Deed of Variation for estate rent charge refused

GDB2222

km1500 said:

that is interesting I had not heard of that before

what happens when the mortgage is paid off to you know?

The variation is to protect the lender. If the mortgage is paid off, the lender will (hopefully) cancel their charge, and the variation will still exist but there will be nobody for the management to inform. 

The issue arises because estate management companies were having trouble getting householders to pay.  A typical charge is say £200-500, and the cost of collecting that through the courts (plus the time) is disproportionate. 

eddddy

km1500 said:

that is interesting I had not heard of that before

what happens when the mortgage is paid off to you know?

In simple terms, the issue is as follows...

(Note that "the Rentcharge Owner" is the person who receives the Rentcharge)

• If a home owner fails to pay a rentcharge for 40 days, the Rentcharge owner can take possession of the property, evict the owner,  and lease out the property. (One Rentcharge owner did this and created 99 year leases, with no ground rent.)

• A £500k freehold house might drop in value to £1k, if it is subject to a 99 year lease with no ground rent

• A mortgage lender would be very worried if, say, they had lent £400k on a £500k house - but then the house dropped in value to £1k

So mortgage lenders will insist on a 'Deed of Variation' that does one of the following:

• The Rentcharge owner must promise that they will never take possession of the property, even if the Rentcharge is unpaid

• The Rentcharge owner must promise to give the mortgage lender 28 days notice before taking possession and creating a lease. And the mortgage lender will pay the Rentcharge during that 28 day period.

• The Rentcharge owner promises that if they take possession of the property because of an unpaid Rentcharge, they will give it back as soon as the Rentcharge (and fees) are paid

(Different mortgage lenders might insist on different options from the list above.)


And a home owner without a mortgage should be equally worried about this.

WheatOne

To avoid the rentcharge, the more common route now for a new house is to have a restriction on the title so it can't be sold without agreement from the management company that payments are up to date.
This seems to be acceptable for mortgage companies, but gives the management companies less leverage in the short term.

I've not heard of this alternative being used for a house that previously had a rentcharge because while legally possible to make that change, it would be inconvenient having an estate with different properties under different arrangements.

Flugelhorn

GDB2222 said:

km1500 said:

that is interesting I had not heard of that before

what happens when the mortgage is paid off to you know?

The variation is to protect the lender. If the mortgage is paid off, the lender will (hopefully) cancel their charge, and the variation will still exist but there will be nobody for the management to inform. 

The issue arises because estate management companies were having trouble getting householders to pay.  A typical charge is say £200-500, and the cost of collecting that through the courts (plus the time) is disproportionate. 

we bought for cash in such circumstances and our solicitor advised us to get DoV - vendor arranged this and it would have been acceptable to mortgage lenders if needed. Makes it easier for us to sell in the future 

GDB2222

eddddy said:

km1500 said:

that is interesting I had not heard of that before

what happens when the mortgage is paid off to you know?

In simple terms, the issue is as follows...

(Note that "the Rentcharge Owner" is the person who receives the Rentcharge)

• If a home owner fails to pay a rentcharge for 40 days, the Rentcharge owner can take possession of the property, evict the owner,  and lease out the property. (One Rentcharge owner did this and created 99 year leases, with no ground rent.)

• A £500k freehold house might drop in value to £1k, if it is subject to a 99 year lease with no ground rent

• A mortgage lender would be very worried if, say, they had lent £400k on a £500k house - but then the house dropped in value to £1k

So mortgage lenders will insist on a 'Deed of Variation' that does one of the following:

• The Rentcharge owner must promise that they will never take possession of the property, even if the Rentcharge is unpaid

• The Rentcharge owner must promise to give the mortgage lender 28 days notice before taking possession and creating a lease. And the mortgage lender will pay the Rentcharge during that 28 day period.

• The Rentcharge owner promises that if they take possession of the property because of an unpaid Rentcharge, they will give it back as soon as the Rentcharge (and fees) are paid

(Different mortgage lenders might insist on different options from the list above.)


And a home owner without a mortgage should be equally worried about this.

"One Rentcharge owner did this and created 99 year leases, with no ground rent."

"A £500k freehold house might drop in value to £1k"

Eddy, are you quite sure of that?  The only case I can find of that actually being done was by Morgoed Estates Ltd.in 2016.

They didn't actually take possession of the properties, and they surrendered their leases once the arrears (plus their substantial costs) were paid. The effect of the leases was to make the properties unsaleable, and this was enough to make the homeowners (or their lenders) cough up.

It's worth noting the wording of S121 (3) of the Law of Property Act 1925:

If at any time the annual sum or any part thereof is unpaid for forty days next after the time appointed for any payment in respect thereof, then, although no legal demand has been made for payment thereof, the person entitled to receive the annual sum may enter into possession of and hold the land charged or any part thereof, and take the income thereof, until thereby or otherwise the annual sum and all arrears thereof due at the time of his entry, or afterwards becoming due during his continuance in possession, and all costs and expenses occasioned by nonpayment of the annual sum, are fully paid

In other words, the rentcharge holder only gets a lease until the arrears are paid off. NOT for 99 years.  

That's how it looks to me, Eddy. Do you know otherwise?

Southend_2

GDB2222 said:

eddddy said:

km1500 said:

that is interesting I had not heard of that before

what happens when the mortgage is paid off to you know?

In simple terms, the issue is as follows...

(Note that "the Rentcharge Owner" is the person who receives the Rentcharge)

• If a home owner fails to pay a rentcharge for 40 days, the Rentcharge owner can take possession of the property, evict the owner,  and lease out the property. (One Rentcharge owner did this and created 99 year leases, with no ground rent.)

• A £500k freehold house might drop in value to £1k, if it is subject to a 99 year lease with no ground rent

• A mortgage lender would be very worried if, say, they had lent £400k on a £500k house - but then the house dropped in value to £1k

So mortgage lenders will insist on a 'Deed of Variation' that does one of the following:

• The Rentcharge owner must promise that they will never take possession of the property, even if the Rentcharge is unpaid

• The Rentcharge owner must promise to give the mortgage lender 28 days notice before taking possession and creating a lease. And the mortgage lender will pay the Rentcharge during that 28 day period.

• The Rentcharge owner promises that if they take possession of the property because of an unpaid Rentcharge, they will give it back as soon as the Rentcharge (and fees) are paid

(Different mortgage lenders might insist on different options from the list above.)


And a home owner without a mortgage should be equally worried about this.

"One Rentcharge owner did this and created 99 year leases, with no ground rent."

"A £500k freehold house might drop in value to £1k"

Eddy, are you quite sure of that?  The only case I can find of that actually being done was by Morgoed Estates Ltd.in 2016.

They didn't actually take possession of the properties, and they surrendered their leases once the arrears (plus their substantial costs) were paid. The effect of the leases was to make the properties unsaleable, and this was enough to make the homeowners (or their lenders) cough up.

It's worth noting the wording of S121 (3) of the Law of Property Act 1925:

If at any time the annual sum or any part thereof is unpaid for forty days next after the time appointed for any payment in respect thereof, then, although no legal demand has been made for payment thereof, the person entitled to receive the annual sum may enter into possession of and hold the land charged or any part thereof, and take the income thereof, until thereby or otherwise the annual sum and all arrears thereof due at the time of his entry, or afterwards becoming due during his continuance in possession, and all costs and expenses occasioned by nonpayment of the annual sum, are fully paid

In other words, the rentcharge holder only gets a lease until the arrears are paid off. NOT for 99 years.  

That's how it looks to me, Eddy. Do you know otherwise?

Yes the rentcharge owner can create a 99 year lease and there is no provision for it to be revoked when the arrears are paid. See for example https://www.duttongregory.co.uk/site/blog/rentcharges_draconian_rights_back_with_a_vengeance

eddddy

Southend_2 said:

Yes the rentcharge owner can create a 99 year lease and there is no provision for it to be revoked when the arrears are paid. See for example https://www.duttongregory.co.uk/site/blog/rentcharges_draconian_rights_back_with_a_vengeance

And there's another case described here: https://www.penningtonslaw.com/news-publications/latest-news/2017/roberts-v-lawton-rentcharge-risks

In this case, the outstanding Rentcharges were between £6 and £15. And the Upper Tribunal 'reluctantly agreed' that the Management Co's actions were lawful.

Even where the rent charge is paid, the lease continues.
..
The Tribunal Judge reluctantly found that the practise was lawful despite being a disproportionate and unfair remedy.
...
Judge Elizabeth Cook said: “Once the lease is in existence, therefore, it amounts to a stranglehold on the property owner whose freehold is worthless in the presence of the lease.”

GDB2222

eddddy said:

Southend_2 said:

Yes the rentcharge owner can create a 99 year lease and there is no provision for it to be revoked when the arrears are paid. See for example https://www.duttongregory.co.uk/site/blog/rentcharges_draconian_rights_back_with_a_vengeance

And there's another case described here: https://www.penningtonslaw.com/news-publications/latest-news/2017/roberts-v-lawton-rentcharge-risks

In this case, the outstanding Rentcharges were between £6 and £15. And the Upper Tribunal 'reluctantly agreed' that the Management Co's actions were lawful.

Even where the rent charge is paid, the lease continues.
..
The Tribunal Judge reluctantly found that the practise was lawful despite being a disproportionate and unfair remedy.
...
Judge Elizabeth Cook said: “Once the lease is in existence, therefore, it amounts to a stranglehold on the property owner whose freehold is worthless in the presence of the lease.”

Roberts v Lawton is the 2016 case involving Morgoed Estates. I haven't found another case.  

eddddy

GDB2222 said:

 Roberts v Lawton is the 2016 case involving Morgoed Estates. I haven't found another case.  

Oh, ok. I haven't seen any other cases either.

RHemmings

Gentoo365 said:

RHemmings said:

GDB2222 said:

RHemmings said:

nicmyles said:

Have you offered them money? There will more than likely be a cash amount they would accept.

That was my thought too. The management company are probably more concerned about their assets, and the ability to charge the rentcharge is an asset. Are you, OP, making an offer that puts them in at least a good position as they are now? 

The estate rent charge is not an asset. It is just a mechanism to make it easier to collect the costs for mowing the grass, etc. 

The OP has not said what the variation is that he wants, but it is usually fairly modest, eg informing the mortgage lender before taking drastic action under the rent charge, so as to give the lender a chance to settle the outstanding bill.   

Personally, I’d only buy a property where the estate management is under the control of the property owners. If that is the case, I don’t understand why there’s any difficulty over a variation?

I looked up the definition of asset and information about rentcharges, and it looks like an asset to me. As it's something of value owned or controlled by someone that provides future value. Even if it only provides a mechanism to be paid for services more easily, that is providing value. 

Whether or not it fits the legal/business definition of an asset, e.g. for accounting purposes, I can't see how that changes the situation that the company are unlikely to voluntarily give up the rentcharge without some renumeration that will put them in same situation. If they do, that's them being generous. 

On the face of it this 'asset' has no value, and isn't actually being given up.

All that is being requested is that IF the service charge are unpaid THEN rather than them using their legal right to convert to a leasehold after 40 days (without notice) they inform the mortgage company, who then pay the service charge so that their security remains a freehold.

If anything this reduces the likelihood of an unpaid service charge.

Other advice is to pay them money for it. It was that advice (posted earlier on) that makes me think the rentcharge has value. Making it easier to collect other moneys is in itself a value. But, that people would be prepared to pay to have it removed is, I personally think, an even clearer indication of value. In the same way that a ransom strip's primary value is that if someone wants to build on the land ransomed by the strip, they need to pay.