Rentcharges; Draconian Rights Back with a Vengeance

Rentcharges, a rarely encountered quirk of English property law dating back to the 1800s, need careful consideration following a recent Upper Tribunal case.

A rentcharge over land secures the payment of money due to the “rent owner”. Popular in Victorian times, they were utilised by landowners to obtain a future source of income following the sale of land. When created the sums payable would have provided a reasonable source of income for “rent owners”. However, the amounts involved are usually only a few pounds and the passage of time and inflation means they are in most instances quite insignificant.

There are various remedies available to a “rent owner” to recover arrears of rentcharges created after 1881, including:-

• A right of entry onto the land to hold the land and take income from it until the arrears have been discharged; and
• The grant of a lease of the land charged on trust to raise arrears.

To trigger enforcement, rentcharge payments must be over 40 days in arrears. However, there is no requirement to raise a demand for payment. This means that a landowner could be subject to enforcement action without being aware that payment was due.

Often dismissed by landowners due to the insignificant rents payable, they should be placed firmly back in the spotlight following the Morgoed Estates Limited[1] case. In this case a number of landowners had failed to pay rentcharges due to Morgoed Estates, one of the largest owners of rentcharges and ground rents in England. Estates exercised their statutory right to grant 99 year leases of the land charged to trustees and then proceeded to register the leases at the Land Registry. In doing so the new leases took priority over the landowners’ freehold interests.

Unlike a mortgage there are no provisions to end a rentcharge lease once arrears are settled, meaning that the landowner may be held to ransom until it pays a fee for surrender of the lease. Unless the landowner can reach an agreement to surrender, the lease will continue.

The implications to the landowner when a rentcharge lease is taken are considerable:-

• The landowner may lawfully be excluded from their land;
• The value of the landowner’s interest may drop significantly; and
• The property will be practically unmarketable and unmortgageable.

Property owners and lawyers alike have a number of steps that can be taken to limit potential liabilities arising under a rentcharge or to extinguish the rights altogether, including applications for release and indemnity insurance. However, the case serves as a timely reminder to take action before it is too late and a rentcharge lease is put in place.                                

For advice on your commercial property and how to protect your land from enforcement of a rentcharge please speak to William Warnock, Bar Graduate Lawyer, in our Poole office.