Freehold Estate Rent Charges and their importance

A freehold estate is the highest form of ownership interest in real estate. It grants the owner full ownership rights and control over the property for an indefinite period of time. The owner has the right to sell, lease, or transfer the property as they see fit.

Rent charges, on the other hand, are a type of financial obligation that may be associated with a freehold estate. They are typically annual payments made by the owner of a freehold property to another party, usually a freehold management company. These payments are usually for the upkeep and repair of the common areas of the estate. Rent charges may be established through a legal agreement, such as a deed covenant.

Rent charges can vary in amount and frequency, depending on the terms of the agreement. They are typically outlined in the property’s title deeds, and failure to pay the rent charges can result in legal action or penalties.

If a property owner fails to pay the rent charges as agreed, the party entitled to receive the payments may have several legal remedies available to them. These remedies can vary depending on the specific terms of the rent charge agreement and the relevant laws in the jurisdiction.

Under Section 121 of the Law of Property Act (LPA 1925) there are two remedies available for the Rent Charge Owners in case of non-payment of the rent charge. If the rent charge is no paid for 40 days or more, the Rent Charge Owner has a statutory right to re-enter the property, meaning the Rent Charge owner can take steps to sell the property in order to recover the unpaid amounts and exclude the homeowner from their house. In this case any lender would also lose their security over the property. For this reason many lender will impose additional conditions when lending or refusing to lend altogether when a property is subject to a rent charge.

The second remedy available under section 121 LPA 1925 is the grant of a lease to raise monies to clear the arrears, interest, and costs. This lease will be binding on the property owner and any mortgagees and it can be registered with HMLR. The downside of this remedy is that under LPA 1925 there is no obligation on the Rent Charge Owner to surrender the lease once the amounts to be recovered are paid in full.

The main way to remove the risk of the Rent Charge Owner enforcing the rent charge or the difficulties associated with selling or refinancing, is by way of a Deed of Variation. The Deed can be prepared by solicitors when the property is sold or remortgaged. The alternative way to protect the lender’s interest in the property is to take out an Indemnity Insurance.

It is important for property owners to understand the terms and obligations associated with any rent charges before purchasing a freehold property. Consulting with a property solicitor and reviewing the property’s title documents can provide clarity on the specifics of the rent charges and any remedies that may be available if issues arise.

If you have any question on this topic or would like to discuss your concerns, please do not hesitate to contact our Property Team on 01206 577 676 or at [email protected]