20th September 2016
Rentcharges are an historic device which continue to affect freehold land – often residential property. The recent case of Roberts v Lawton  highlights the ongoing problems that they can cause for those who fail to pay and also to lenders whose securities are subject to a rentcharge. Walker Morris’ Housing specialists explain and offer some practical advice.
This case involved a company whose business is to buy and manage rentcharges (the Company). The Company utilised statutory rentcharge enforcement rights to compel landowners to make payment of arrears and also significant costs.
Section 121 of the Law of Property Act 1925 (LPA 1925) allows a rentcharge owner to grant a long lease of the property affected to trustees for the purpose of raising income to recover arrears, plus any costs occasioned by non-payment of the rent charge and also in relation to the granting of the rentcharge lease. The remedy is available whether or not rentcharges have been demanded and there is no statutory limit on the recoverable costs.
Although the rentcharge arrears in this case ranged from around just £6 to around just £15, the Company charged significant administrative fees to the affected landowners for the provision of documentation relating to the rentcharges, as well as requiring payment of disproportionately high fees in respect of the grant and registration of the rentcharge leases. In addition, by virtue of the fact that the rentcharge leases were registrable, the landowners were effectively compelled to pay significant sums in return for a surrender of the leases, as their properties were rendered unsaleable while the leases remained on their registered title.
The question that came before the Upper Tribunal was whether the rentcharge leases were, in fact, registrable, such that the Company could lawfully proceed with this practice. Reluctantly, and bemoaning the fact that section 121 LPA 1925 remains on the statute book, the Tribunal Judge found that the practice was lawful.
The Company in this particular case apparently owns thousands of rentcharges. There are other companies with a similar business model and, following this case and its associated publicity, others may follow.
From a lender’s perspective, its ability to realise its security will be affected if it is subject to a long lease created by a rentcharge owner.
It is therefore important that the lender has a specific rentcharge process in place which reacts to and deals with incoming communications concerning rentcharge arrears. This should involve initially checking the title documentation to establish if the security is subject to a rentcharge payment and also contacting the borrower to establish if they dispute the sums stated to be outstanding.
The borrower (or their adviser) should also be informed that the lender is considering intervention to resolve matters and given a timescale to confirm their position to the lender. If a deadline for a response is given by a rentcharge owner, where possible, this should be met.
If the stage is reached where a long lease is granted and registered by a rentcharge owner (and the borrower is not willing or able to resolve matters), steps should be taken to agree the premium for the surrender of the lease. A surrender of the lease should then be entered into and the rentcharge owner should apply to the Land Registry to terminate the associated leasehold title. If necessary, a lender could utilise its power of attorney to execute a surrender document to bring about a resolution.
  UKUT 395 (TCC)
Housing Management & Litigation