Rent charges: to be avoided?

Rent charges: to be avoided?

Historic rent charges are yearly payments made by homeowners to whoever owns the rent charge (rent charge owner), and date mainly from the end of the nineteenth century and the early twentieth century. The rent charge owner does not usually have any interest in the property other than a right to receive this sum each year. In today’s terms, historic rent charges are generally for nominal sums, say a few pounds a year. Despite the small sums due, payment of these should always be made promptly and it is worth seeing if these can be redeemed by the payment of a single lump sum.

In the 1970s, legislation was passed preventing the creation of any more of these historic rent charges, with a few exceptions – one of which was estate rent charges.

It is becoming increasingly common for a developer to set up a management company on new developments. These companies manage common areas and facilities, such as playgrounds, drainage, amenity land, car parks and private accesses, including their insurance, cultivation, maintenance, repair and lighting. Each freeholder is responsible for a proportion of these estate charges. By applying an estate charge to freeholders, the developers or estate managers can ensure the recovery of costs accrued from providing services and maintenance.

Whilst leasehold owners have significant statutory protection in relation to service charges payable under a lease, freeholders do not share the same rights and protection. Freehold owners should therefore be aware that they have very limited protection and few options to investigate or challenge any charges demanded from them. There is no implied test of reasonableness for estate charges, and any dispute or challenge must be made by bringing court proceedings.

Freeholders also have no right to receive accounts or to be provided with information relating to the charges claimed, unless express provision is included in the title to the property.

Both historic rent charges and estate rent charges have the same enforcement remedies. If rent is unpaid for 40 days, the rent owner’s options for enforcement of the debt may include rights to repossess the property or to grant a lease of the property to trustees. The trustees will then try to use that lease to raise enough money to settle the unpaid rent. A case in 2016 (Roberts v Lawton) confirmed that once a lease had been created it would continue even if the arrears had been paid off and the rent charge terminated, unless the rent charge owner agrees voluntarily to remove it. Such enforcement remedies are very heavy handed.

There is no obligation on the rent owner to serve notice demanding the over-due estate charges before pursuing these draconian remedies. These penalties create a great risk to homeowners and any lenders whose charge is secured on the property. The Government has promised reform but, for the time being, if you are contemplating buying a property subject to historic rent charges, check if these have been paid up to date and look at the possibility of redeeming the charge. Historic rent charges are common in Bath and Bristol.

With regard to estate rent charges, you should make sure the rent is paid on time so as to avoid any of these penalties. Also, try to ensure that even if the property is subject to such a yearly payment, the various statutory remedies are stated not to apply or are watered down so as to mitigate the enforcement risks.