Freehold House with Rent Charge: Solve Now or Later?

mattheus

• Have put a lot of effort into finding a freehold house that matches my requirements: configuration, location, price.
• Out of half a dozen offers mine won.
• Have secured a mortgage in record time; although it almost feels like my own solicitor-conveyancer is now working to have that overturned.
  
• My solicitor found a rent-charge clause (currently at a few hundred pounds / year), which has a bunch of issues:

Law governing it is Rent Charges Act 1977, which has fewer protections than those enjoyed by leasehold owners (word freehold sounds ironic in this context).

No need to consult property owners on any major expense.

No rights to dispute charges in a tribunal.

No right to manage.

Can sue me for money; have Right of Entry into property to take income; can grant relase of property over money.

May be hard to sell this property as lenders do not like this.

All of this seems very dodgy and the seller does not seem to bulge. But is it really that bad -- it is only a few hundred pounds per year? I also find it difficult to imagine some major works in the area. Can I resolve this problem legally on my own later on rather than trying to (i) do all the house purchase admin stuff + (ii) try convincing seler to contact the estate management company to drop the rent charges? I suggested that my solicitors get in touch with seller's solicitors to tackle the estate company who is the ultimate beneficiary, but they do not seem to listen, neither am I in the loop of emails the solicitors is sending lender and seller.

princeofpounds

Yes, rentcharges are a bit weird. Basically, pay them and you have no problems. Don't pay them and it can cause trouble.

The issue comes because rentcharge owners have, in theory, access to some quite draconian powers to recover any non-payment, and ALSO they don't have no notify the property owner that payment is due. So you get a 'surprise! we are registering a lease against your property!' problem.

Don't confuse them with service charges either - they are just a monetary obligation, nothing more. There will be no 'persuading to drop the rent charges'.

On the plus side... rent charges are being abolished in 2037. Also, you can apply to redeem them, assuming they qualify. This costs money, and this rent charge sounds higher than most at a 'few hundred' pounds a year. So this can probably be totally solved, you just need to work out what it might cost and make sure that the vendor is up to date on their payments.

https://www.johnhodge.co.uk/site/blog/conveyancing/rentcharges-what-are-they-and-how-might-they-affect-you
https://www.gov.uk/guidance/rentcharges

mattheus

princeofpounds said:

Yes, rentcharges are a bit weird. Basically, pay them and you have no problems. Don't pay them and it can cause trouble.

The issue comes because rentcharge owners have, in theory, access to some quite draconian powers to recover any non-payment, and ALSO they don't have no notify the property owner that payment is due. So you get a 'surprise! we are registering a lease against your property!' problem.

Don't confuse them with service charges either - they are just a monetary obligation, nothing more. There will be no 'persuading to drop the rent charges'.

On the plus side... rent charges are being abolished in 2037. Also, you can apply to redeem them, assuming they qualify. This costs money, and this rent charge sounds higher than most at a 'few hundred' pounds a year. So this can probably be totally solved, you just need to work out what it might cost and make sure that the vendor is up to date on their payments.

Thank you for the additional information. I think the "draconian" remedies (S121 Law of Property Act 1925) is why my solicitor is freaking out the most. Although from a common sense point of view I find it very difficult to imagine a situation where I do not have a few hundred pounds / year to pay -- even in my darkest days as a student with two part-time jobs this would not have been the case; less so now as an established professional with life/accident insurance etc.

Does "No rights to dispute charges in a tribunal" bit not legally preclude me from (via the Rentcharge Act 1977) having Estate Rent Charges removed prior to 2037? Your link says I could pay 16 x rent charge and be released free, which sounds good.

Also, how true do you thing is house with Estate Rent Charge being non-sellable, because people can't get mortgages on it?

princeofpounds

I'm not fully familiar with the intricacies, but my understanding is that mortgage lenders will need to see, at the very least, receipts confirming that the rent charge has been paid, or invoices plus proof of payment. They are allergic to situations where the rentcharge owner does not have do invoice or provide a receipt, because it then becomes hard to prove the rentcharge has been correctly paid. 

It's also less problematic if these draconian 'relief' measures are excluded by the terms of the rent charge. That happens sometimes but does not appear to be the case for you. Sometimes mortgage lenders will insist that this is changed before lending - there was a case here recently where, IIRC, HSBC would not lend without this change.

Obviously redeeming sorts everything. It costs about 16x the rentcharge sum.

mattheus

16x rentcharge sum is about the equivalent of savings I would make by completing before stamp duty holiday. However my solicitor seems to be hell bent on not even mentioning (i) 2037 or (ii) 16x reliefs (just as she didn't mention them to me) and proving herself right that the mortgage will be rejected. Absolutely bonkers.

princeofpounds

The fact that you have terms like 'no right to manage' or 'no right to challenge at a tribunal' does hint to me that there could be some confusion going on here between service charges and rentcharges. But whether confusion lies with your solicitor, or you, or it's just me misinterpreting a few words without context, I'm not sure.

GDB2222

Is this rentcharge to cover the costs of maintaining the local estate?

mattheus

The exact problem areas highlighted are:

The property is within a managed estate and subject to an estate rentcharge. Common problems to all Estate Rent Charges and could indeed become issues for you in the future:

• The law governing Estate Rent Charges is contained within the Rent charges Act 1977 and this does not give all of the same protections that apply to leasehold owners paying service charges in the same way.
• There is no requirement to consult you or any of the property owners in relation any major expenditure.
• You do not have the right to dispute charges via the Tribunal
• There is no right to manage which essentially means that you cannot force the owner of the Rent charge to insist on taking over responsibility if you are unhappy with arrangements being put in place.

Most importantly S121 of Law of Property Act 1925 outlines statutory powers and remedies available to the Rent Charge Owner should you default upon payment of the rent charge. These are as follows:

• They can sue you for the money
• They are given a Right of Entry to the property itself. This will allow the rent owner to enter into possession of the property and take the income from it until the sum due is paid.
• The Rent Charge Owner can grant a Lease over the property and give the leaseholder the power to raise the money due by creating a mortgage. This is called “Demise to a Trustee” and is a very dangerous concept.

Over the last few years there has been an increasing trend on the part of lenders to shy away from lending on properties with a Rent Charge. In your case the Rent Charge contains provisions that if the rentcharge falls into arrears in whole or in part for one month after the date of the demand or if you shall fail to observe the stipulations then they can exercise their right of re-entry and at their sole discretion do things as may become necessary to make good any default.

GDB2222

Sorry, I should have read your post more carefully. If it's an estate rentcharge, you can't redeem it, and it won't be extinguished in 2037.  It therefore isn't that astonishing that your solicitor didn't mention those non-options. 

Generally, because of the draconian measures that can be taken in the event of non-payment, lenders want a clause inserted in the rentcharge that the lender will be informed before enforcement action is taken. The lender then pays up and adds it to your mortgage.  Without that clause, the property will be pretty unsaleable - as your seller is about to find out. Even then, it's a problem, because the estate management charges are virtually unfettered. 

princeofpounds

OK, it's an estate rentcharge. That's something different. Unfortunately as GDB says redemption isn't a solution here. 

https://www.eversheds-sutherland.com/global/en/what/articles/index.page?ArticleID=en/Litigation_Support/rentcharges

mattheus

Painful, but thank you for clarifying.

Trying to brainstorm here. Can I take the management company to court and force a 16x style payment release? If so, how likely is that to succeed: 10%, 50%, 80%?