Something old - what is a rentcharge?
A rentcharge is an annual or periodic sum charged on and burdening freehold land which requires the owner of that land to pay the annual or periodic sum to the owner of the rentcharge. The party with the benefit of the rentcharge, termed the rentowner has no other legal interest in the land it is collecting the rentcharge from. A rentcharge imposes a charge on the land. Rent reserved by leases or sums payable by way of interest are not rentcharges.
Rentcharges have existed for centuries and were a way for a landlowner to release land for development whilst collecting a regular payment from the people living on such land. Rentcharges were prevalent in the Bristol, Bath and Manchester areas.
Rentcharges are themselves classified as interests in land and were capable of being registered under their own separate titles at HM Land Registry.
Since the implementation of the Rentcharges Act 1977 (with the exception of estate rentcharges), no new rentcharges can be created on or after 22 August 1977. Existing rentcharges will automatically be extinguished on the later of 2037 and the expiry of 60 years from the date when the rentcharge first became payable. There are therefore still rentcharges which apply.
The enforcement risk
As rentcharges impose a charge on the land, they are enforceable against the land irrespective of whether the current owner has covenanted with the rentowner to pay the rentcharge. No positive covenant/deed of covenant from the current owner with the rentowner is required for enforcement of a rentcharge.
The remedies available to the rent owner are as follows:
(1) In all cases, an “action of debt” may be brought. The liability to pay the rentcharge is a debt that can be enforced against the current freehold owner in possession.
(2) If the deed which created the rentcharge granted to the rentowner an express right of entry, then the rentowner has the remedy of forfeiture for non-payment.
(3) Where the rentcharge was created by a deed coming into effect after 31 December 1881, Section 121 of the Law of Property Act 1925 provides for a right of possession to take income from the freehold land until the rentcharge is fully paid. The rentowner can grant a lease (a rentcharge lease) to trustees to recover the outstanding rentcharge amounts.
I often find that there is no information available when acting for investors in property which is subject to a rentcharge. Usually we will know no more than the existence of the rentcharge. If the rentcharge is not registered with its own title at HM Land Registry, then sellers invariably do not know who the current rentowner is and have no information pertaining to payment of the rentcharge, whether there are arrears or current payments being made.
When faced with a rentcharge and the draconian remedies which might be available, many mortgagees will not wish to lend.
Some lenders have their own specific requirements such as putting in place a deed of variation with the rentowner providing:
(a) for notice of enforcement and/or
(b) excluding the remedy of forfeiture/the rentcharge lease or
(c) providing for surrender of the rentcharge lease upon settlement of rentcharge arrears.
This is not an option where the rentowner cannot be identified.
Often a buyer and/or its mortgagee will want to to put in place rentcharge indemnity insurance against the risk of enforcement. Due diligence has to be placed before the insurer and the insurance premium can in my experience be considerable, even where only a sliver of the site is subject to a rentcharge.
Something new - what is a regulated rentcharge?
The Leasehold Reform Act 2024 received Royal Assent on 24 May 2024 and on 24 July 2024 Section 113 relating to rentcharges came into force. It has introduced the new concept of the regulated rentcharge which is in fact all rentcharges, save for estate rentcharges, statutory rentcharges (created in connection with works on land e.g. improvements or repairs) and rentcharges created in accordance with a court order or relating to certain family arrangements. In other words, the rentcharges created before 22 August 1977 will now be regulated rent charges (because under the Rentcharges Act 1977, no new rentcharges can be created since 22 August 1977).
The Leasehold Reform Act 2024 has introduced a procedure for enforcement of regulated rentcharges. The rentowner may not take any action to recover or require payment of regulated rentcharge arrears without serving notice on the landowner demanding payment and a period of 30 days has passed from the date the demand was served.
The rentowner's demand for payment must contain certain information such as:
(1) the name and address of the rentowner;
(2) the amount of the regulated rentcharge arrears and how that amount has been calculated;
(3) details of how to make payment;
(4) the rentowner must provide a copy of the deed which created the rentcharge and proof of the rentowner's title to that rentcharge.
The Leasehold Reform Act 2024 has removed the right at Section 121 of the Law of Property Act 1925 to possession of the land in order to take its income in payment of the rentcharge and/or the grant of the rentcharge lease. This is retrospective and so the rentowner does not have these statutory remedies since 27 November 2023 and the abolition of the statutory remedies is for regulated rentcharge arrears arising before or after 24 July 2024.
Concluding thoughts and time for an old rhyme
Whilst it is welcome that the draconian statutory remedy for enforcement of rentcharges has been abolished, rentcharges have not gone away. They still exist and are applicable. They can still be enforced although there is the new regime for their enforcement. In my view, buyers and mortgagees will still want indemnity insurance to be in place when investing in or charging property which is burdened by a rentcharge.
Like rentcharges, the saying “something old, something new, something borrowed, something blue” is old. It dates from the 1800's and originates from the good luck charms which a Victorian bride should wear on her wedding day. A good luck charm will not protect against the risk of enforcement of a rentcharge so due diligence, indemnity insurance and the Leasehold Reform Act 2024 are a better means of protection!
The contents of this blog are for general information and not a substitute for specific legal advice. If you have any queries on the content or legislation, please contact the writer or our experienced Howard Kennedy real estate team.
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