What Are Rentcharges?
Conveyancing Solicitor, Michelle Rock discusses the question “What Are Rentcharges?” in her latest blog…
What Are Rentcharges?
Rentcharges are common when purchasing a new build property and annual charges are paid to the developer or their managing agents (Rentcharge owner) to repair and maintain the communal areas such as landscaped areas, parks, shared access or shared facilities.
What Happens If The Rentcharge Is Not Paid?
If the Rentcharge is not paid when due then s.121 Law of Property Act 1925 states that the Rentcharge Owner can take the following actions against a homeowner:
• They can take possession of the property, without notice, and without the ability of the homeowner to apply to the Court for ‘relief’ from the Rentcharge owner’s actions.
• If the Rentcharge is unpaid for 40 days, the Rentcharge owner can grant a statutory lease over the property to a Trustee and register it at the Land Registry, again without notice. This effectively means the Trustee can even exclude the homeowner from their own home and rent it out. The Trustee can then sell the statutory lease to recover the rent due. However, the lease will remain in existence even if the rent owed is paid off, unless the Rentcharge owner agrees to surrender the lease to the homeowner.
What Happens If There is A Rentcharge On The Property You Are Buying?
If you are purchasing a property with a Rentcharge there are some options available to you: –
• You could always decide not to proceed if you do not want to take the risk.
• If you decide to buy the property please please please ensure the Rentcharges are paid on time and without delay. Maybe set up a direct debit so there are no delays if you are on holiday or just busy!
• You could ask the seller to pay for Indemnity Insurance but this does not mean the Rentcharge will go away or stop the Rentcharge owner taking action; this Policy will only cover the risk to the lender. The homeowner will receive nothing under the policy as they will have caused the problem by failing to pay the Rentcharge. If the Rentcharge owner repossesses the property as a result, the lender will be able to claim the amount of the mortgage loan. The homeowner will have to try and negotiate a compromise with the Rentcharge owner, at the homeowner’s own cost and expense.
• You could ask that the seller enter into a Deed of Variation with the Rentcharge owner to state that they will not enforce the Rentcharge under s121 of the Law of Property Act 1925. However, the Rentcharge owner may not agree to the variation.
What Are The Risks For Mortgage Lenders?
Given the extreme powers of the Rentcharge owner in the case of non-payment of the Rentcharge, many lenders are concerned about lending money on a property subject to a Rentcharge. Actions taken by the Rentcharge owner against the homeowner and property could make it more difficult or impossible for the lender to sell the property to recover the mortgage loan.
Many lenders will have specific rules on what types of properties are subject to Rentcharges that they are prepared to lend on and we will check and advise you on what your proposed mortgage lender’s requirements are, and the appropriate way of dealing with the risk, whether by title insurance or otherwise.
How Can Timms Help?
If you have any questions regarding Rentcharges or any other Conveyancing matters, please do not hesitate to contact me at m.rock@timms-law.com or call 0800 011 6666
March 2023