From the blog of Clutton Cox, Bristol.
Owl cannot verify this legal information but, if it is correct, it has important implications for many Cranbrook residents so they may wish to check this out urgently:
“The arcane world of Rentcharges has moved on significantly – and not in a good way.
We have updated this post a few times since my appearance on Radio 4’s “You and Yours” a couple of years ago to discuss Rentcharges.
At the beginning of last year, we were able to confirm what we thought was the end to a particularly vindictive abuse of process in how arrears were recovered.
Annoyingly, on appeal, the law has been returned to its previous anachronistic form.
If you are the owner of a property with a Rentcharge (or Chief Rent depending on which area you live) you need to read on to avoid your being an unwitting part of a particularly nasty Conveyancing Nightmare.
More on that later, but first some background.
What is a Rentcharge?
Rentcharges (technically Rentscharge but let’s not be too pedantic, we’re friends after all) 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 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
Rentcharges in Bristol, Chief Rents in Manchester
A Rentcharge is a peculiarity of Conveyancing in Bristol and surrounding towns and villages. They can also crop up in other areas of England such as Bath and Sunderland.
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.
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 a pumping station or shared accessways.
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.
A Rentcharge should not be confused with a Ground Rent which only relates to Leasehold properties, especially, although not exclusively, to flats. You do not have an automatic right to buy your Ground Rent.
How Much Does It Cost To Redeem a Rentcharge?
If you know the identity of the Rentowner you can apply to the Department for Communities and Local Government to redeem the Rentcharge.
The cost of redeeming the Rentcharge will be about 16 times the yearly payment.
We had an enquiry from a client who had received a letter from an Estate Agent acting for a Rentowner and was asked would he like to purchase the Rentcharge for £750
We were asked whether £750 was a good deal or not.
The Rentcharge in question amounted to £2.64 per annum.
The cost to redeem under the 1977 Rentcharge Act would be about 16 times the yearly payment, approximately, £43.
We said it was not a good deal and advised him to contact the Department for Communities and Local Government
If you know the identity of the Rentowner you can apply to the Department for Communities and Local Government to redeem the Rentcharge.
The address to write to or download the application form online is:
Rentcharges Unit:
Department for Communities and Local Government, Ground Floor, Rosebrae Court, Woodside Ferry Approach, Birkenhead, Merseyside, CH41 6DU.
Are There Any Problems with Rentcharges When Selling Your Property
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 on 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?
The Rentcharge “Scam”?
Many conveyancing deeds which include a rentcharge state that such rent will be payable annually “whether formally demanded or not”.
Rentowners, including a growing number of Investment Companies, have used non-payment as a trigger to impose draconian penalties on unsuspecting homeowners.
Here is what happened to one of our conveyancing clients in Bristol.
The Facts:
Our client owned a house in Bristol subject to a Rentcharge. He received a Rentcharge demand purporting to be from the new Rentowner.
Our client had been paying his Rentcharge annually ever since he bought the property to another person. Naturally, he asked for proof of ownership before paying to someone else. Proof, he was told, would only be provided if a £60 administration fee was paid. Not, unsurprisingly, he refused.
But, here’s the rub: the company went ahead with imposing a Statutory Lease on the property rather than pursuing its debt through the Courts.
The company used the little-known Section 121 (4) of the Law of Property Act 1925 ( the LPA) to create a Lease as security for payment of its Rentcharge.
The sum total of the Rentcharge debt that the company, Morgoed Estates Limited (Morgoed), could have legitimately claimed through the Courts was only £16.50
Morgoed used the LPA to create a Lease on his property as security for debt of the £16.50 unpaid Rentcharge.
When our client discovered a Lease had been created on his property, he offered the £16.50 offered in full payment of the outstanding debt.
The company refused this offer.
A Sledgehammer Lease to Crack a Rentcharge Nut
What Morgoed did was perfectly legal, but hardly proportionate.
In 1925 the annual sums payable as Rentcharges were not insignificant.
The ability to create a Lease therefore as security for payment would not have been that controversial.
But the power to impose a Statutory Lease remains from the 1925 Act and was not abolished by the 1977 Act.
Fast forward to the present day and inflation has eroded any financial impact for Rentowners. But the power to impose a Statutory Lease remains from the 1925 Act and was not abolished by the 1977 Act.
The 1925 Act also permits the Rentowner to claim its fees for creating the Lease and a payment for the removal of the Lease as well.
Unfortunately, there is no requirement in the Act for the fees charged to be reasonable.
The fees could easily run into thousands of pounds if the Rentowner so chooses.
Our client took Morgoed to Court to remove the Lease from the title to his property.
And, he at least, had his day in Court.
A Short-Lived Victory
The Court was having none of it and decided in favour of our client.Act
The Court decided that
“The lease …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.”
The company could not ask for any additional monies over and above the outstanding Rentcharge debt.
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.”
Morgoed’s ruse of creating a Lease had been rumbled.
The Land Registry removed the restriction on our clients title and he was able to sell his property without the Statutory Lease.
But, unfortunately, for other homeowners that changed once again on an Appeal in July 2016.
The Appeal Decision
Viewers look away now, as they say on TV, as you may find scenes of an unpleasant nature.
The Court reversed the earlier decision and held that:
“It is clear from s 121 of the LPA that the right to grant a lease arises once there is 40 days of arrears, provided that the rentcharge remains in existence and even if payment was not demanded.
That right is unaffected even if the Appellants have provided no information about their entitlement to the rentcharge, even if they have sent demands to the wrong address, and even if they have refused arrears after the grant of the lease.”
It is difficult to see how the appeal could have gone any better for Morgoed. You can read the full decision here.
The judge although recognizing how the result was not appropriate said that Parliament should have reformed the remedies available in the 1977 Act and abolished the right to the Statutory Lease.
To be fair to the lawmakers, such abuses were not prevalent, if at all, at the time.
8 Tips To Avoid the Rentcharge “Scam” Happening To You.
The Rentcharge “scam” is very real one and legal!
There are a few things you can do to minimize your risk of being caught in the “scam”
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 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. Be prepared to pay an Administration fee for proof (however unpalatable) to avoid paying hundreds of pounds later if a Statutory Lease is registered against your property.
7. If your Rentowner is Morgoed or other “investment companies” make sure you never miss a payment not even when you were not prompted to pay. Companies like Morgoed exist to make money out of unsuspecting homeowners with Rentcharge liabilities from dubious administration fees and/or payment defaults.
8. Best of all, 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.
Don’t fall into the Rentcharge Trap and turn the non-payment of a few pounds into a Conveyancing Nightmare.”
http://www.cluttoncox.co.uk/site/blog/conveyancingblog/rentcharge_trap_cost_thousands_bristol.html
