How to Avoid the Rentcharge Scam

There have been many recent horror stories of property owners facing demands of extortionate admin fees in relation to Rentcharges and cases where the companies behind the charges have offered them for sale in excess of £1,000. The question is therefore what are Rentcharges and is there anything that property owners can do to protect themselves?

A Bit of History

Rentcharges originated in the early part of the last century. They were created to enable builders to develop land without actually paying anything to the land owner, in return for an income from the owners (and subsequent owners) of the new houses.

The good news is that the 1977 Rentcharge Act abolished the creation of any new Rentcharges (subject to limited exceptions). It also capped the term of existing Rentcharges to 60 years, effectively creating an end to all Rentcharges by 2037.

Despite the similar terminology, a rentcharge is nothing to do with a lease.

What If You Don’t Want to Wait 20 years!

Well if your property is encumbered by a Rentcharge and you do not want to keep making payments for the next 20 years there is another option:-

• All owners have the right to “Redeem” the Rentcharge. This effectively means that you can buy out the Rentcharge owner and you would no longer have an ongoing liability.
• The cost of Redeeming will usually be 16x the annual Rentcharge
• You must be able to identify the owner of the Rentcharge

What If You Are Selling?

The existence of a Rentcharge does not make your property unsellable but it may deter some purchasers or make them a little nervous of proceeding. We advise that you take the following steps before placing your property on the market:-

• Consider Redeeming the Rentcharge prior to sale
• If Redeeming is not an option, ensure that the Rentcharge is paid up to date and that you have evidence of payment
• If you have not received a demand for several years, speak to your neighbours to see if they have any further information. If you still hit a brick wall, you may be able to offer and allowance to your buyer of 6x the annual Rentcharge

WARNING – SCAM ALERT

Many Rentcharges have been taken over by investment companies over the years. You may ask how a return of between £2 and £10 per property year per property is a valuable investment! The answer is that whilst the Rentcharge itself is regulated and cannot be increased, the fees associated with them are not regulated. Be aware of the potential pitfalls:-

• Companies that offer to allow you to Redeem for excessive fees! We have seen offers of in excess of £750 – remember that if you can identify the owner then you only need to pay 16x the annual charge
• Some companies will impose a Statutory Lease under s121 (4) of the Law of Property Act 1925 if the Rentcharge is unpaid for more than 40 days. This is perfectly legal and they will then look to charge extortionate fees to remove the Lease

If you have a Rentcharge on your property and you would like our assistance in redeeming this, please contact Sarah Sargent.