Estate Charges (Rentcharges) - Best Avoid or not really a problem?

Maffy52

dannim12345 said:

Is this an old house or a new one?  We had this on both our (old) houses in Bristol, where it is quite common.   First house it was never asked for / requested but when we sold we had to get an indemnity policy for it.  The next house the solicitor wanted the same but paperwork was found to show it was bought out in the 90’s but not sorted with the land registry so that was sorted during the sell. 

They were set up by the builder or land owner but these people won’t be in business or alive but it could be passed on / sold to a company who will repossess (probably the wrong term) if you do not pay. So a big risk to a mortgage company, even though the cost is usually £1 - 5 Pa and you can buy it outright (if a known company).  

Hi, it was built in 2010 by Taylor-Wimpey, so new-ish.

Maffy52

chanz4 said:

sold ours with zero issue on a mortgage

Okay, good to know. I understand that most new builds have 'estate (rent)charges' and I assume that people are mostly buying these with a mortgage. However, when you search the web, it is full of 'bad stories' with people unable to sell their house or something. Already I see on replies to my post, some people say doesn't affect getting a mortgage, and other state that mortgage companies won't lend on properties with 'estate rentcharges'. I am confused!

Maffy52

eddddy said:

Maffy52 said:

Hi All, I am planning to buy a house which is freehold but has estate charges attached to it (rentcharges). I have researched a little and it sounds like things could get pretty bad if I ever fall into arrears, and may make it difficult to SELL the property in the future (as mortgage companies avoid properties with rent charges). Does anyone have any first-hand experience of this and can you offer me any advice?

Are you buying with a mortgage? If so, your lender is unlikely to lend on a house with a 'standard' estate rentcharge.

As you probably know, section 121 of the Law of Property Act 1925 says that the 'Rent Owner' can do nasty stuff like take possession of your house, if you don't pay the estate rentcharge.


So you need a Deed of Variation - that says some or all of the following:

• The 'rent owner' promises they will never take possession of your property (even if you are in arrears), or

• The 'rent owner' will give you and your mortgage lender 2 months notice, before taking possession of your property (to give time for the arrears to be paid), and/or

• If the 'rent owner' takes possession of your property, they will give it back, if you pay the arears.

Most 'rent owners' (i.e. developers, management companies etc) seem happy to sign these deeds of variation - but it sometimes takes a few weeks to get it sorted.

No I am a cash buyer. Unfortunately I didn't know about these charges until half way through the buying process (I really think they should be part of the sales blurb!) IF I had known I would have researched and probably made at least a lower offer (or perhaps not offered at all!). Now I am in a bind, as I am near to exchange.

I think I understand what you mean about the adding something to the deed, but I don't think this is practical as this is being sold by the New Homes group and they are basically 'demanding' a quick sale (the property was 'bought' by a developer as a part-exchange!), also the managment company seem unlikely to agree.

Maffy52

Lumiona said:

We pulled out of a new build due to the fleecehold charges. No caps or control over the management charges. Not a risk we were interested in taking. 

Yes, this is a concern. But, more of a worry for me is how this affects me if I try to sell the house in the future. If it will be difficult to sell (because the buyer can't get a mortgage!), then that is a major problem!

Maffy52

dannim12345 said:

Is this an old house or a new one?  We had this on both our (old) houses in Bristol, where it is quite common.   First house it was never asked for / requested but when we sold we had to get an indemnity policy for it.  The next house the solicitor wanted the same but paperwork was found to show it was bought out in the 90’s but not sorted with the land registry so that was sorted during the sell. 

They were set up by the builder or land owner but these people won’t be in business or alive but it could be passed on / sold to a company who will repossess (probably the wrong term) if you do not pay. So a big risk to a mortgage company, even though the cost is usually £1 - 5 Pa and you can buy it outright (if a known company).  

I wish £1-5 PA, more like £100-200 PA, bascially for cutting a bit of grass!...

Maffy52

[Deleted User] said:

It's a scam, and a huge risk. You need to look very carefully at it, such as what the maximum increases are. The property should be priced to reflect this, and you will likely be pricing it similarly (or hoping someone clueless comes along) when you want to sell.

yes, this is my big worry. I don't really care about paying the charges, just another bill to pay! BUT, I am worried that I cannot sell the house in the future.

[Deleted User]

Maffy52 said:

eddddy said:

Maffy52 said:

Hi All, I am planning to buy a house which is freehold but has estate charges attached to it (rentcharges). I have researched a little and it sounds like things could get pretty bad if I ever fall into arrears, and may make it difficult to SELL the property in the future (as mortgage companies avoid properties with rent charges). Does anyone have any first-hand experience of this and can you offer me any advice?

Are you buying with a mortgage? If so, your lender is unlikely to lend on a house with a 'standard' estate rentcharge.

As you probably know, section 121 of the Law of Property Act 1925 says that the 'Rent Owner' can do nasty stuff like take possession of your house, if you don't pay the estate rentcharge.


So you need a Deed of Variation - that says some or all of the following:

• The 'rent owner' promises they will never take possession of your property (even if you are in arrears), or

• The 'rent owner' will give you and your mortgage lender 2 months notice, before taking possession of your property (to give time for the arrears to be paid), and/or

• If the 'rent owner' takes possession of your property, they will give it back, if you pay the arears.

Most 'rent owners' (i.e. developers, management companies etc) seem happy to sign these deeds of variation - but it sometimes takes a few weeks to get it sorted.

No I am a cash buyer. Unfortunately I didn't know about these charges until half way through the buying process (I really think they should be part of the sales blurb!) IF I had known I would have researched and probably made at least a lower offer (or perhaps not offered at all!). Now I am in a bind, as I am near to exchange.

I think I understand what you mean about the adding something to the deed, but I don't think this is practical as this is being sold by the New Homes group and they are basically 'demanding' a quick sale (the property was 'bought' by a developer as a part-exchange!), also the management company seem unlikely to agree.

You aren't obligated at this point, so just one-off costs to consider. 

I personally wouldn't but a property that has any responsibilities beyond the immediate property unless I absolutely had to (for work purposes or similar) as you often get expensive vague charges, poor service from unsupervised contractors and also renters (of other properties) who frequently instruct frivolous things they don't pay towards.

Maffy52

Lumiona said:

We pulled out of a new build due to the fleecehold charges. No caps or control over the management charges. Not a risk we were interested in taking. 

thanks, yes, this is basically the decision I am facing, whether to pull out of the purchase. Before I was happy with the house, but now I am uncertain, 50:50! If I pull out then I lose money on solicitors fees, but I can live with that!. However, if I buy, then I am concerned this will just be an 'ongoing' niggle that will bother me for years to come (probably says something about my personality!)

Maffy52

Max_Wonger said:

Our estate consists of covenanted freehold and leasehold properties . The leasehold and freehold covenants are different but both commit the owner to pay an annual maintenance charge which is mainly used to pay gardeners to tend the communal lawns and ( private ) road repairs . However we are all directors of the management company so have a say in the charge and how it's spent ( plus no agents to pay ) . On sale of a property the conveyancing solicitor usually asks the company for a certificate of compliance with the covenant. In theory this could be withheld if there were arrears - the idea being  Land Registry would refuse to record the sale without it . However I'm not convinced this is effective as I know some properties have changed hands without this. In practice I think the only sanction against non payment is for the management company to withdraw co-operation with the seller's solicitor or else sue in the civil courts. 
To my knowledge  *** the existence of a covenant has never affected the ability to obtain a mortgage. ***

I guess this is the MAIN concern I have, whether a mortgage company will lend on it or not. It seems that different people have different ideas (see other posts!). If they won't lend on such a house then it will be very hard to sell in the future, and this is a big worry for me!

eddddy

Maffy52 said:

I think I understand what you mean about the adding something to the deed, but I don't think this is practical as this is being sold by the New Homes group and they are basically 'demanding' a quick sale (the property was 'bought' by a developer as a part-exchange!), also the managment company seem unlikely to agree.

Was the house advertised as "cash buyers only"?

• Your solicitor should be able to tell you whether the Estate Rentcharge already complies with Mortgage Lenders' requirements - or whether a Deed of Variation is required

• Here's what some mortgage lenders say about Estate Rentcharge requirements: https://lendershandbook.ukfinance.org.uk/lenders-handbook/englandandwales/question-list/1865/

• I'd be surprised if the developer's solicitors failed to spot a non-compliant Estate Rentcharge, when the part-exchange was arranged

• If there is a non-compliant Estate Rentcharge, and New Homes group decide they won't wait for a 'Deed of Variation' - what would they do instead? Nobody needing a mortgage can buy it. I doubt they would want to sell it as an unmortgageable property to a cash buyer at a huge discount.