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Rentcharge Abuse in Bristol: Lease Loophole Closed

View profile for Paul Hajek
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Update: you can find our most up-to-date blog on rentcharges here.

rentcharges in bristolIf you own a property in Bristol or Bath ( a few other cities and towns are available) which is subject to a Rentcharge we bring you some good news.

A recent case has closed up an odious and spiteful loophole in the law relating to Rentcharges.

The owners of Rentcharges  can no longer charge hundreds and sometimes thousands of pounds where a homeowner has missed the annual Rentcharge payment of a few pounds.

What is a Rentcharge?

Rentcharges (technically Rentscharge but let’s not be too pedantic) originated in the early part of the last century and were a means for builders to develop land without paying a premium to the owner of the Land.

Landowners would sell land to Developers at a reduced capital sum or for no money at all in return for an income from the owners of the new houses and their subsequent owners.

The person entitled to the Rentcharge is known as the Rentowner.

Rentcharges normally range between £2 and £10 per annum with the most expensive at around £12.60.

Rentcharges in Bristol

A Rentcharge is a peculiarity of Conveyancing in Bristol and surrounding towns and villages. In Manchester such payments are known as Chief Rents.

Estate Agents, in our neck of the woods, often use the term “freehold and free” in their property particulars and brochures. In this context “freehold and free” refers to a freehold house which is not subject to the payment of a Rentcharge.

A Rentcharge should not be confused with Ground Rents which only relate to Leasehold properties especially, although not exclusively, to flats.

Rentcharge Sell By Date

The 1977 Rentcharges Act abolished the creation of all new Rentcharges, subject to a few exceptions, for example, small developments with shared facilities such as pumping station.

 The shelf life for existing Rentcharges was capped at 60 years so that all relevant Rentcharges would expire in 2037.

The 1977 Act, for those who could not wait that long by design or choice, permitted existing freehold owners, to buy out (or redeem as it is technically known) the Rentcharges attached to their property.

How Much Does It Cost To Redeem a Rentcharge?

If you know the identity of the Rentowner you can apply to the Department of Communities and Local Government to redeem the Rentcharge.

The cost of redeeming the Rentcharge will be about 16 times the yearly payment.

The address to write to or download the application form on line is:

Rentcharges Unit:

Department for Communities and Local Government

Ground Floor, Rosebrae Court, Woodside Ferry Approach,

Birkenhead, Marseyside CH41 6DU

Direct Telephone No. 0303 444558 or email rentcharges[at]communities.gsi.gov.uk

Website: https://www.gov.uk/rentcharges

The Problems with Rentcharges When Selling Your Property

Fast forward to 2015 and inflation has eroded any financial advantage for Rentowners.

Many homeowners have been paying the yearly rentcharge although many may have forgotten to pay, not been asked to pay or not known who to pay.

As Conveyancing Solicitors we often have to deal with problems where there is no evidence of payment of the Rentcharge on the sale of a property.

Conveyancing Solicitors in Bristol normally agree an apportionment from the sale price of 6 years (the limitation period for a debt) Rentcharge payments roughly between £15 and £75.

No big deal then?

Rentcharge Trap?

You and Yours, the BBC Radio 4 Consumer Affairs Programme, highlighted a nasty little problem with Rentcharges in Bristol last year when it broadcast an item about a case going through the Courts at the time.

I was asked to give my expert opinion on Rentcharges and the particular case in question for the programme.

I must admit it didn’t look promising at the time.

The Facts of the Rentcharge in Bristol Case

An owner of a house in Bristol was subject to a Rentcharge and had a Lease registered against his property by a company called Morgoed claiming he had an unpaid Rentcharge liability.

The owner admitted he had received a Rentcharge demand from Morgoed a company he previously heard of. He had been paying his Rentcharge annually ever since he bought the property to another person.

Not unsurprisingly the owner asked for proof of ownership of the Rentcharge before paying. This, although he says was promised, was never forthcoming.

Morgoed then used the little known Section 121 (4) of the Law of Property Act 1925 to create a Lease on his property as security for debt of £16.50 unpaid Rentcharge.

The company was uninterested in accepting the £16.50 offered in full payment of the outstanding Rentcharge in favour of the vastly inflated riches of an unrestricted fee to remove its Lease on the eventual sale of the property.

A Sledgehammer Lease to Crack a Rentcharge Nut

In 1925, the payment of an annual sum of £2 for the Rentcharge, would have not been insignificant so creating a Lease to protect security for payment would not have been that controversial.

The obvious reason Morgoed chose to impose a Lease rather receive a check for £16.50 was that the Lease once created, there was no requirement in the 1925 Act for a cap on the fees charged for the Lease to be removed.

Kerching!

What Morgoed did was considered perfectly legal (although unchallenged in the Courts), but hardly proportionate.

The Good News About Rentcharges

Luckily, common sense has prevailed and the Court was having none of it.

The technical bit: the Court decided that:

a lease created pursuant to section 121 (4) of the Law of Property Act 1925 by the owner of a rentcharge which is able to be redeemed under the Rentcharges Act 1977    is not registrable at HM Land Registry as a lease because it is a mortgage (within             sections 3(5) and 4 (5) of the Land Registration Act 2002) and can only be protected   on the register by a notice.

Bottom line: Morgoed, sling your hook, (not a very lawyerly statement, I know, but I do so hate such abuses) you can’t punish people by holding them to ransom with exorbitant fees for an unpaid Rentcharge.

The Appeal Court also awarded a costs order against Morgoed in a further hearing where it had Leave to Appeal refused.

The judge did not temper his opinion when he stated:

By the Applicants (Morgoed) unreasonable conduct in these proceedings and in persisting in charging unreasonable sums as a condition for redeeming the Rentcharge I see no reason why the standard order for costs (against Morgoed) should not follow the failure of the application”

So, Morgoed will no longer be able to extract exorbitant fees to pay off a Rentcharge debt. Morgoed’s ruse of creating a Lease has been rumbled.

End of.

How To Avoid A Rentcharge Nightmare Happening To You.

1. First check your deeds to see if your property could be subject to a Rentcharge. If you are unsure check with your Conveyancing Solicitor or the Land Registry.

2. Make sure you pay your Rentcharge on time whether demanded or not and ask for a receipt.

3. Set up a Standing Order if possible to avoid overlooking payment of the Rentcharge.

4. If you were paying a Rentcharge but it has not been demanded for a while check with your neighbours to see if they have any information.

5. If you receive a new demand for a Rentcharge ask for documentary proof from the purported new Rentowner and ensure your request by mail is “Signed for”.

6. Best of all, buy out and redeem your Rentcharge through the Department for Communities and Local Government as it will save potential hassle and additional cost later on when you sell your house.

7. If the Rentowner tries it on or attempts to threaten you with a Statutory Lease tell the Company, as we lawyers say with the greatest of respect, to get lost.

8. The Law may not be an Ass after all and Mr. Keegan can sell his property without the fear of being held to ransom.

Three cheers…

Read More Great Legal Content

How About a Quick Game of Chancel Repair Liability Challenge?     How Bothered Should You Be About Rentcharges?     The Big Fat Conveyancing Guide For First Time Buyers!

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