Roberts v Lawton: rentcharge risks

Posted: 13/04/2017

A rentcharge is a historic property device, which affects freehold land. The recent case of Roberts v Lawton highlights the problems that they can cause for owners of residential property.

A rentcharge is any annual or periodic sum charged on or issuing out of land, except rent or interest – for example a ground rent payable in respect of leasehold property. Whilst most rent charges have become obsolete or been abolished, estate rentcharges, which can be created to secure the payment of maintenance costs or the cost of providing services still exist. In practice, there is commonly resistance to the use of new rentcharges to secure what are effectively simple service charges.

A rentcharge is a legal interest in land, with other property rights attached to it. Section 121 of the Law of Property Act 1925 grants the rentcharge owner remedies, which are available whether or not the rentcharge has been demanded, including:

• Right of entry. This permits the rent owner to enter into possession of the land and take the income from it until the sum due is paid.
• Lease to a trustee. The rentcharge owner is entitled to grant a long lease of the burdened property to trustees for the purpose of raising income to recover arrears, plus enforcement costs and the cost of granting the lease. 

Roberts v Lawton [2016] UKUT 395

This case involved a company whose business is to buy and manage rentcharges. The company owned about 15,000 rentcharges. The company used its statutory enforcement rights under section 121 LPA 1925, to compel property owners to make payment of arrears and significant costs.

The case involved a number of property owners who were in arrears with their rentcharges for various small amounts; the lowest was £6 and the highest £15. The company granted its directors, as trustees, rentcharge leases of for a term of 99 years that reserved no rent and applied to register the leases at the Land Registry.

Once registered, these leases would, stymie the sale of these properties because sale would not be practically viable, even if the tenant directors did not seek to take possession. The landowners were compelled to pay significant sums in return for surrender of the leases. One owner had been asked to pay £650. Even where the rent charge is paid, the lease continues.

The Land Registry initially refused to register the leases and the case came before the Upper Tribunal to decide whether the rentcharge leases were registrable. The Tribunal Judge reluctantly found that the practise was lawful despite being a disproportionate and unfair remedy.

Judge Elizabeth Cook said: “Once the lease is in existence, therefore, it amounts to a stranglehold on the property owner whose freehold is worthless in the presence of the lease.”

Points for practice

This case demonstrates the problems with rentcharges. Borrowers should be careful to meet deadlines given by a rentcharge owner and make sure payments are not due, which could lead to heavy handed enforcement action being taken.

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