What are Rentcharges?
Posted on 27th September 2023
Rentcharges affect Freehold properties and, in recent years, have been a cause for concern, particularly with mortgage lenders. Essentially, a rentcharge is an annual sum, usually a small sum, paid by the landowner to a third party. The third party is usually the original developer of the estate, and the rentcharge payment is for the upkeep of the communal areas, (such as playgrounds, private roads and parking) within the development. Rentcharges are extremely common when purchasing new build properties. Why can such a small sum be a cause for concern? Our expert conveyancing solicitors are here to explain.
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What happens if the Rentcharge is unpaid?
The main concern for our conveyancing solicitors in Lancaster is, if the Rentcharge goes unpaid, this can result in severe consequences, if the rentcharge owner were to exercise their statutory rights.
If the rentcharge goes unpaid, there is a provision for the rentcharge owner to enter the property and exercise their rights to secure payment. These rights are conferred by Section 121 of the Law of Property Act 1925.
Section 121 of the Law of Property Act 1925
Section 121 of the Law of Property Act 1925 confirms the statutory remedies for the Rentcharge Owner. This legislation confirms that the Rentcharge Owner can take the follow actions if the charge goes unpaid:
1. The Rentcharge Owner can take possession of the property, potentially without notice, depending on the provisions in the Title documents.
2. The Rentcharge Owner can grant a long lease over the property to a Trustee and register the same with HM Land Registry without notice.
What are the risks to my mortgage lender?
As you can see, there are extreme powers granted to the Rentcharge Owner in the event of non-payment of the same. This is why our solicitors in Lancaster are always extra vigilant, when reviewing the title deeds to a property, to ensure there are no adverse entries that could impact you, and your mortgage lender.
This is a matter that many mortgage lenders have recently imposed strict requirements in respect of, as they need to be satisfied that their security over the property is protected, and that the rentcharge owner may not simply take possession of the property, without any form of protection. Lenders often allow matters to proceed on the basis of one or more of the following:
1. Where the rentcharge owner is a management company owned by the residents of a private freehold development (as shareholders). Which will be the case on handover to the management company.
2. Where the statutory remedies in section 121 of the Law of Property Act have been expressly excluded in the rentcharge instrument, this can be excluded by what is know as a Deed of Variation.
3. Where the rentcharge instrument contains notification to the mortgagee of at least 21 days prior to any enforcement action by the rent charge owner.
Our conveyancing solicitors are experts in this regard, and always have the best interests of our valued clients, and their lender, at the forefront. Our conveyancing solicitors have acted for clients purchasing properties, throughout England and Wales, and know exactly what to look out for, when it comes to rentcharge clauses.
What can you do?
Our solicitors in Lancaster are here to assist you, and to find the best possible resolution, to ensure your conveyancing transaction progresses with ease. There are, therefore, options available, as we discuss below.
The existence of the Rent Charge usually comes to light when you are selling your property, as the buyer’s lender may not be agreeable to the provisions in the Title Documents, which relate to the rentcharge. The usual solution to this is to vary the remedies under the Section 121 of the Law of Property Act 1925, which we discuss above. This requires the rentcharge owner agreeing to varying the provisions in line with the mortgage lenders requirements. The Deed will then need to be registered with HM Land Registry.
If the Rentcharge owner is not agreeable to varying the rentcharge provisions, a further option would be to consider what is known as Indemnity Insurance. Whilst this will not remedy the situation, this will provide a mortgage lender with some form of assurance, in that they would be protected to recoup losses, if the rentcharge owner was to seek a right of entry.
How can our Conveyancing Solicitors help?
If you have a property that is subject to a rentcharge, or are looking to purchase a property that is subject to a rentcharge, please do not hesitate to get in touch with our specialist team today, and speak to a fully qualified solicitor. Email our team, at property@mglegal.co.uk.
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