known as the Rentowner.

The Rentcharges themselves are often very low, frequently £1 or £2 a year but the risk is that unscrupulous companies buy them up and then become nasty if there are arrears and impose draconian penalties.

Unfortunately, an astute owner of a Rentcharge took advantage of arrears and the provisions of section 121 Law of Property Act 1925 to encumber a Bristol freehold title and this went to the Court of Appeal (Morgoed Estates v Lawton [2016] UKUT) – once a Rentcharge is in arrears for 40 days, whether or not demanded, the Rentowner has a range of remedies including granting a lease of the property to trustees. The remedy is disproportionate to the amount of money involved but until the law is reformed, or until 2037 when all Rentcharges are extinguished, it remains a problem and there are some lenders who will not lend under any circumstances other than with a deed of variation to remove section 121 and any express rights available to the Rentowner.

In order to mitigate this risk a freeholder has to make sure they pay the Rentcharge on time whether demanded or not and ask for a receipt. At Bartons we would strongly advise redemption of the Rentcharge through the Department for Communities and Local Government as it will save potential hassle and additional cost later on when a freeholder comes to sell or remortgage. The cost of redeeming is approximately 16 times the annual charge. The form can be downloaded here and the rest of the procedure is set out.

Frequently, the Rentcharge is not collected and the identity of the Rentcharge owner is not known in which case indemnity insurance may be available although it will not necessarily be acceptable to all lenders and therefore not necessarily acceptable to purchasers.

An Estate Rentcharge is a device commonly used to make positive covenants run with the land-it sounds a bit technical but it was a relatively easy way of doing this. Frequently they are found on new developments where there are communal areas and a freehold service charge needs to be raised.