Leasehold and Freehold Reform Bill: What you need to know

Yes, but as there are shared communal services at the estate, this involves the payment of a contribution to maintain these areas.

A rentcharge is a way in which a third party (the “Rentcharge owner”) secures payment of the sum to enforce positive obligations against the owner of the property. The rentcharges impose a financial charge on the land which can be enforced to secure those obligations.

This is a freehold property and estate rentcharges of the nature set out in the title are treated differently to service charges and ground rent for a leasehold property.

There is no statutory right to redeem an estate rentcharge of this nature. See the government guidance.The only rentcharges that can be redeemed are those created prior to the 22 August 1977 (Rentcharges Act 1977).

No. While the current charges may be nominal, facilities on the estate will become worn over time and may need replacing. The charge must be “reasonable”, but there is no definition as to what “reasonable” is.

No. There has been a case whereby the owners argued that they should not pay to the maintenance of certain roads on the estate that they did not use. The Court held the validity of the rentcharge – they had to pay anyway.

No. An owner of a property subject to these provisions is over a barrel. Unlike the situation with a leasehold property (where there is a consultation process known as S20 consultation) freehold owners have no such protection.

You have 40 days only to pay.

The remedies available to the owner of the rent charge are draconian under Section 121 of the Law of Property Act 1925 (LPA 1925). The rentcharge owner has:

• To sue you for the debt
• A right of entry into the property
• A right to take possession
• A right to create a lease

Roberts and others –V- Lawton and others 

Several property owners had not paid their rentcharges and the owner of the rentcharge granted leases of 99 years. The judge acknowledged that once the leases were registered, the property would then be unsalable. The lease amounts to a stranglehold on the property owner. The freehold is worthless in the presence of the lease. The property owners in this case has to negotiate with the rent owner to surrender the lease and Roberts would only do so if his costs were paid. 

Case Summary: 

Roberts v Lawton [2016] UKUT 395

This case involved a company who used its statutory enforcement rights under section 121 LPA 1925, to compel property owners to make payment of arrears and significant costs. 

The case involved a number of property owners who were in arrears with their rentcharges for various small amounts; the lowest was £6 and the highest £15. 

The company granted its directors, as trustees, rentcharge leases for a term of 99 years that reserved no rent and applied to register the leases at the Land Registry. Once registered, these leases would stymie the sale of these properties because the sale would not be practically viable, even if the tenant directors did not seek to take possession. 

The landowners were compelled to pay significant sums in return for surrender of the leases. One owner had been asked to pay £650. Even where the rentcharge is paid, the lease continues. 

The Land Registry initially refused to register the leases and the case came before the Upper Tribunal to decide whether the rentcharge leases were registrable. The Tribunal Judge reluctantly found that the practise was lawful despite being a disproportionate and unfair remedy. 

Judge Elizabeth Cook said: “Once the lease is in existence, therefore, it amounts to a stranglehold on the property owner whose freehold is worthless in the presence of the lease.” It is a wholly disproportionate remedy but that is the law as it stands at this moment.

The consequences of this remedy will adversely affect the value of the property and the lender’s security.

Indemnity insurance is a little useless in this instance because while insurance may cover financial losses, it cannot force the rentcharge owner to cancel any lease it has granted.

Under the UK mortgage finance lending handbook, it is stipulated by a number of mortgage lenders that a deed of variation will be required.  The lease creating powers of Section 121 should be excluded. 

While some lenders will accept the position where the estate rentcharge owner is a Company in which the resident has a share, not all will accept. 

Most lenders would at the very least want notice or the arrears or non-payment of the rentcharge – and to be given a minimum notice period.

Even if you obtain a Deed of Variation, the UK mortgage finance handbook varies between lender to lender. What your mortgage lender might accept now, another lender (when you come to sell) may not. 

Even your own mortgage lender may change what they would be prepared to accept. This will affect the saleability of the property and necessarily involve you with additional expenditure in your attempts to get a further variation.

There is some thought that even with a Deed of Variation, S121 wording might not make a variation sufficiently effective. This has yet to be considered by the Judiciary.