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Receivers – beware rentcharges

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23/09/2016

Rentcharges are an historic device which continue to affect freehold land. A recent case has highlighted the ongoing problems they can cause for those who fail to pay and also for Receivers who are responsible for properties subject to a rentcharge.  Walker Morris’ Housing specialists explain Roberts v Lawton [1] and offer some practical advice.

Roberts v Lawton

The case involved a company whose business it 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 holder 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 rentcharge 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 recoverable costs.

Although the 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 rentcharge leases. In addition, by virtue of the fact that the rentcharge leases were registrable, the landowners were effectively compelled to pay a significant sum in return for a surrender of the leases, as their properties were rendered unsellable 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 its 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.

WM Comment

The Company in this particular case apparently owns thousands of rentcharges. There are other companies with a similar business model and it is likely that, following this case and its associated publicity, others may follow.

From a Receiver’s perspective, the value and saleability of a freehold property over which they are appointed will be affected if it is subject to a long lease created by a rentcharge owner. Receivers should therefore have a specific rentcharge process in place, which should involve initially checking title documentation to establish whether a property is subject to a rentcharge payment. If the borrower is co-operating, consultation with them should be considered to establish if they have previously paid the amounts that are being claimed by the rentcharge owner.

If the stage is reached where a long lease is granted and registered by a rentcharge owner, 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 required to apply to the Land Registry to close the associated leasehold title. If the rentcharge owner fails to make that application following a surrender, the Receivers should lodge their own closure application at the Land Registry.

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[1] [2016] UKUT 395 (TCC)

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