Frustrated by annual rent charges? Remove the burden now to reap the benefits later
28 March 2014
Although new legislation will curtail rent owners' historic rights, rent charges still remain a concern to freehold owners. Removing that annual charge can save freeholders a lot of time and effort at a later date.
What are rent charges?
As historic landed estates were broken up and sold for development, estate owners often imposed rent charges against the freehold land to secure a future annual revenue stream. Failure to make such a payment would allow the former freehold owner (the rent owner) to pursue a range of measures to recoup its (often insignificant) lost income, including the right of repossession.
Apart from estate rent charges (charges which recoup monies in order to provide for estate services), the creation of new rent charges was restricted by legislation in 1977. Furthermore these restricted rent charges can only subsist for a further 60 years from the date of creation. New legislation arrives on 6 April 2014 which restricts once more the powers of rent owners.
Call back the bailiffs!
Formerly a rent owner could legally seize goods to the value of the debt for an unpaid rent charge. Concerns were expressed that this older practice conflicted with recent human rights legislation. The result is that any attempt to seize goods by the rent owner is expressly prohibited from April 2014.
This certainly weakens a rent owner's position and although a simple debt action can be brought, it is usually highly uneconomical due to the often insignificant sums demanded.
Should property owners still be concerned?
In spite of the above, rent charges are still alive and well. Rent owners can still reserve the right to repossess for longstanding non-payment. Failure to pay can also cause problems on future sales or refinancing if receipts of payment are requested. This can often cause unnecessary delays, especially as it often proves difficult to locate the rent owner and secure a receipt.
In this instance, an insurance policy may provide sufficient protection against the owner subsequently reappearing and claiming for loss of rent and breach of covenant. Statute also limits monetary claims to 6 years' arrears therefore building a reserve fund limited to that total may be prudent.
Can property owners remove a rent charge?
Those burdened by active rent charges can remove them in one of several ways. Legislation can provide a means to redeem the rent charge with the cost of doing so calculated by a statutory formula. It is also worth checking the instrument creating the rent charge as it may provide for an existing redemption process.
Failing this, rent payers can negotiate privately with the rent owners and agree a commuted sum to release the charge which would be documented by a deed.
This article was written by Robert Kilgour.
For more information please contact Robert on +44 (0)20 7427 6582 or email@example.com