Rentcharges over freehold land date back to the 19th and very early 20th centuries. They were used to enable sellers to charge less than the capital value of land that they were selling, in return for fixed annual payments in perpetuity. Although they were once useful, they created practical difficulties for the owners of land affected by them. Consequently, Parliament brought forward legislation changing the law and restricting the types of rentcharges that could be created going forwards.
Under the Rentcharges Act 1977, historic rentcharges will cease to exist on 22nd July 2037. In addition, freeholders became entitled to redeem rentcharges created before 22 August 1977, without waiting for them to expire, by paying a lump sum to the owner of the rentcharge. Meanwhile the values of the rentcharges that still exist have been eroded by inflation – and those who own properties encumbered by them might, understandably, regard them as relatively unimportant. Roberts v Lawton [2016] UKUT 395 (TCC); [2016] PLSCS 245 illustrates the dangers of so doing.
The case concerned rentcharges on a number of properties, which were in arrears that ranged from £6 to £15. Some landowners had refused to pay without proof that the company owned the rentcharges. Others had never received demands because they did not live in the properties themselves. But, when arrears accrue, section 121 of the Law of Property Act 1925 empowers rentcharge owners to grant statutory leases over the land that is subject to the rentcharge. And this is precisely what the company that owned the rentcharges did. It granted its directors leases for 99 years (without reserving a rent, since any such rent would have been payable to the landowner), with the intention of clearing them from the title on payment of the arrears and all its costs.
The company’s costs amounted to considerably more than the arrears themselves. In fact, one of the parties suggested that the company was in business to collect administration charges for the grant of rentcharge leases, as opposed to being in business to collect the rentcharges themselves (or the monies paid to redeem them).
Meanwhile, on receiving applications to register the rentcharge leases, the Land Registry queried whether they constituted mortgages by demise (ie mortgages created by the grant of a lease). If so, they were unregistrable because, under the Land Registration Act 2002, the only ways of creating legal charges over registered land are by way of legal mortgage or by charging land with the payment of money.
The tribunal accepted that the company’s behaviour had been troubling. But the rentcharge leases were not subject to “a provision for cesser on redemption”, which is a requirement for mortgages by demise. Indeed, there was no question of the leases coming to an end, unless they were surrendered voluntarily, because a rentcharge lease is not affected by the redemption of the rentcharge itself or by the extinguishment of the rentcharge in 2037.
The judge added that mortgages provide security for liabilities, as do rentcharges. By contrast, rentcharge leases provide remedies for use when things go wrong. So now we know. They are not mortgages by demise – and are registrable at the Land Registry. Alas and alack that Parliament did not go further when it reformed the law on rentcharges in 1977.
Allyson Colby is a property law consultant
