Rentcharge on new(ish) house - will this cause any problems when selling?

HopefulFTB22

Hi all, 

I'm in the process of buying a new(ish) house on a managed estate and have just found out there is a rentcharge on the property. I'm struggling to understand the full implications of this (the legal jargon doesn't help!) - my understanding is that if the charge is 21-days' late, the management company will give 2-months' notice to the mortgage lender and owner to repay the charge, after which they will be entitled to possess the property if it remains unpaid. 

I was aware that new builds are often subject to additional management fees since the land is not adopted. However, I was unaware that these were enforced by a charge against the property. My solicitor is looking into this (the 2-months' notice period seems to be sufficient for my mortgage lender) - I have no problem paying the charge, but my main worry is that this will make the property difficult to sell in the future. 

I'd be interested to hear of anyone with experience selling a property that has an associated rentcharge - has this caused any issues? I'm also struggling to find out how much this will be per year if we go ahead with the purchase - the estate on which the house is located isn't yet complete so it will be a few years before the charge is payable. Any insights would be appreciated.

Thank you in advance!

K_S

@hopefulftb22 Based on the very limited info in your post, from a mortgage point of view, if your mainstream lender hasn't required any variations, then more likely than not the rent charge is drafted in a 'mortgage-friendly' manner so should not be an issue when selling (assuming the lender attitude to rent-charges doesn't dramatically change in that time). Based on their experience across lenders, your solicitor should be able to tell you whether that is indeed the case.

From what lenders have told me, generally speaking, if the rent-charge falls within one of the following categories, it's usually acceptable to most lenders -

1. The provisions under section 121 of the Law of Property Act have been excluded under the estate rent charge clause.

2. The estate rent charge clause includes a mortgagee protection clause, which states that notice of at least 28 days is to be given to the mortgagee prior to any enforcement action being taken by the owner of the estate rent charge.

3. The owner of the estate rent charge is a management company comprising of the residents, who are the shareholders of a private freehold development. 

I don't really know anything in-depth about these, except how it reads To me it looks like your rent-charge at least ticks box no.2.

HopefulFTB22

K_S said:

@hopefulftb22 Based on the very limited info in your post, from a mortgage point of view, if your mainstream lender hasn't required any variations, then more likely than not the rent charge is drafted in a 'mortgage-friendly' manner so should not be an issue when selling (assuming the lender attitude to rent-charges doesn't dramatically change in that time). Based on their experience across lenders, your solicitor should be able to tell you whether that is indeed the case.

From what lenders have told me, generally speaking, if the rent-charge falls within one of the following categories, it's usually acceptable to most lenders -

1. The provisions under section 121 of the Law of Property Act have been excluded under the estate rent charge clause.

2. The estate rent charge clause includes a mortgagee protection clause, which states that notice of at least 28 days is to be given to the mortgagee prior to any enforcement action being taken by the owner of the estate rent charge.

3. The owner of the estate rent charge is a management company comprising of the residents, who are the shareholders of a private freehold development. 

I don't really know anything in-depth about these, except how it reads To me it looks like your rent-charge at least ticks box no.2.

Thank you K_S - there is definitely a notice clause as you note in 2 above, so that is reassuring. I think I've spent too much time on Google today!

eddddy

Currently, the "2 months notice" clause makes the property acceptable to a lot of mortgage lenders.

You can see what most of the lenders say here: https://lendershandbook.ukfinance.org.uk/lenders-handbook/englandandwales/question-list/1865/

But it looks like some lenders like Nationwide want more than that.

In addition to the "2 month notice" clause, Nationwide say they want another clause:

Further, in the event of non-payment the agreement must either:

1. Specifically prohibit the collector/recipient from being able to create a lease over the property, or

2. If a lease is created the agreement must clearly state that on payment of: all arrears, costs of collecting arrears, all legal costs including court costs and costs of creating and surrendering the lease, then the lease must be surrendered. All costs must be reasonable. The agreement must specifically state no premium can be charged to surrender the lease.
If the agreement doesn’t include these details a deed of variation is required.

Does your deed have either of those clauses?


It's difficult to know how attitudes will change on the future, when you come to sell. For example, whether other mortgage lenders will get fussier, and follow Nationwide's lead. Or whether they'll just keep their requirements the same.

But having one of those extra clauses would give the homeowner extra protection anyway.

badger09

HopefulFTB22 said:

Hi all, 

I'm in the process of buying a new(ish) house on a managed estate and have just found out there is a rentcharge on the property. I'm struggling to understand the full implications of this (the legal jargon doesn't help!) - my understanding is that if the charge is 21-days' late, the management company will give 2-months' notice to the mortgage lender and owner to repay the charge, after which they will be entitled to possess the property if it remains unpaid. 

I was aware that new builds are often subject to additional management fees since the land is not adopted. However, I was unaware that these were enforced by a charge against the property. My solicitor is looking into this (the 2-months' notice period seems to be sufficient for my mortgage lender) - I have no problem paying the charge, but my main worry is that this will make the property difficult to sell in the future. 

I'd be interested to hear of anyone with experience selling a property that has an associated rentcharge - has this caused any issues? I'm also struggling to find out how much this will be per year if we go ahead with the purchase - the estate on which the house is located isn't yet complete so it will be a few years before the charge is payable. Any insights would be appreciated.

Thank you in advance!

When you come to sell, it will almost certainly cause any potential buyer & their mortgage lender the same concerns/questions as you are experiencing now.

A Rent Charge, as opposed to a Management Charge will put some buyers off completely. However, as it is not usually disclosed at the outset, by the time it emerges, many will be emotionally & financially invested in the purchase so will go ahead, subject to their lender, obviously.

RoseBerni

My late parents house had a old fashioned rent charge on it 
they had never paid it In over 50 years 
they new buyers asked for a deed of variation or an indemnity policy which is what we agreed on