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Writer's pictureEmma Selfridge Lawyer

Why Are Estate Rentcharges A Problem & What Are They?

Estate rentcharges

If your title deeds contain an estate rentcharge, or maintenance, service charge contribution for the communal or amenity areas, you could have issues on resale. It depends on the wording of your deeds.


As with most things in life, standard practice changes over time. It has become apparent that there is frequently a title defect in the drafting of many Transfer Deeds (TR1/TP1).


Going forward numerous properties will be caught by this issue and deeds of variation may be required for a successful sale. Your mortgage lender may insist upon it and refuse to accept indemnity insurance.


A Deed of Variation is often the only way to proceed with this title defect. Obtaining a Deed of Variation will delay your transaction.



THE COMPLICATED BIT:


The main concern with estate rentcharges is the risk posed by s. 121 of the Law of Property Act 1925. This gives power to the rentcharge owner (the original developers) to grant a lease of the land charged on trust to raise arrears.  This power is implied by s.121(4) in relation to documents coming into operation post 1881 and may be exercised if the rent remains unpaid for 40 days or more.   The case law here is Roberts v Lawton [2016]UKUT395(TCC).   


This will be an issue for the lender’s security. Lenders do not like estate rentcharges and often refuse to lend unless s.121 is excluded.

 

It is extremely important that you understand that this is a highly contentious issue and lending criteria is likely to become more stringent as time progresses The government may legislate in respect of this but as yet nothing has occurred.


It may be the case that such financial obligation is acceptable to a current lender. However, there is no guarantee that the next buyer, or another lender, will accept the same going forward.

 

Plus just because the financial obligation is not defined as a ‘rentcharge’ does not mean that it cannot be interpreted as such.  


See also the below article in "Todays Conveyancer" …





Estate rentcharges

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