Freehold Rent Charge Insurance

Rent charges are payments made to a third party, known as the 'rent owner,' in the case of a freehold property.

These charges are defined by the Rent Charges Act of 1977and can be a fixed or variable amount, often tied to inflation or other formulas. Rent charges can affect all land in a title, even if it's divided and sold off in individual plots.

This article mentions that the Rent Charges Act of 1997 prohibited the creation of new income-generating rent charges, with a few exceptions. Existing rent charges registered on properties will be extinguished by July 22nd 2037, or sixty years from the date of the rent charge, whichever is later. 

What is an estate rent charge?

There is an exception to the 1977 Rent Charges Act's ban on new rent charges for the creation of "estate rent charges." These are typically established by property developers to generate ongoing funds for an estate management company. The rent charge, paid by the owners of freehold properties on the estate, is used to maintain communal areas like playgrounds, private roads, and car parks.

Historically, local authorities used to adopt and maintain housing estate communal areas and open spaces. However, this practice has become uncommon. To cover ongoing maintenance costs, rent charges are imposed on each new property in the estate. Estate rent charges can also be used to enforce obligations for the benefit of estate residents, as positive obligations on freehold properties do not automatically transfer with the land. An estate rent charge with a right of entry attached allows the rent owner to take possession and enforce these obligations.

How are rent charges identified?

A conveyancer typically identifies a rent charge by checking the property Title Register, which should detail the rent charge, although it may not specify the rent owner. For historical freehold rent charges on unregistered land, property solicitors must examine the title deeds.

Despite the fact that the rent charge owner has no legal interest in the freehold land subject to the rent charge, the rent charge can be registered at the Land Registry under its own title number.

Can ownership of a rent charge be transferred?

A rent charge can be transferred by the rent owner to a third party, making the third party the new rent owner with all the original rent owner's rights. The transfer of rent charge ownership can be a source of concern for some homeowners, particularly when rent charges are acquired by large investment companies or companies that are challenging to contact. In such cases, homeowners may consider redeeming a historical freehold rent charge from the new rent owner.

Can a rent owner enforce a rent charge?

A rent owner has several options to recover a rent charge created after 1881, including:

• Right of re-entry: A rent owner can re-enter the land, take possession of it, and collect income from it until the rent charge arrears are cleared.
• Granting a lease over the land: The rent owner can grant a new lease of the land charged on trust to raise arrears. Many rent charge deeds state that the rent must be paid annually, whether formally demanded or not. Some rent owners have used non-payment of nominal amounts as a trigger to impose severe penalties on homeowners.
• Statutory lease: A rent owner can grant a new lease of a freeholder's land to a third party, even if they have not made a formal demand for payment or initiated court proceedings. Section 121(4) of the Law and Property Act 1925 allows the rent owner to create a lease and charge fees for its creation and removal from the freehold property.

The consequences of non-payment of a rent charge and the imposition of a statutory lease

Once a lease is registered against a property, the property owner has no statutory mechanism to challenge it. Even if rent charge arrears are paid before the lease's end date, it can remain registered on the property. This doesn't require homeowners to pay extra rent; it simply means there is a registered lease, which conveyancers will note during property sales or re-mortgages.

Alternatively, the rent charge owner can take possession of the property and rent it out to recover funds. Either option can make a property unsaleable until legal issues are resolved, which can be time-consuming and expensive. It may also hinder homeowners from re-mortgaging their property.

Can a freehold property owner redeem a rent charge?

Many homeowners find historical rent charges burdensome and seek to clear their title deeds of this obligation, making it easier to sell their property without the annual payment.

If a rent charge was created before August 22, 1977, a homeowner may be able to redeem it under the provisions of the Rent Charges Act 1977. The cost of redemption is approximately 16-17 times the annual rent charge amount. This involves the property owner paying a redemption fee and applying for a redemption certificate to confirm that the rent charge has been redeemed. This procedure does not apply to estate rent charges.

If a relatively new freehold property is subject to an estate rent charge, it may be challenging to release the property from the charge, as the purpose of the rent charge payment often differs from historical rent charges. Instead of generating income for the rent owner, estate rent charges are imposed to cover the maintenance of common areas on the estate.

Redeeming a rent charge or obtaining Rent Charge Legal Indemnity Insurance

If a homeowner wishes to sell their property and is concerned that the rent charge may delay the sale, they may consider redeeming the charge. However, an alternative, quicker, and more cost-effective solution is to obtain Rent Charge Legal Indemnity Insurance. Online policies can be created in about sixty seconds, a much shorter process than redeeming a rent charge.

For more information about Freehold Rent Charges insurance, please call on 0345 603 0708 or email indemnities@legalbrokers.com.

Legal Brokers Ltd

Right to Light Insurance