Rentcharges - ignore at your peril
Author: Paul Knight and Michael Callaghan
Applies to: England and Wales
The recent case of Roberts v Lawton illustrates the draconian nature of powers granted to rentcharge owners and the risks to a landowner of ignoring the rentcharge.
Rentcharges are an annual payment secured on land. Historically, land may have been sold below its open market value and the new owner agreed to pay an annual rentcharge to the seller to make up the difference over time. They are particularly prevalent in areas of Bristol and Manchester, but are found elsewhere as well.
Although the Rentcharges Act 1977 prohibited the creation of new rentcharges of this type, there are many thousands of historic rentcharges still in existence. These will continue to exist until 2037 when they will no longer be enforceable.
A typical rentcharge payment may be only two or three pounds a year. Although a valuable sum when the rentcharge was imposed, the effect of inflation has been to erode the value of these payments to a nominal amount. It is quite usual for landowners whose land is subject to a rentcharge to think that they can reasonably ignore such a small amount and leave it unpaid.
There is a second type of 'estate rentcharge', designed to allow the costs of estate services to be recovered. These are permitted and will remain enforceable after 2037.
The person entitled to receive a rentcharge has powerful legal rights to recover the sums due. The owner of the rentcharge can forfeit the owner's title to the property, take possession of the property and use the income from it to clear the arrears or grant a lease of the property to trustees to raise and pay the arrears and associated costs. These rights arise if the rentcharge remains unpaid for more than 40 days, even if the rentcharge has not been demanded.
In Roberts v Lawton the owners of several properties had not paid rentcharges. The arrears ranged from £6 to £15. The owner of the rentcharges then granted leases of the properties to trustees for terms of 99 years and tried to register the leases at the Land Registry.
The case concerned whether the leases were capable of being registered and the tribunal ruled that they were. The leases could not be classified as a security interest. They were leases in their own right, giving the tenants the right to exclude the property owners.
Effect of the case
The case confirms that a lease, once granted, is a permanent arrangement for the payment of a rentcharge. The lease could be sold to raise money for that purpose, and once sold it would continue in the hands of the purchaser. There is no provision for a rentcharge lease to come to an end once the rentcharge has been redeemed or the arrears paid. The tenant of the rentcharge lease is, theoretically, entitled to possession of the property.
The grant of the lease effectively sterilises the property in the hands of the freehold owner. They could not sell with the lease in place. The owner has no choice but to negotiate with the rentcharge owner to surrender the lease. In the Roberts case, the implication was that the rentcharge owner would be prepared to do so only if its costs amounting to more than £650 were paid.
Even though historic rentcharges will no longer be enforceable after 2037, the remedies that the rentcharge owner has are clearly draconian and ripe for reform. This is an area of law that the Law Commission might wish to review. They are consulting on what they should be considering in their next programme of law reform.
The judge in the Roberts case, herself a former Law Commissioner, described the effect of the provisions as 'toxic'.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.