Rentcharges are annual sums paid out of freehold land to third parties that are not landlords and have no other legal interest in the land. They originate from the 13th century and, once imposed, continue to bind land, even where it is subsequently parcelled up and sold. The remedies available for non-payment place rentcharge owners in a strong position. In addition to rights of entry and distrain, rentcharge owners are entitled to forfeit the land for non-payment.
The Rentcharges Act 1977 made important changes to the law. It enables landowners to redeem historic rentcharges and provides for most remaining rentcharges to be extinguished in 2037. It also restricts the types of rentcharge that can lawfully be created. Consequently, modern rentcharges generally take the form of estate rentcharges, which are used to create estate-management schemes.
Rentcharges are annual sums paid out of freehold land to third parties that are not landlords and have no other legal interest in the land. They originate from the 13th century and, once imposed, continue to bind land, even where it is subsequently parcelled up and sold. The remedies available for non-payment place rentcharge owners in a strong position. In addition to rights of entry and distrain, rentcharge owners are entitled to forfeit the land for non-payment.
The Rentcharges Act 1977 made important changes to the law. It enables landowners to redeem historic rentcharges and provides for most remaining rentcharges to be extinguished in 2037. It also restricts the types of rentcharge that can lawfully be created. Consequently, modern rentcharges generally take the form of estate rentcharges, which are used to create estate-management schemes.
Shand v Morgoed Estates Ltd [2010] PLSCS 103 provided the county court with a rare opportunity to consider which party was liable for the payment of historic rentcharges created by conveyances in the early part of the 20th Century.
Shand concerned two different layers of rentcharge. The purchaser of development land covenanted to pay a rentcharge to its seller (the principal rentcharge). It subsequently built a residential estate on the land and sold the plots, reserving further rentcharges out of each parcel sold – presumably in return for a covenant that it would indemnify the householders against any liability to pay the principal rentcharge.
The company acquired the benefit of the rentcharges reserved out of the individual plots and accepted liability for and covenanted with the seller (but not the principal rentcharge owners) that it would pay the principal rentcharge.
The owners of the principal rentcharge subsequently issued proceedings against the company to recover arrears that were due for payment. The company denied liability. It did not dispute that the arrears existed or that the rentcharge owners were entitled to payment, but argued that there was no privity of contract or estate between them. The company relied on the fact that it did not have, and had never had, a freehold interest in the land affected by the principal rentcharge and argued that the principal rentcharge owners should look to the freeholders for the arrears.
The county court judge upheld the company’s claims. He accepted that his judgment would cause difficulties for the freeholders, who, if called on to pay, would have to exercise their rights of contribution against each other or enforce any chains of indemnity covenants that might be available to them.
The House of Commons was asked to support the Rentcharges (Notification) Bill in October 2009. If it had been enacted, rentcharge owners would have been required to notify landowners annually of their statutory rights to redeem historic rentcharges. It is pity that there was insufficient parliamentary time for the bill to reach the statute book.
Allyson Colby is a property law consultant
