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Estate Rentcharge Issues With New Properties

estate rentchargeNew properties are often subject to an estate rentcharge. However, if a buyer is not careful, they could find themselves subject to a rentcharge that puts them and their lenders at risk. In addition, rent charge can cause significant delays when a homeowner comes to sell their property.

What is an Estate Rentcharge?

An estate rent charge, in simple terms, is the obligation for an owner of a freehold property to pay a yearly sum to a third party to maintain parts of a new estate. The estate rentcahrge is usually paid to a management company, which could either be a residents management company or a private management company. As council’s refuse to take responsibility for maintaining green areas on new build estates, estate rentcharges have become more and more common as management companies are formed to maintain these areas. If you have purchased a property built within the last ten years, or are planning on purchasing a new build property, there is a good chance that your property will be subject to an estate rentcharge.

Estate Rentcharge Concerns?

Although an obligation to pay an annual service charge is commonplace, and may not cause too much concern, it is something that your legal advisor should pay close attention to. Where service charge payments are secured by way of a rentcharge, rather than a simple covenant to pay service charge, the rentcharge owner will have certain statutory rights where the payments fall into arrears. Should your service charge payments fall into arrears, the management company may either take possession of the property and take the profits thereto in repayment of the arrears. The management company may also grant itself a lease over the property. Should the management company exercise its right to grant itself a lease, this would leave the owner of the property the owner of the freehold only. This would have a significant impact on the value of the property and would prevent any sale until the lease had been ended. Clearly, a lender will take issue with this as it would mean that it makes the lender’s security practically worthless. Of more concern is the fact that the management company would not need to give the owner nor the lender any notice and is not obliged to end the lease upon repayment of the arrears. This has led to some companies effectively holding homeowners to ransom, demanding excessive administration sums to determine the lease.

As a result of the above risks, lenders now have very specific requirements where an estate rentcharge is to be in place; namely, that either the statutory remedies afforded to the management companies are excluded or that the Transfer Deed ensure that the management company must give notice to any lender before they are able to take possession of the property or grant a lease.

The Remedy?

To avoid estate rentcharge issues, it is incredibly important when buying a new property that you instruct solicitors with suitable expertise in these matters. An expert legal advisor will be able to ensure that these issues are dealt with before they come your issue to deal with.

Where you are purchasing a new build property, it is important that your solicitor ensures that the Transfer Deed either excludes the relevant legislative provisions, or that there is a clause in the Transfer that meets the lenders requirements. This is important whether you are a cash buyer or whether you are obtaining a mortgage. As a cash buyer you do not want to go through the time and expense of having to vary provisions of a Transfer Deed to make your property marketable.

If you are purchasing a recently build property subject to a service charge, you should ensure to ask your legal advisor whether the Transfer Deed includes an estate rentcharge. If it does, they will need to ensure that section 121 of the Law of Property Act is excluded, or that the Transfer requires notice to be given to any lender before any management company can exercise its remedies under the Law of Property Act. If the Transfer Deed does not contain suitable provisions, then your legal advisor will need to ensure that the seller enters into a deed with the management company and the original builder to vary the terms of the original Transfer to rectify this issue. This could take several months to resolve.

If you are selling a property which you pay an annual charge to a management company, you should check with your legal advisor whether they believe a Deed of Variation will be necessary. It is essential that such matters are dealt with at an early stage of a transaction to avoid unnecessary delays.

We understand that moving house comes with its natural stress, therefore we do not want you to come under any unwanted surprises which add to this stress. We want our clients to know that we have their interests at heart and due to our skill and experience in dealing with this issue, we can promptly ensure the matter is resolved.

The government also provides some detailed advice about estate rentcharges, click here to find out more.

Going forward? 

If you are concerned about an estate rentcharge issues for your freehold property, please contact us to see how we can help. We can investigate your title and advise you whether any further action needs to be taken and subsequently guide and help you resolve this unwanted hinderance on your title.

If you are purchasing a new build property, we at ORJ have the expertise needed to ensure that this does not become a problem for you in the future.

Click here to contact our property team, so we can support you the best we can.