Don’t be caught by the Rentcharge ‘Scam’
As Conveyancers acting for some of the UK’s largest house builders, Davies and Partners Solicitors have seen that new Estate Rentcharges are still being created by many New Build Developers. So what are they and how do the effect you?
A Rentcharge, not to be confused with a Ground Rent or Service Charge payable on a Leasehold property, is an interest in land that can bind owners to pay an annual rent to a Rentcharge Owner. A Rentcharge can be granted over both Freehold and Leasehold property and they will often be in favour of the Management Company of the New Build Estate.
Whilst the Rentcharges Act 1977 prohibited the creation of new Rentcharges and seeks to end historic Rentcharge’s from being payable after 2037, the creation of any new Rentcharges over New Builds has been expressly excluded from the provisions of the Act. A Rentcharge will usually take the form of a Fixed ‘nominal’ Rent and a Variable Rent. The nominal rent may be £1.00, 'a peppercorn' or even a 'rose flower' in some cases and the Variable Rent will be the amount chargeable to the Management Company for their costs associated with the performance of their duties. Whilst they may be modest sums, they are certainly enforceable and property owners should be careful not to fall into arrears.
So why should you be careful?
Whilst perfectly legal, the powers granted to the Rentcharge owner by s.121 of the Law of Property Act 1925 are so extensive that the owner will have the power to take possession of your property and use the income to balance any arrears. In the alternative, the owner may grant a lease over the property in favour of trustees who can then raise the arrears and any associated costs by either taking possession or selling the lease on.
Furthermore, the powers under the Act do not limit any associated costs to a “reasonable amount” and therefore, these costs can be extensive. The recent case of Roberts v Lawton highlighted the law in this area and the need for property owners to err on the side of caution.
If you’re concerned about whether your property is subject to a Rentcharge, ask your Conveyancer and be clear that you are not caught out by this perfectly legal but archaic provision.