Estate Rentcharge and Deed of Variation

MrCarrot

I'm looking at making an offer on a house on a private road.  It has a "service charge" of £250 a year for the upkeep of the road.

I contacted the estate management company and asked if the fee was via a Deed of Covenant or a Rentcharge.  The lady said they refer to it as a "service charge" but it might be referred to as a Rentcharge on the TP1.  This of course assumes that the person I spoke to does know the difference between a Deed of Covenant, a Rentcharge and a service charge, and isn't just using the terms interchangeably.  It was a 60 second conversation so I cannot be sure.

I am wondering if there is a way of finding out for sure, without paying hundreds of pounds to go through the conveyancing process?

I have also read about a Deed of Variation.  It seems to me that such variations are more for the benefit of the lender, rather than the homeowner.  In 10 years time I hope to have paid the mortgage off, so a variation that provides the lender with notice or the option to pay any unpaid fees won't help me in years to come if for some reason I was unable to pay the service charge and no longer had a mortgage against the property.  Unless such variations can exclude entry to the property and a lease being applied to the property, in which case I guess this might protect me.

As some additional information, the house is around 10 years old and has been sold on twice since new, so unless purchased with cash I am guessing some variation must have been obtained already.

I am just wondering what my next steps should be.

daveyjp

A cheap starting point is the Property Title document - £3.

https://www.gov.uk/search-property-information-land-registry

eddddy

I guess asking the seller might be worthwhile.

In the same way that you have a good understanding of the issues, the seller might as well.

And even if the seller doesn't fully understand the issues, they'd probably have a file with all the paperwork from when they bought - so they might be able to find the answers in there.


Obviously, you can't rely on the info the seller gives you - you'd need your solicitor to check it all in due course - but it might be a useful first check.

MrCarrot

Thanks for your replies.

I purchased the Title document from the land registry. It does indeed mention a Rentcharge, as well as various covenants.

The covenants are described in detail, however there is no mention of what the Rentcharge is (it just says "copy filed").

I also read the following on another website:

[quote]Mainstream developers are now well informed that previous estates they built may have inadvertently created rentcharges. Most will accept a deed of variation subject to paying their costs. Some accept a deed of variation that they will give notice to any lender before taking action, others may accept that the remedies under the 1925 Act are excluded.[/quote]

Based on the above quote I guess there is an important distinction between the two types of variation, as one seems to be of benefit to the lender whilst the other is beneficial to both (or to the homeowner if no mortgage).

Am I right in thinking we'd now need to see the current owners TP1 form, or at least have clarification from them as to the variation, assuming there was one?

Oh, and according to the Title document I was mistaken. The house has had one owner from new. I guess there is a chance they used the developer's pet solicitor and might be clueless about all of this.

fizzysage

I'm a few months ahead of you on this process.

The property we're purchasing is the same, they call it service charge but on the TP1 it's referred to as a rentcharge and comes with its own deed of covenants. The management company are all part owned by the residents on the estate so ultimately we can fire our managing agents if needed.

In terms of the deed of variation, the vendor requested the freeholder (the developer in this case) to draft a deed of variation to expressly exclude the law of property act remedial actions on section 121- this is just going through the final checks and balances before it gets registered at the land registry.

The rentcharge issue has only come to light in the last few years so it probably won't have been addressed by the current owner.

Whilst the service charge concept for a freehold isn't ideal we've accepted it as the house meets our needs.

If you are keen on the property, I would get your solicitor to look at the TP1 first and get it addressed up front. 

MrCarrot

fizzysage said:

I'm a few months ahead of you on this process.

The property we're purchasing is the same, they call it service charge but on the TP1 it's referred to as a rentcharge and comes with its own deed of covenants. The management company are all part owned by the residents on the estate so ultimately we can fire our managing agents if needed.

In terms of the deed of variation, the vendor requested the freeholder (the developer in this case) to draft a deed of variation to expressly exclude the law of property act remedial actions on section 121- this is just going through the final checks and balances before it gets registered at the land registry.

The rentcharge issue has only come to light in the last few years so it probably won't have been addressed by the current owner.

Whilst the service charge concept for a freehold isn't ideal we've accepted it as the house meets our needs.

If you are keen on the property, I would get your solicitor to look at the TP1 first and get it addressed up front. 

Thanks for taking the time to look at this and reply.

Unfortunately in this instance the management company is not owned by the residents, so a deed of variation might be even more important.

However, the house is perfect for our needs, and I wanted to make an offer as soon as possible but don't want to gloss over the rentcharge issue and waste everyone's time, not to mention paying out for solicitors.  I understand that ultimately a solicitor would need to check everything over and provide their professional advice, but I wanted to be as well informed as possible before getting to that stage.

Out of interest, at what point and how early on did you approach the vendor about drafting the variation to exclude the 121 section?  And what motivation would the developer have for agreeing to this, now all the houses have sold and they have nothing more to gain?

fizzysage

 Exactly the same for us, the house is perfect for us and we broached the topic with the seller directly from the beginning as we have a good rapport and direct channel of communication with them. 

Our solicitors told us to wait to see the TP1 to see if the deed had been varied already before formally requesting it. As soon as we saw that it hadn't, we requested the deed of variation through the solicitors (we were offered indemnity and we refused).

For us not getting the deed of variation was a deal-breaker, so we didn't start on searches and survey until we'd seen evidence of that (i.e. a draft copy). Although not every seller may be as accomodating as ours!

In terms of the developer, I think there are a few factors:
-There are some leasehold reforms due which will make these clauses automatically excluded soon so they're probably happy to charge for these while they can.
- Some banks won't lend on properties without the remedies excluded it would be pretty bad PR for them if suddenly 1000s of their homes become unsellable

It sounded like the developer for ours was issuing a few of these and had a standard template they provided pretty quickly.

Hope that helps! 

MrCarrot

Thanks for your help.  The EA made contact with the seller today who says there is no rentcharge on the property.  This is despite the Land Registry Title and the estate management company saying otherwise.

Prior to this, one of the previous properties we looked at, we were told, "There is no service charge."  It only took me 10 minutes to find out that there was a service charge, and which management company was responsible.

What a minefield.

fizzysage

I think it's incredibly common now as councils are not taking responsibility for the roads being built as part of the developments they're permitting. The developers were then passing this off as a small service charge to keep the area nice and tidy and the homeowners accepted that line as there wasn't an awareness of these laws until someone did get a lease popped on their house in 2018 and the courts ruled that lawful. Once that happened the banks wised up and tightened their rules making the deed of variation an almost must have.

Our sellers didn't know how much of an issue it was until we raised our concerns around it. The estate agent said "no there's no service charge, it's a freehold" . Even our solicitor initially thought our issue was around the amount and we had to inform them about the remedies and the lender handbook stipulations.  Whoever buys this house will almost certainly need a deed of variation either requested by the solicitor, buyer or the bank.

But yes, it's ridiculous that in an already stress inducing process, you then also have to become a historical property law expert.

I won't say it's been an easy ride, my partner and I have had many debates over the property and overall we've decided that's the compromise we're going to live with as long as we got that deed of variation. We may come to regret it later down the line but for now it's the best thing we've seen all year so we're just going to hope there are no other hidden clauses/ acts/ remedies that will bite us in the future.

lizzyliz_2

fizzysage said:

Our solicitors told us to wait to see the TP1 to see if the deed had been varied already before formally requesting it. As soon as we saw that it hadn't, we requested the deed of variation through the solicitors (we were offered indemnity and we refused).

@fizzysage - what were your reasons for refusing indemnity insurance? 

We are trying to get the management company to agree to a deed of variation but the lender has said they will accept indemnity insurance. Just worried about the future risks/consequences.

fizzysage

lizzyliz_2 said:

fizzysage said:

Our solicitors told us to wait to see the TP1 to see if the deed had been varied already before formally requesting it. As soon as we saw that it hadn't, we requested the deed of variation through the solicitors (we were offered indemnity and we refused).

@fizzysage - what were your reasons for refusing indemnity insurance? 

We are trying to get the management company to agree to a deed of variation but the lender has said they will accept indemnity insurance. Just worried about the future risks/consequences.

We just didn't think it was worth the risk- indemnity would cover the cost of legal proceedings should it happen (I believe) but wouldn't stop it from happening. It was just a clause we didn't want hanging over our head especially as we'd read stories where they don't even have to tell you your rentcharge is overdue/ you have payment outstanding before pulling in these measures. 

Ultimately it comes down to your appetite for risk. We are accepting the risk buying a managed freehold as there may be other things that come out of the woodwork but we weren't going to accept the risk already known to us.