Rent Charges
If you are buying or selling a property, you might have come across the term ‘rentcharge’ either referred to within the title deeds of the property or mentioned by your conveyancing solicitor. But, what is a rent charge? In this article, we will take a look at what they are, how they are used in practice and why they important.
A rentcharge is generally defined as being a periodic sum of money payable by the owner of the land to a third party (the rentcharge owner) arising other than out of a Landlord/Tenant relationship. Therefore, ground rent for instance, payable on a leasehold property is not a rentcharge.
All rentcharges are governed by the Rentcharge Act 1977 (the Act). This same Act also means that from the 22nd August 1977, no new rentcharges cannot be created (with very few exceptions).
Although no new rentcharges can be created as above, the issue is that any existing rentcharges still remain a legal interest and therefore, pass with the land, binding subsequent buyers making them still relevant in property transactions.
Turning back to the earlier comment we have made above as to exemptions under the Act, the same Act states that all existing rent charges will cease to exist at the expiry of the 60th anniversary of the Act (22.08.1977) or from the date when the rent charge first became payable (whichever is later).
How to establish if the land is subject to a rentcharge?
For all registered land, under the Land Registration Rules 2003, HMLR would have noted the rent charge interest within the Charges Register.
Where the property in question is unregistered, your conveyancing solicitor will need to establish the original deed creating the rentcharge. Although you as a property buyer or seller does not need to concern yourselves too much over the technicalities, what the solicitor will need to do in addition to establishing a good root of title is to separately lodge this deed on registration. The land registry will then note the interest on the official copies as above.
Creation of Rentcharges and what are the exceptions to this rule?
As we have briefly outlined above, the Act prevents the creation of new rent charges after the 22nd August 1977 except on the following grounds;
- Those which give effect to trusts in the case of family charge under Schedule 1 Trusts of Land and Appointment of Trustees Act 1996.
- Creation of an Estate Rent Charge
- A rentcharge created under an Act in connection with works on land.
- Rent charge created under an Order by the Courts (a judge)
During a conveyancing transaction, especially on properties which are relatively new, but our clients and us as conveyancers regularly come across Estate Rent Charges.
Estate rentcharges are created for the purpose of either:
- Making covenants to be performed by the owner of the land affected, enforceable by the rent owner against the current owner of the land.
- As means of meeting the costs of carrying out their obligations by a rent owner (the party who has the benefit of the rentcharge) of their covenants such as services, carrying out of maintenance or repairs or effecting insurance, so on.
Rentcharges created under (1) above is an effective method of enforcing positive covenants against the landowner by the rent owner.
Rentcharges created for the purpose of (2) is a useful method of reserving service charges out of freehold sales, e,g where a management company covenants to maintain amenity areas. Remember, from our opening comments on this article that a rent charge exists where a payment is due from land/occupier where the conventional landlord/tenant relation doesn’t exist.
A word of warning
It is important to remember that the rentcharge must represent a payment for the performance by the rent owner of a covenant which is reasonable in relation to the covenant. If this test is not satisfied (although we can see why this might be a trap, since the word reasonable is subjective), the rentcharge will not be a valid estate rentcharge unless the amount reserved nominal.
For anyone reading this point, we recommend seeking specialist advice from your solicitor.
Removal of a rentcharge
In some instances, during the course of a property transaction, there may be instances where the removal or discharge of a rentcharge is necessary.
In these circumstances, there are three main ways in which a rent charge can come to an end.
They are:
- The release (by carrying out a Deed of Release) by the owner of the rent charge to the owner of the land being affected by the rent charge.
- By merger, when the rent charge and the land owner becomes one and the same.
- By redemption under the Rent Charges Act 1977
It is important to remember that various other work arounds are available to save time and money in dealing with rentcharges, without having the need to remove the rentcharge.
It is crucial you speak with your property solicitor for their advice before you contact or attempt to contact the rentcharge owner. The reason is, by contacting the rent charge owner, you in most cases immediately loose other, more practical solutions such as the ability to obtain indemnity insurance.
And finally, if you are a rentcharge owner
Where you are the rent charge owner, you might be considering either transferring or selling the rent charge benefit you have, to someone else.
This process must be carried out by deed.
As at the time of writing, this is done so by way of TR1 form. Your conveyancing solicitor will be responsible for preparing this deed. It is worth remembering however that the benefit of the covenant for payment of the rent charge must be expressly assigned to the person you are transferring it to. This is done by setting out Additional Provisions to the appropriate panel of the TR1 form. Otherwise, although the obligation to pay the rent charge remains, it will be unenforceable by action unless doing so under distress or re-entry as seen under Grant v Edmondson 1931.
Disclaimer – our articles are designed to give you guidance and information. There is no substitute for proper and direct advice, particularly as everyone’s circumstances are different. You must therefore speak with and seek specific legal advice from your solicitor. Our articles does not offer a warranty which you may place reliance on.
