What Constitutes an Estate Rent Charge...

marshalex

We're in the process of selling our house and our buyers lender has asked for a deed of variation due to as they believe to be an estate rent charge being present on the property.
After contacting the developers solicitors (via my own) they have stated that a deed of variation is not required as the charge is a maintenance charge and not a rent charge.
Apart from a selling restriction listed in the Proprietorship Register on the official title and covenants stating that we need to pay the annual charge every year on the TR1 (is a covenant the same as a deed?) I can't see any way of verifying who's right in this instance and my solicitor doesn't seem to know either. 
To our knowledge no one else on the estate has come up with this issue (and there's been numerous sales in the last year or so) and I don't want things delayed any more.
I believe what our developer did is what's stated in here https://www.ts-p.co.uk/insights/estate-rentcharges-a-cause-of-concern-for-buyers-and-lenders/ where we have covenants with the management company.
It's all very confusing!

Browntoa

Only charges I'm aware of were 

Ground rent , which in my case was a peppercorn £75 pa 

Service charges, which in my case covered estate gardening and maintenance and long term " sinking funds" for major works as the roads were private ( not adopted by the council ) 

Gentoo365

The Rentcharges Act 1977 does allow the creation of estate rent charges. 

There is a process that solicitors would follow to vary the terms. They are probably used to it by now, it's fairly common with recent ish new builds.

That doesn't mean all estate maintenance charges are rent charges though. 

Maybe your solicitor needs to refer to another solicitor in their firm for a review, if they 'dont seem to know'

EDIT, just checked mine and it had this on land registry (in a section called "C: Charges Register"

"(dd.mm.yyyy) A transfer of the land in this title dated [date] made between (1) [developer] and (2) [The first buyer] contains a grant of a rentcharge as therein mentioned."

Does yours have anything like that?

 

marshalex

Nothing in the title which mentions a rent charge or in the TR1.
The developers solicitors stated it was a maintenance charge therefore not party to section 121 of the 1925 LPA, and as they likely drafted the forms etc when we bought it new I'd be inclined to believe they're right...

eddddy

marshalex said:

The developers solicitors stated it was a maintenance charge therefore not party to section 121 of the 1925 LPA, and as they likely drafted the forms etc when we bought it new I'd be inclined to believe they're right...

It doesn't really work like that. In simple terms, each party is expressing their opinion.

The developer's solicitor is saying:

• "In my opinion, if the developer tried top take the property owner to court to get possession of the property for non payment of charges - the court would decide that the charges are not an estate rentcharge." And therefore refuse to allow the developer to take possession of the property.

But the buyer's solicitor is saying:

• "In my opinion, if the developer tried top take the property owner to court to get possession of the property for non payment of charges - the court might decide that the charges are an estate rentcharge." And therefore allow the developer to take possession of the property.

So the buyer's solicitor wants the developer to sign a document (a deed of variation) saying...

• "I promise I will not take the property owner to court to get possession, if they don't pay their charges." Then the opinions mentioned above become irrelevant.

marshalex

eddddy said:

marshalex said:

The developers solicitors stated it was a maintenance charge therefore not party to section 121 of the 1925 LPA, and as they likely drafted the forms etc when we bought it new I'd be inclined to believe they're right...

It doesn't really work like that. In simple terms, each party is expressing their opinion.

The developer's solicitor is saying:

• "In my opinion, if the developer tried top take the property owner to court to get possession of the property for non payment of charges - the court would decide that the charges are not an estate rentcharge." And therefore refuse to allow the developer to take possession of the property.

But the buyer's solicitor is saying:

• "In my opinion, if the developer tried top take the property owner to court to get possession of the property for non payment of charges - the court might decide that the charges are an estate rentcharge." And therefore allow the developer to take possession of the property.

So the buyer's solicitor wants the developer to sign a document (a deed of variation) saying...

• "I promise I will not take the property owner to court to get possession, if they don't pay their charges." Then the opinions mentioned above become irrelevant.

Well the interesting thing here is that it's neither, it's the lender saying it constitutes an estate rent charge, it appears the solicitors are all caught in the middle.

The developers solicitor stated "On the point of the deed of variation, please note that this is not a rent charge, this is a maintenance charge with a positive covenant, secured by way of an obligation to enter into a deed of covenant upon purchasing the property. A deed of variation is completely unnecessary."

The management company employed by the developers offered to add an additional covenant as part of the new transfer but that's not been accepted, and there's nothing mentioned anywhere in their debt collection policies or covenants about using these rights either.
The whole system is just a mess.
So do estate rent charges need to be present on the title/TR1 to be defined as such or is it again, not quite as simple as that.

eddddy

marshalex said:

Well the interesting thing here is that it's neither, it's the lender saying it constitutes an estate rent charge, it appears the solicitors are all caught in the middle.

The buyer's solicitor acts for both the buyer and the mortgage lender.

So it's likely that it's the buyer's solicitor who has advised the mortgage lender of the rentcharge risk, and advised the mortgage lender that they should ask for a deed of variation.

marshalex

But how is a rentcharge determined? There's nothing on our title or in the transfer that states it's a rentcharge. The only mention about the management company is that they need to produce a certificate of compliance to approve a sale. Everything else is enforced by a covenant.

eddddy

marshalex said:

But how is a rentcharge determined? 

As I understand it...

it's a case of reading the definition of a Rentcharge in section 1 of the Rentcharges Act 1977:



... and then decide whether your maintenance charge fits into that definition.  And different people might have different opinions.

There is no person or organisation who can give a legally binding declaration that your maintenance charge is or isn't a rentcharge.


According to this firm of solicitors in 2020, there hadn't been any court cases to provide further guidance on what is or isn't a rentcharge. So maybe some solicitors and lenders are being ultra cautious, and asking for deeds of variation, just in case.

There is no direct authority to confirm that a service charge is not an estate rentcharge. However, under s1 of the Rentcharges Act 1977, a rentcharge is defined as any annual or periodic sum charged on or issuing out of land except rent reserved by a lease or any sum payable by way of interest. Whilst it could be argued that an obligation to pay service charge is an annual or periodic sum, it is difficult to establish that it is charged on or issuing out of land as a positive obligation on its own.

We await a case to confirm the point and reassure lenders that the value of their security is not affected when using a service charge mechanism which requires a deed of covenant to be provided from an incoming buyer rather than an estate rentcharge.

link: https://www.stephens-scown.co.uk/real-estate/is-service-charge-the-same-as-a-rent-charge/ 

(Just to clarify, I have no knowledge or experience to form any opinion on whether your maintenance charge is a rentcharge. I'm just describing the background, rather than passing an opinion.)

marshalex

We appear to be in a catch 22.
The buyers solicitor states it is a rentcharge, the developers solicitors, my solicitors and the management company say it isn't and us and our buyers seem to be caught in the middle of legal wrangling with no obvious way forward.

eddddy

You can try saying something like this to the developer...

"My solicitor agrees with you that this isn't a rentcharge. But unfortunately, my buyer's mortgage lender is standing firm on this - so we're deadlocked.

So could you sign a deed of variation - just to allow the sale to go through - even though most of us agree it's not necessary?"

(I'd be tempted to try contacting the developer myself to move this forward.)



As the developer believes it's not a rentcharge, the developer will be no worse off by signing a deed promising not to use the powers associated with a rentcharge.

But there will be legal fees to pay. So you have to decide whether you'll pay them, or try to persuade your buyer to pay them.