A rentcharge is a historic and archaic mechanism by which a rent owner can charge rent out of, often but not exclusively, freehold land. Historically, the use of rentcharges were concentrated in certain parts of the country namely; Manchester, Bristol and Bath. For this reason, clients buying property outside of these areas may not have come across them before.
Most rentcharges have existed for many centuries and allow land owners, who have released part of their land for development, the ability to charge a regular payment from the people living on it. The rentcharge will bind and run with the land. This means that if the land is split and sold to different purchasers, each purchaser would all be liable to pay a contribution of the rentcharge.
The amount reserved by a rentcharge is often small, especially if created a long time ago and fixed at a certain sum without a mechanism to increase it. This may mean that it is no longer economical for the rent owner to collect the rent but caution should still be taken for those whose land is burdened by a rent charge as once the rentcharge is 40 days overdue, even if payment is not demanded, the rent owner may exercise their right of entry onto the property; evicting the homeowner without serving notice and take income from it until the arrears have been paid. For this reason, it is often not possible to take a mortgage on properties subject to a rentcharge as they are considered high risk.
Following the Rentcharges Act 1977, no new rentcharges can be created and those that are already in place will automatically extinguish on 22 July 2037 or 60 years from the date the first rent charge was demanded (whichever is the soonest). However, the Rentcharges Act 1977 permits some exceptions, such as newbuild properties that can come with ‘estate rentcharges’ that apply across the whole estate. These will remain enforceable after 2037 which will be discussed in a later article.
If the rentcharge has not been automatically extinguished there are alternative ways to minimise or even remove the risk of a rentcharge on a property such as; statutory redemption, indemnity insurance, and non-collection of rent for a period of 6 years or more.
Certain types of rentcharges are redeemable under the Rentcharges Act 1977. This allows the property owner to pay a single lump sum, rather than instalments. This is only possible if the total amount due under the rentcharge can be calculated.
On redemption of an applicable rentcharge, the owner will be provided with a redemption certificate which can be submitted to HM Land Registry to remove the entry from the title register.
Provided the rentcharge has not been demanded, indemnity insurance policy may be available to protect the owner’s risk of any future rentcharges being demanded.
Swearing a statutory declaration
If the rentcharge is not collected for a period of 6 years or more, a homeowner can swear a statutory declaration to evidence that the rentowner has not exercised the rentcharge, after this period the rent owner is no longer entitled to demand payment of the rentcharge, the declaration can then be submitted to HM Land Registry, who may remove the rentcharge from the title.
If you would like to ask any questions about rentcharges, please feel free to contact our Commercial Property team who will happily answer any of your queries