What is a Freehold Rentcharge?
A Freehold Rentcharge is a yearly nominal sum payable by the property owner to a third party, who usually has no other interest in the property. Originally, they would have equated to a substantial yearly source of income for a landowner who sold off parts of their estate for housing to be built upon but kept rentcharges payable. Rentcharges are typically £2-5 per year and given £1 in 1900 equates to over £120 now, you can see how a small rentcharge per house could amount to a lot if collectable on several streets of houses.
Are Freehold Rentcharges a problem?
Freehold Rentcharges have become problematic due to large companies buying up rentcharge portfolios and enforcing the covenants to make money. An example of this, is insisting on old covenants contained within the same deed as the rentcharge covenant, such as building insurance having to be taken out by an approved supplier. I have had this on my own house in fact recently, and our new rent collector has insisted on everyone on our street taking out their insurance with one company. One would imagine the rent collector will then receive a referral fee for any house on our street that changes their insurance to a policy with this one company and, if residents refuse, the rent collector is threatening legal action for breach of covenant.
Lenders have in recent times also become concerned about lending against a property with a freehold rent charge. This will be discussed in more detail in a further blog.
What can I do about it?
A law passed by Parliament in 1977 meant that rentcharges can no longer be levied on newly built houses, with very few exceptions. The 1977 Act also states that all rentcharges (with few unusual exceptions) will be extinguished on 22 July 2037 or after 60 years from the date when the rentcharge first became payable, whichever is first. The Act also allows freeholders to buy out their existing rentcharges.
You can now apply through the Rentcharges Unit of the Department for Levelling Up to redeem your freehold rentcharge, if you know who the rentcharge owner is. Doing so will tend to make your property more attractive if you are thinking of selling. It also appeases mortgage lenders if you are remortgaging, as lenders have recently become worried about lending on properties with freehold rentcharges. Once you have applied, the Rentcharges Unit will send you and the rent collector a redemption figure (usually approx. 10-15 times the yearly rentcharge amount) which you pay to the rent collector and then a redemption certificate is provided. The certificate should then ideally be registered at HM Land Registry. Alternatively, you can ask your rent collector how much they will agree to accept to redeem your rentcharge direct and this may be faster, although in our experience this figure is usually much higher than going through the government department.
You may think this course of action isn’t worth it for you if you pay your yearly minimal amount and haven’t faced any problems with your collector, but there is always the risk they sell on the benefit to a big company who will start with their demands!
If the owner of your rentcharge is unknown, you may be able to make an application for adverse possession of the rentcharge. We can assist with that application and this route is working successfully in many cases where otherwise a lender may not be prepared to lend.
If you have any concerns regarding your rentcharge please do not hesitate to contact me or my colleagues and we would be happy to help.
Sarah Husain
Sarah is a qualified Solicitor, specialising in conveyancing, and has been with Alfred Newton since 2019.
