10 Jul

How rentcharges present a hidden risk to freehold property buyers

Buying property freehold is always regarded as a much better deal than leasehold because both the land and the property on which it stands will belong to you.

However, a little-known fee known as a rentcharge could end up being an expensive outlay for a freehold-property owner.

Rentcharges are a rarity, but they do exist in particular parts of England, such as around Bath, Bristol and Manchester, and when a buyer or their conveyancing solicitor fails to spot their presence in the title deeds, it may come back to haunt them.

Historic part of property sale

Introduced mainly in the late 19th and early 20th century, rentcharges were put in place when landowners wanted to sell land at a reduced cost to developers with the land then freehold by the new owners but with a legal interest in the land and annual fee – or rentcharge – in place forever. The rentcharge was typically between £2 and £10, a figure that was reasonably high a century ago but is simply a peppercorn now.

In 1977, the Rentcharges Act ensured that any new property or land sold after that date and registered with the Land Registry would not have rentcharges attached. Historic rentcharges will  end in 2037.

However, the Act did allow for some exceptions, such as newbuild free properties that can come with estate rentcharges that apply across the whole estate. These will remain enforceable after 2037.

Ruthless enforcement of payment

The problem arises when a property owner is not aware of the rentcharge due on their freehold. Many have fallen dormant, but others have been bought up by properties companies who are now ruthlessly enforcing payment.

The rentowner is entitled to recover any sums due but does not have to send a reminder to the freeholder that the rentcharge is due nor chase a freeholder for payment. That allows the rentowner to impose a penalty after 40 days when the account inevitably falls into arrears, usually by taking out a statutory lease on the home as security.

That would then make the property almost impossible to sell unless the freeholder pays thousands to redeem the lease.

Rentcharge not picked up in conveyancing

A recent Guardian story told of how professional footballer Zeli Ismail was threatened with eviction and landed with a huge legal bill when he was hit with rentcharges. He had bought a freehold property in Wolverhampton in 2015, but the presence of the rentcharge was not picked up by his conveyancing solicitor during the purchase transaction.

The first Ismail knew of the rentcharge was when he received a letter saying he was in arrears of £112.51 and threatening him with eviction unless he coughed up for the arrears and another £700 in legal fees. The rentowner also gave Ismail notice that they intended to take out a lease on the property if he did not settle.

The rentcharge on the property is managed by a company on behalf of developers Bellway. Ismail’s case was eventually settled, but it demonstrates the unseen pitfalls in buying property.

Homeward Legal works with experienced property lawyers across England and Wales who take a proactive approach to examining all documentation involved in conveyancing.

Whether you are buying a property built before 1977 or after in the areas most affected by rentcharges, talk to our expert team on 0800 038 6699 to ensure you instruct a conveyancing solicitor who understands rentcharges and their consequences. Or you can get an instant, no-obligation quote here.