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Beware the Rentcharge!

Sep 12, 2017
A rentcharge is an annual sum often paid by a homeowner to a third party who perhaps has no other interest in the subject property. Although often considered to be trivial, as the annual cost is small, the rentcharge has potential to pose a considerable financial burden and nuisance to future and current homeowners. 

Under statutory protections given to some older rentcharges, the rentowner (the party entitled to collect the rentcharge) is granted significant rights and powers in relation to recovery of the rentcharges. Failing to make these small payments can easily result in financial penalties and in some circumstances repossession of the property. A recent case involving Morgoed Estates, one of the UK’s largest rentowners, demonstrated the costly and serious effect of owning a property subject to a rentcharge.  

Morgoed Estates owned a number of rentcharges, ranging from £5-£15 per year, per property. After making token attempts to claim the money, Morgoed made the unusual decision to grant leases to its directors. Those leases were then used to threaten the homeowners with Morgoed demanding payments of £650 to avoid the leases being registered at the Land Registry. Registration could have caused the homeowners problems when selling.

The homeowners sought legal relief, however the Upper Tribunal rejected their claims stating that even though Morgoed’s behaviour was ‘troubling’ what they were doing was not unlawful. This decision is of great concern to homeowners whose properties are subject to rentcharges. Happily, rentcharges were abolished in 1977 and no new ones can now be created.

What Should I Do?
You must check whether your home or any property that you intend to purchase is subject to a rentcharge, particularly when purchasing a property at auction. Make sure your legal adviser is checking this for you and advising you properly.
However, it is possible to buy indemnity insurance to protect you and your mortgage lender from specified losses resulting from the imposition of a rentcharge. These policies can also protect you against the cost of repossession attempts, demands for arrears by the rentowners and other expenses connected with rentcharges. 

Lucy Riley

About the author

Lucy Riley

Lucy joined Nockolds in April 2016 and is a Principal Associate and Head of Enfranchisement. Qualifying in 2000, Lucy trained and worked in London forming ...

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