HCR Law Events

15 June 2022

Rentcharges – what are they and how are they enforced if not paid?

Estate rentcharges affect freehold properties and, in recent years, have commonly been used by developers. These charges place an obligation on an owner of a freehold property to pay a yearly sum to the rentcharge owner – usually the developer or management company – to maintain communal areas or common facilities on a new estate.

The obligations created by estate rentcharges are enforceable against any successors in title. There is no way of challenging the amount of rentcharge due other than starting court proceedings which is not an attractive option.

Whilst an estate rentcharge will often only require property owners to make insignificant payments, the automatic statutory remedies available to the developer under section 121 of the Law of Property Act 1925 (LPA) if the payment defaults can be severe.

In most cases, if the payment remains unpaid for 40 days, there is a statutory right for the developer to grant a lease to trustees over the property for the purpose of raising monies to clear the arrears, interest and costs.

There is no requirement to inform a lender that a lease is being granted and the lease will continue for its full term of years, even if the arrears are paid or the rentcharge is redeemed in full. The risk to the lender’s security is having an increasingly adverse impact on their willingness to lend against properties which are subject to an estate rentcharge.


When acting on a new build freehold property subject to an estate rentcharge, the developer can be requested to limit or remove the remedies available to rentcharge owner under section 121 of the LPA.

Where this is not accepted by developers (usually because the form of transfer has been used on their previous plot sales) a request should be made to include a provision that two months’ notice must be given to a lender prior to any of the remedies under section 121 of the LPA being exercised. This would allow lenders to remedy the breach and pay any rentcharges due without any risk to their security.

When acting on a non-new build property, it may be possible that the lender will accept an estate rentcharge indemnity insurance policy. This provides the lender with financial protection if they suffer loss should the homeowner or borrower default on their mortgage and there is a shortfall due to a rentcharge lease being registered against the property.

If an indemnity insurance policy is not acceptable to the lender, it will be necessary for the property owner to request the rentcharge owner enters into a deed of variation so as to expressly exclude the remedies under section 121 of the LPA.

The rentcharge owner will undoubtedly require the property owner to pay a premium for entering the deed of variation and to be responsible for their costs.

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Roslyn Sweeney, Partner

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