Rentcharge on freehold property advice

trusaiyan

Hi

I have had an offer accepted on a freehold property. The title register states that it is 'Title absolute' and is listed as freehold on HM Land registry website.

However, in the title register I downloaded off LR, it states under Charges Register that:

"The land in this title is subject to a perpetual yearly rentcharge of £2 created by a Conveyance of the land in this title dated XX January 193X made between (1) XXXXXXXX, XXXXXX and XXXXXX (Vendors) and (2) XXXXXXXX (Purchaser).
The said Deed also contains covenants.
NOTE: original filed"

Also, in the Property Register it states:

" 3 The land has the benefit of the rights granted by but is subject to the rights reserved by the Conveyance dated XX January 193X referred to in the Charges Register."
4 The Conveyance dated XX January 193X referred to in the Charges Register contains provisions as to light or air and boundary structures."

And in the Proprietorship Register it states:

"3 The Transfer to the proprietor contains a covenant to observe and perform the covenants referred to in the Charges Register and of indemnity in respect thereof."

I have spoken to the estate agent and vendor and they have said the owner does not know about this charge and has never ever paid it. Her solicitor said they don't know who owns it and they would have to take out indemnity insurance. She owned the property for over 13 years.

This therefore raises some questions for me as I don't want to get involved in a legal nightmare:

1. Will I as the new potential owner have to take out indemnity insurance to protect against this unpaid rentcharge?
2. If I do have to take out indemnity insurance, what will it still not likely cover? Are there risks above this?
3. Can the rentcharge be abolished/redeemed/adversely possessed prior to the sale somehow even though they do not know who owns it and the person may have died (the title register does list the persons who owned it in 1930s, and the original purchaser is named the same as the original vendor?).
4. How would I (or a solicitor) find out who owns it and if they are still alive?
5. If the rentcharge owner appears, what are the likely ramifications? Will they likely demand the unpaid rentcharge arrears (less than £50.00) or more likely will they try and create a lease (to void the freehold in effect)? If they create the lease are we talking thousands of pounds in legal fees to resolve the problem?
6. Can a rentcharge be sold to another person/company?
7. Can the rentcharge be increased?
8. Does the covenants mentioned in the Property and Proprietorship Register above mean there are potentially some form of restrictions (similar to restrictive covenants) that are still present now from the original 1930s deeds? It states they are filed, but why are they not shown in this register and what are they likely to be?

Any advice appreciated?

I don't want to be a victim of a rentcharge nightmare as mentioned on various legal websites (search 'rentcharge scam' on google).

Dave_606

Ah, seems like only yesterday I had the exact same problem. As per solicitor advice indemnity insurance covers yourself for any losses. Such was the low risk in our case the indemnity policy only cost £22.

I was highly concerned at first, more so in the horror stories. But then it turns out most are historic and dormant and near never demanded. The only real risk is where certain "investment" companies have actively bought the rent charge behind the freeholders backs and resorted to dirty tricks to force a default (which the indemnity policy covers these days) so they can legally place a lease on the freehold. But if the current owners are unaware of who the rent charge owner is and its never been claimed in decades then the risk of it being bought as an investment by a company looking to gain is highly unlikely. As if you or a solicitor can't identify the owner how can anyone else?.

But unless an "estate" rent charge most expire in 2038 I think?. Maybe ask the neighbours if they have had the rent charge demanded to see if the owner is known?.

G_M

What's the worst that can happen? Someone pops up and demands back payment for 7 years at £2 pa. So £14.00 Not exactly going to break the bank. Or if it is, then you are sailing financially far too close to the wind!

trusaiyan wrote: »

Hi

I have had an offer accepted on a freehold property. The title register states that it is 'Title absolute' and is listed as freehold on HM Land registry website.

However, in the title register I downloaded off LR, it states under Charges Register that:

"The land in this title is subject to a perpetual yearly rentcharge of £2 created by a Conveyance of the land in this title dated XX January 193X made between (1) XXXXXXXX, XXXXXX and XXXXXX (Vendors) and (2) XXXXXXXX (Purchaser).
The said Deed also contains covenants.
NOTE: original filed"
Pay £7.00 to the Land Registry here and get a copy of the Conveyance dated 193X. Or wait for your conveyancer to do so.

Also, in the Property Register it states:

" 3 The land has the benefit of the rights granted by but is subject to the rights reserved by the Conveyance dated XX January 193X referred to in the Charges Register."
4 The Conveyance dated XX January 193X referred to in the Charges Register contains provisions as to light or air and boundary structures."

And in the Proprietorship Register it states:

"3 The Transfer to the proprietor contains a covenant to observe and perform the covenants referred to in the Charges Register and of indemnity in respect thereof."

I have spoken to the estate agent and vendor and they have said the owner does not know about this charge and has never ever paid it. Her solicitor said they don't know who owns it and they would have to take out indemnity insurance. She owned the property for over 13 years.
Very common.

This therefore raises some questions for me as I don't want to get involved in a legal nightmare:

1. Will I as the new potential owner have to take out indemnity insurance to protect against this unpaid rentcharge? You could, or you could demand the seller does - but the insurance will cost more than the potential rent charge!
2. If I do have to take out indemnity insurance, what will it still not likely cover? Are there risks above this? It will cover any rent charge that is demanded.
3. Can the rentcharge be abolished/redeemed/adversely possessed prior to the sale somehow even though they do not know who owns it and the person may have died (the title register does list the persons who owned it in 1930s, and the original purchaser is named the same as the original vendor?).No. Not without huge delays and dfficulty.
   
4. How would I (or a solicitor) find out who owns it and if they are still alive? Very hard. Hire a private dtective to follow the ownership line from the original beneficiary from 193X.
5. If the rentcharge owner appears, what are the likely ramifications? Will they likely demand the unpaid rentcharge arrears (less than £50.00) Perhaps. Limited I believe to 7 years
6. or more likely will they try and create a lease (to void the freehold in effect)? If they create the lease are we talking thousands of pounds in legal fees to resolve the problem? They can only create a lease if you are stupid enough to agree!
7. Can a rentcharge be sold to another person/company? I doubt it.
8. Can the rentcharge be increased? No.
9. Does the covenants mentioned in the Property and Proprietorship Register above mean there are potentially some form of restrictions (similar to restrictive covenants) that are still present now from the original 1930s deeds? It states they are filed, but why are they not shown in this register and what are they likely to be? Yes. Read the Conveyance dated 193X. The Register helpfully tells you where to look but does not record the entire text.

Dave_606

Also and surely if the covenant is tied to an unenforced rent charge then complying with the restrictions (if can be fully uncovered & detailed) also becomes less an issue or risk I'd have thought?. As who on earth would enforce it or would you apply to under the covenant for clarification or permission?. I've yet to fully check what the restrictions are with our property, but it appears likely more to do with altering the external structure of the property from as it was, think more extention or altering the boundary etc. Our property does look to have had some minor external work done by a previous owner, just nothing to alter the main structure\design much. I can also see no reason why internally there would be any restrictions on any work the freeholder can carry out?.

Tom99

Presumably, like ground rent, a valid written demand has to be issued before a rent charge becomes due and only collection for the past 6yrs can be enforced.

trusaiyan

Thanks for the replies. Apparently there are companies that go around buying up these archaic rentcharges and then start creating leases on these properties where payment hasn't been made (even when they haven't issued a demand for payment!) and apparently the law allows them to do this because of s.121 of the Law of Property Act 1925. They create a lease and the property owner would be liable for all the costs in creating this lease and legal fees to get the situation sorted. So I think there are risks even if payment hasn't been demanded!

So for some further questions:

• What's the process for getting the rentcharge adversely possessed, would it cost signficiant legal fees and what would the typical timeframe be bearing in mind they do not know who now owns this charge?

• To do an adverse possession does it have to go to court and have legal representation or is this something the current owner can do with the LR only?

• If i decide to purchase the property with an indemnity policy, can I then do an adverse possession procedure or will I have to wait ten years? Would I have to get the old owner to do the statement of truth?

• Will the indemnity policy transfer to me as a new owner or will I have to take a new policy (as the new owner of the property)?

• Would you agree that the house value should drop because of this missing rentcharge problem? If so by how much as a general percentage? Really I want it extinguished before I purchase it.

• What would an indemnity policy NOT cover against in a missing rentcharge situation, or pretty much does it typically cover all risks including them creating a lease on the property?

Any ex solicitors or conveyancers want to chip in?

I just hope the indemnity policy protects against all these instances.Type in jbleitch roberts-others-v-lawton-others-2016 in google

G_M

Well surely the best person to ask is your solicitor. Not sure why you want an ex-solicitor to respond......


I don't believe adverse possession is relevant, but you can apply to redeem the rentcharge.
https://www.gov.uk/guidance/rentcharges

Dave_606

When you break it down, any unscrupulous "investment" company would have to find the current owner in order to offer to buy the rent charge which in theory is only worth about 12 years charge I think?. And if the freehold owner or their solicitors are unable to find the current owner of the rent charge how on earth is anyone else such as an investment company without great cost?. As you can't redeem the rent charge without knowing the owner of it in the first place no matter how long you have owned the property for as far as I can tell. Maybe to help cover any owners the government could bring about legislation to allow the freehold owner first refusal on buying it out even if a third party tries to buy it behind the freehold owners back.

But as said, many rent charges expire in the next 20 years, so their value decreases all the time to at best the annual charge x 20. But the redeem charge is generally 10 times the annual charge and where you want to redeem the rent charge (which you still need to know the owner for) that's what the government uses as an approximate redeem value. If you don't know the owner of it if its never been demanded, the cost of investigation to find them could be to cost prohibitive against the worth of the rent charge. And our solicitor told us having a rent charge doesn't affect the properties value.

But to add some confusion, I've read that it doesn't have to be demanded to be defaulted on and other sources say it does have to be demanded to allow a legal default.

trusaiyan

Why is adverse possession not relevant? If she has lived in the property for 13 years and never paid it and never received demands for it, why could the LR or a court not void the current charge....surely the law would not allow it to continue when it isn't being claimed by anyone? It begs the question under what conditions could adverse possession arise in the cases of rentcharges?

Maybe having a rent charge won't affect the house value in cases where the rent owner demands it and is known, but surely having a rentcharge with a missing owner adds legal risk and would thus affect the properties price (and I assume mortgages too)? Similar to leasehold problems and onerous terms affecting price and mortgageability.

Freecall

trusaiyan wrote: »

Why is adverse possession not relevant?

In simple terms because there is a contract for the use of the land in place.

It is therefore a contractual matter.

QED

trusaiyan

The government has a website which explicitly mentions the application of an adverse possession of rentcharge. Type in "Adverse possession of rentcharge: statement of truth" on google. Also, multiple solicitors websites mention that it is possible to do this (such as harrison clark rickerbys "Rent charges: purchasers beware!"), and furthermore there is legislation which mentions the process such as in s.192 Land Registration Rules 2003, so without sounding rude if you do not know about the issue, please do not comment as it just clutters the thread.

I was clearly referring to adverse possession of a rentcharge, not adverse possession in general.