What is a rentcharge?

What is a rentcharge?

A rentcharge is nothing to do with a lease. To be clear a rentcharge is any annual or other regular sum of money charged on land except (i) rent payable under the terms of a lease and (ii) interest payments.

To confuse matters even further the term rentcharge can be used to mean both the sum of money itself and the interest in land which entitles the owner of the rentcharge to enforce that payment if it isn't made.

To summarise:

  • the periodic sum (or 'rent') is paid by the 'rent payer' to the 'rent owner'
  • the rent owner does not have to own any land to hold the right to receive the rent and will not have any interest in the land which is subject to the rentcharge
  • rentcharges can be transferred by the rent owner but the rentcharge is enforceable against the original rent payer and future owners because it is a charge on the subject land
  • the rentcharge can be registered under its own title number at the Land Registry in certain circumstances and the registered proprietor of that title number will be the rent owner
  • unlike a lease, which must have a fixed term, rentcharges are generally created for an indefinite period of time and so they can, in theory, exist forever

Are rentcharges still used?

In a commercial property context, investors and developers may come across rentcharges protecting payments of service charges on larger estates. These are more commonly known as estate rentcharges.

If you are a rent owner what can you do if the payments stop?

The rentcharge imposes a charge on the land for the rent payer to pay the rent. There may also be a separate [positive] covenant in favour of the rent owner by the rent payer to pay the rent.

If rent is unpaid the rent owner's options to enforce the debt may include rights to re-enter the land in question or to grant a lease of the land to trustees who will try to use that lease to raise enough money to settle the unpaid rent. The rent owner may also be able to pursue the rent payer through the courts for non-payment of a debt.

If a deed of covenant runs alongside the rentcharge the rent owner may also have a claim for breach of covenant.

It is important to take enforcement action as quickly as possible as the usual limitation rules apply.

What do I do if my land is subject to a rentcharge?

It is very important that the rent is paid on time otherwise your land could be subject to re-entry by the rent owner or the grant of a lease to trustees as mentioned above.

You will also need to make sure, if there is a separate deed of covenant running alongside the rentcharge itself, that any purchaser of the land enters into a similar deed in favour of the rent owner. If this is not done, then this might mean that you are still bound by the covenant to pay even after the land is sold

What Next?

The Rentcharges Act 1977 means that, with some exceptions, no new rentcharges can be created after 22 August 1977 and certain types of rentcharges already existing at that date will be automatically extinguished in July 2037.

However, it is important to remember that the creation of new estate rentcharges is one of the exceptions permitted by The Rentcharges Act 1977and so this form of property interest will still be encountered.

Please contact our Commercial Team on 01606 74301 who will be happy to assist you in any way.