The Rentcharges “Scam” And How To Avoid It

• Posted onNovember 13, 2017

What are rentcharges?

In the UK a rentcharge is an annual sum paid by the owners of a freehold property to the owner of the rentcharge (the rentcharge owner), who needs have no other interest in the property. Rentcharges are not to be confused with Ground Rents, which mostly apply to leasehold properties.

Rentcharges have been around since the 13th Century, but were most prevalent in the early part of the 20^th Century when they were used as a way to encourage landowners to sell their land to be developed at a discounted price in return for a regular annual income. The rentcharge could be collected by subsequent owners of the land and are usually still around £12 or less because they are generally not linked to inflation.

Rentcharges are more common in certain areas of the UK like Bristol and the surrounding villages, Bath and Sunderland. In Manchester they are known as Chief Rents.

Rentcharges do not feature in many conveyancing transactions but if the property you are buying is subject to one you do need to take care. If the property is registered, the Land Registry should have noted the rentcharge in the title register.

The Rent Charges Act 1977

One reason why rentcharges have not been of particular concern in recent years is because the Rent Charges Act 1977 abolished the creation of new rentcharges, with a few small exceptions, such as small developments with shared facilities such as a pumping station or shared accessways. The Act also limited the lifespan of all existing rentcharges which will automatically expire in 2037.

The Rentcharges “Scam”

At this point you may be asking If rentcharges are archaic and not been of any real concern in recent years why have I written this article? The reason is that in the last few years a number of investment companies have been taking advantage of homeowners who have not paid rentcharges by buying up the benefit of rentcharges.

The companies can then pursue the homeowners for recovery of the debt through the courts. They also have the option of exercising a right of re-entry or of creating a lease as security. If a lease is created, the companies can then charge administration fee and additional fees for removing the lease. There is no legal requirement for the charges to be reasonable and therefore they can charge what they like. Furthermore, these leases give the right to take possession of the property to the exclusion of the freehold owners. The rights arise if the rentcharge remains unpaid for more than 40 days, even if it has not been demanded.

Often homeowners will have no option but to pay the debt in full to enable a sale of the property to proceed. Surprisingly, what sounds like a “scam” is in fact perfectly legal. At the time the remedy to enforce a rentcharge by creating a lease over a property, the amount of rentcharges payable were not insignificant and therefore the creating of a lease was a reasonable way of recovering the debt. The 1977 Act did not remove this remedy and therefore these investment companies are using this outdated and draconian law to make money by charging sometimes thousands of pounds from unsuspecting homeowners and there are no provisions in the 1977 Act for these lease to come to an end once the arrears have been cleared or if the rentcharge has been bought out.

How to avoid the “Scam”

You should check your title deeds to see whether your property is subject to a rentcharge or if you are not sure, ask a conveyancer. If your property is subject to a rentcharge you should ensure that the payments are up to date even if no payments are demanded.

If you wait for a demand you may be charged administration charges as well, which are likely to be  disproportionate to the amount owed.

Even if your rentcharge is paid up to date you may still want to avoid running the risk of having to deal with one of the companies referred to above. If you know the identity of the rentowner you can apply to the Department of Communities and Local Government to buy out the rentcharge. The approximate cost of buying out the rentcharge will be 16 times the annual payment.

If you have any questions at all regarding rentcharges or selling or buying a home, please contact our Conveyancing team for more information.