What are rentcharges?

Originating in the early part of the last century and only applicable to freehold land, a rentcharge is any regular sum of money due on the land to the rent owner, and should not be confused with a ground rent. Historical rentcharges are common in Manchester, Liverpool and Bristol, and work by imposing a charge on the land requiring the rent payer to pay the rent. Whilst rentcharges may seem a historical concept, the problems they pose for freeholders remains an issue to this day.

What problems do rentcharges present to freeholders?

You could be forgiven for thinking that if you own the freehold of your property (mortgage-free), no-one has the right to do anything with it without your permission or even kick you out of it. Unfortunately, as with any bill, rentcharges are fine until you don’t pay them. Statutory enforcement action available to rent owners for unpaid rentcharges includes not only pursuing the sum as a debt, but also granting a lease on the charged land to trustees.  In some cases, the rent owner may also have reserved a right to forfeit the freehold land.

In a recent case, on non-payment of the rentcharge, the rent owner, Morgoed Estates, granted itself a lease of the property. The court rejected the freeholder’s arguments that the lease was a security interest and not registrable as a lease. The court held that Morgoed Estates had legitimately used its statutory right to grant a lease to enforce non-payment of the rentcharge. However, the court acknowledged that the grant of the lease was in effect a “stranglehold” on the property owner whose freehold title effectively becomes worthless whilst the lease remains in existence. In this case, the freeholders were forced to pay large sums in return for the surrender of the lease.

Whilst the Rentcharge Act 1977 limited the continued validity of existing rentcharges, they will not expire until 2037. Until that time, the challenges rentcharges pose to freeholders remain significant.

The good news is that options are now available to freeholders to deal with the problems rentcharges pose, including taking out indemnity insurance, or buying (redeeming) the rentcharges attached to their property, and thereby removing the rentcharge entirely.

Should you wish to speak with a member of our conveyancing team regarding any issues you are facing with a rentcharge please call 0161 941 4000 and ask to speak to a member of the Residential Property team, or email lawyers@myerson.co.uk.