Land Law – Rent Charges

Rent charges have existed since the 13th century and have traditionally provided an income for landowners who allowed their land to be developed. It would be fair to say that in recent years, rent charges have not been a major feature of any conveyancing transaction, but that may be set to change. There have been a number of cases recently where private investment companies have been imposing heavy financial penalties on homeowners for non-payment. These fines have far exceeded the rent that was due, and in this article we will highlight what steps Property Lawyers should take to warn clients when a rent charge appears on a title report. 

What is a rent charge?

Despite sounding similar, a rent charge is not the same as a ground rent. A ground rent only applies to leasehold properties and usually involves the maintenance of shared areas. A rent charge is an annual payment that is usually less then £10. Rent charges (also known as chief rent in Manchester) encouraged landowners to sell their land to developers. The landowner would sell the land at a discounted rate in exchange for a regular income from the owners of newly built houses. This income, or rent charge, would apply to any subsequent owner of a property and would provide a regular income. 

A person entitled to the rent charge is known as the rent owner. The reason the amount of rent charged is normally £10 or less is because rent charges were not linked to inflation when created. Given the small sums involved, most homeowners have traditionally not been particularly concerned with this type of charge on their property. Where a property is sold as a title registered with HM Land Registry, the rent charge appears in the charges register, and it would be pointed out to a purchaser as part of a normal conveyancing transaction.  

The Rentcharges Act 1977 

One reason rent charges have not been in the forefront of land law practice is that, following the Rentcharges Act 1977, no new rent charges could be created. The act also gave any existing rent charges a limited life span, and they will all now automatically expire in 2037. 

Bearing this in mind, you may wonder why the archaic laws of rent charges are now being featured in the Journal. The simple answer is, because a perfectly legal but rather sharp practice has emerged over the last few years. The practice has involved several investment companies hoping to cash in on homeowners’ ignorance of the law. 

The rent charge “scam”

Where a rent is unpaid, the rent owner has the normal remedy of perusing the debt through the courts. It is also often possible for the rent owner to enforce the debt by exercising a right of re-entry or creating a Lease as a security under section 121 of the Law of Property Act 1925. The simple threat of a rent owner exercising either option often not only scares the homeowner into paying the outstanding amount, but many are willing to pay very significant “administration or late payment” fees to make the problem go away. If you want to sell your property, you may have little option but to pay if you want a sale to proceed quickly.  

While there is nothing illegal with companies exercising their legal rights in this way, it is clear that some were using their rights to charge unreasonable and unjustified sums of money. In 2016 in the High Court, Morgoed Estates Limited successfully won an appeal (Ref [2016] UKUT 395 (TCC) that confirmed the rent owner could exercise its rights even if this action was not proportionate. In this case the Judge acknowledged the problem with the law, but she had little choice other than to allow Morgoed Estates to appeal. Parliament should have dealt with this issue when it created the Rentcharges Act 1977, and without Parliament changing the law, the court has no choice but to apply the law as drafted. To be fair to the Parliamentary draftsmen at the time, this type of abuse or sharp practice was not in use.

Avoiding the problem

If you own a property that is subject to a rent charge, then the key advice is to ensure that it is paid on time and in full. It is unwise to wait until an unscrupulous rent charge owner asks for payment, because they may very well also ask for significant additional sums in the form of “administration” fees. 

If your rent is fully paid up but you do not want to run the risk of dealing with the types of “investment companies” described in this article, you can redeem a rent charge. If you know the identity of the rent owner, you can apply to the Department for Communities and Local Government to redeem the rent charge. The cost of redeeming the rent charge will be about 16 times the yearly payment, so if your property is subject to a rent charge of £10, then a one-off payment of £160 is the maximum that should be charged. 

Sadly, this is not the first time that an antiquated law has been used in an unexpected way to make a profit or highlight an unexpected liability for a homeowner. In 2003 the Wallbank family received an unpleasant surprise when a demand for £100,000 was made by their local church under the Chancel Repair Act 1932. As in this case, the courts had little choice but to follow the letter of the law, and the family was left with a £350,000 bill including the legal costs of unsuccessfully disputing the matter.

Potential issues like rent charge or chancel repair liabilities are unexpected and thankfully relatively rare in a normal property purchase. Each of these potential issues has a limited life span, as Parliament has set a date for any new claims to expire. In the meantime, a good Property Lawyer (and staff) will ensure they are aware of developing land law issues and advise their clients accordingly.