They are a relic from the past but investors and developers may come across rentcharges affecting their properties. What should you think about if a rentcharge has appeared on your title report?
What is a rentcharge and how does it work?
Despite the similar terminology, a rentcharge is nothing to do with a lease. In fact, a rentcharge is any annual or other regular sum of money charged on land except rent payable under a lease and interest payments.
The term rentcharge is, confusingly, sometimes used to mean both the sum of money itself and the interest in land which entitles the owner of the rentcharge to enforce that payment if it isn't made.
Here are some other key points:
- the periodic sum (the 'rent') is paid by the 'rent payer' to the 'rent owner'
- the rent owner does not have to own any land to hold the right to receive the rent and will not have any interest in the land which is subject to the rentcharge
- rentcharges can be transferred by the rent owner but the rentcharge is enforceable against the original rent payer and future owners because it is a charge on the subject land
- the rentcharge can be registered under its own title number at the Land Registry in certain circumstances and the registered proprietor of that title number will be the rent owner
- unlike a lease which must have a fixed term, rentcharges are generally created for an indefinite period of time and so will, in theory, go on forever
When are rentcharges used?
In a commercial property context, investors and developers are most likely to come across rentcharges protecting payments of service charge on large estates. These are a type of estate rentcharge.
If you benefit from a rentcharge how do you enforce it if the payments stop?
The rentcharge works by imposing a charge on the subject land requiring the rent payer to pay the rent. There may also be a separate positive covenant in favour of the rent owner by the rent payer to pay the rent.
If rent is unpaid the rent owner's options for enforcement of the debt may include rights to re-enter the charged land or to grant a lease of the charged land to trustees who will try to use that lease to raise enough money to settle the unpaid rent. The rent owner may also have an alternative right to pursue the rent payer through the courts for non-payment of a debt.
If a deed of covenant runs alongside the rentcharge the rent owner may also have a claim for breach of covenant.
It is important to take enforcement action as usual limitation period rules apply.
What happens if my land is subject to a rentcharge?
You will need to make sure that the rent is paid on time as otherwise your land could be subject to re-entry or the grant of a lease to trustees as mentioned above.
You will also need to make sure that, if there is a separate deed of covenant running alongside the rentcharge itself, any purchaser of your land enters into a similar deed in favour of the rent owner. Not doing so might mean you are still bound by the covenant to pay even after you sell the land.
The future of rentcharges
The Rentcharges Act 1977 means that, with some exceptions, no new rentcharges were created after 22 August 1977 and certain types of rentcharges already existing at that date will now be automatically extinguished in July 2037.
However, the creation of new estate rentcharges is one of the exceptions permitted by the Act and so you may continue to encounter this form of property interest.