Rentcharge Reform Comes Into Force
The Leasehold and Freehold Reform Act 2024 will gain some notoriety from being the last passed legislation of the Conversative Government. Given most of the legislation requires secondary instruments to come into force, many practitioners are left wondering when the weighty legislation will bring in the promised reforms. However, the sections of the legislation relating to rentcharge reforms included a date to come into force, the 24th July 2024. This article will revisit the current legislation of rentcharges, what problems property owners are facing and what the new legislation is reforming.
What is a Rentcharge
Simply put a rentcharge is periodic sum (normally paid annually) paid by a freeholder to a third party, issuing out of land but not reserved by a lease. Many rentcharges are part of an historic legacy whereby landowners would release some of their land for development in exchange for a regular payment.
Rentcharges are usually registered at the Land Registry under their own title number and can be sold and purchased like other interests in land.
The payment of Rentcharges can be a nominal amount, but may also be used to contribute towards the cost of the rentcharge owner’s covenants, for example, to maintain common land between properties. The latter is known as an estate rentcharge.
The Current Position
The Rentcharges Act 1977 (RA 1977) brought in a ban on creating new rentcharges from the 22nd August 1977. However, there are certain exception, specifically estate rentcharges or rentcharges created by trust, court order or statutory arrangements.
Rentcharges are also set to expire on 22nd July 2037 or 60 years from the date on which the rentcharge first became payable. Again, this rule does not affect the rentcharges which are permitted under RA 1977 and there are other exceptions.
Roberts v Lawton
Roberts v Lawton is a groundbreaking case in the law of rentcharges and the decisions caused great alarm to practitioners, homeowners and mortgage lenders.
This case involved a company who owned a rentcharges portfolio which contained around 15,000 rentcharges.
Under section 121 of the Law of Property Act 1925, the company was entitled to receive the annual sum notwithstanding that no demand had been made. Furthermore, if the rentcharge amount went unpaid for forty days, the rentcharge owner could take possession of the property. In this case, the company granted a lease over the property. The lease had no ground rent provisions and the property owners could not sell or remortgage their property with the lease in place. Their only resolution was to pay the company a large sum of money to surrender the leases.
The judge in this case described that the effects of section 121 were “wholly disproportionate” however the law is as it stands.
Following the decision, mortgage lenders demands that instruments which created the rentcharges be amended to remove the effects of section 121 and ensure mortgage lenders are notified when rentcharges are outstanding with an opportunity to pay the amount themselves. However, there is no requirement for rentcharge owners to enter into these variations and some will require a premium and substantial costs.
Estate Rentcharges
Estate rentcharges are an exception under the RA 1977, in that new estate rentcharges can continue to be created after the August 1977 deadline. These rentcharges are normally used as a means to collect contributions to common land, facilities or services which are used by freehold owners collectively. However, they are not regulated and subject to abuse and overcharging and the effects of section 121 can still apply.
In debates during the Freehold and Leasehold Reform Act’s parliamentary journey, estate rentcharges were sometimes referred to as ‘fleecehold’ as demonstrative of the plight felt by homeowners who were facing extortionate fees and costs.
The new legislation
The Freehold and Leasehold Reform Act 2024 (FLRA 2024) received royal assent on 24th May with a provision that the sections relating to rentcharges would come into effect two months after, namely the 24th July 2024. These sections seek to amend section 121 to define ‘regulated rentcharges’ which means those which were banned by the RA 1977 but were existing before that legislation came into effect. These historic rentcharges after the 24th July 2024, cannot be enforced under section 121 unless demands. The demands must meet a set criterion and include a copy of the relevant registered title for the rentcharge or a copy of the original document which created the rentcharge. Furthermore, the enforcement provisions under section 121, including taking possession of the property, will not have effect after 27 November 2023.
These provisions do not apply to estate rentcharges and other rentcharges, such as those created by court order, trust or statutory arrangements.
The future
LFRA 2024 was criticised for the speed in which the final part of it’s parliamentary journey was completed with much of the original issues, particular relating to leasehold, missing from the final legislation. A further criticism was that the legislation didn’t go far enough, leaving those with estate rentcharges over their property facing the perils of enforcement under section 121.
However, the King’s Speech promised that the Government will implement the rest of LFRA 2024 and further reform legislation which will seek to address the ‘injustice of fleecehold private estates and unfair costs’. The question is how long will property owners have to wait.
