Joanne Hadley offers a guide to the best way forward when a title investigation reveals a rentcharge over land
Rentcharges are often misunderstood, even by lawyers. They are not very common and only tend to crop up in certain parts of the country (primarily Manchester, Bath and Bristol). The terminology used to describe them varies with location (they are often known as “chief rents” in the North West). To add to the confusion, the same phrase is also sometimes used to describe a true “ground rent” (that is, a regular payment required under a lease).
What is a rentcharge?
In contrast to a ground rent, rentcharges affect freehold (not leasehold) land. Somewhat archaic in nature, they were originally created to enable lords of the manor selling off their freehold land to recover an income from that land. Created by deed, they impose a charge over freehold land to secure the annual payment by the freehold property owner to the rentcharge owner of what, in today’s money, is often a nominal sum.
A rentcharge will usually qualify as a legal interest in the land in itself (even though the rentcharge owner may not hold any land). It can be registered at the Land Registry and will appear under its own title number with a corresponding notice on the charged land (although there is no obligation to register old rentcharges which are not already registered). A rentcharge can be transferred and a successor in title to the charged land will be bound by it. Some deeds also contain positive covenants.
The creation of most new rentcharges was prohibited by the Rentcharges Act 1977 (“the 1977 Act”) (subject to a few exceptions, including estate rentcharges). Furthermore, most remaining rentcharges will be extinguished automatically on the later of 22 July 2037 or the expiry of 60 years from the date when they first became payable. Nevertheless, they continue to arise from time to time on title investigations. So what do you need to know if you come across one?
Is it in force?
If the rentcharge has not been paid or acknowledged for some time, it is worth considering whether the owner is barred from recovering the arrears (a limitation period of six years will apply). Depending upon whether the rentcharge is registered or unregistered, a significant lapse of time may also mean that the rentcharge is potentially extinguishable or even extinguished (based on adverse possession).
When purchasing land which is subject to a rentcharge that may have been extinguished due to non-payment, it is advisable to ask the seller to remove it from the title prior to sale. That way, it will be possible to ascertain whether the rentcharge has been extinguished or continues in force and, if the latter, the seller can be asked to pay all arrears so the property is not at risk of enforcement.
In reality, where a rentcharge is in force, the cost of collection will often exceed the amount of the rentcharge, which can be just a few pounds per year. Therefore, a rentcharge owner may not take any steps to enforce it. However, the potential remedies available to a rentcharge owner are far more serious than many people realise (although some are very seldom relied upon in practice). Therefore, rentcharges should not be overlooked lightly.
The risk of enforcement
A rentcharge owner may have a number of remedies available to him:
- The two statutory remedies available under section 121 of the Law of Property Act 1925 are particularly draconian in nature. Section 121(3) gives the owner a right, where rent is unpaid for 40 days, without even having made a demand, to enter into possession of the charged land and take the income from that land until the rent and costs have been paid in full. Section 121(4) enables an owner, where rent is unpaid for 40 days, again without even having made a demand, to grant a lease of the charged land to trustees who must then try to raise enough to pay the rent and costs (for example, by creating a mortgage or sale – including subletting – or from receiving income from land or by any other reasonable means).
- An action of debt can be brought against the freeholder in possession and, where the charged land is divided, the freeholder of any part will be liable for the full amount.
- Where there is an express right of re-entry contained in the deed, the rentcharge owner can (provided he has not waived that right) effectively forfeit the estate of the owner of the charged land (although the court has a general equitable jurisdiction to grant relief).
- Where the deed contained a covenant to pay the rent, the original rent payer will remain liable unless expressly released, such that a claim for breach of covenant to pay the rent could be brought against the original rent payer. In some cases, a successor in title may have entered into a direct covenant with the original rent owner to pay the rent and will usually have agreed to indemnify the original rent payer.
Redemption
Given the potentially serious remedies available to a rentcharge owner, it is sensible to consider the possibility of redeeming a rentcharge entirely in order to limit exposure.
The 1977 Act brought in a supposedly simplified procedure which enabled a rentcharge to be redeemed by the making of a lump sum payment. That process is not currently available, since the statutory formula used to calculate the redemption price is no longer viable. That said, it is still open to the parties to try to reach a private settlement whereby an express release is given by deed. A rentcharge owner may agree to a release in exchange for the rent payer “buying out” the rentcharge. The latest guidance by the Department for Communities and Local Government suggests that a suitable redemption price will usually be approximately 16 times the amount of the rent.
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Joanne Hadley is an associate in real estate litigation at DWF LLP
