An estate rent charge is a mechanism by which a third party, (often a Management Company), is able to require the performance of covenants (as specified in the title deeds) by property owners; and also to establish the ability to collect charges known as “estate rent charges” which would normally apply to the maintenance and repair of common/communal areas of an estate.
An estate rent charge is a financial obligation relating to land and usually an entry is made against the property title to make the public aware that the land is subject to such a charge.
Estate rent charges are normally encountered in new build properties. The purpose of the charge is to set out the maintenance and repair obligations for the common or jointly used areas of an estate.
In years gone by the local authority, on the completion of a new build estate, would take over the main roads which serve the estate and link to the public highway, by a process known as adoption. It is now common practice for local authorities only to adopt, for the purposes of repair and maintenance, the main roads that the developer has built, which serve the estate and connect to the public highway.
The remaining communal areas such as grassed areas, playgrounds, common open spaces and other amenities on the estate shared by the property owners will not be subject to adoption by the local authority and the responsibility for repair and the maintenance of these areas will be dealt with by the creation of an estate rent charge. The obligation for costs therefore falls on the property owners on the estate.
This type of estate rent charge creates rights in favour of the owner of the charge, which in most cases will be a Management Company.
Rent charges are normally quite small and can run to a few hundred pounds a year.
One of the rights the Management Company has under s.121 of the Law of Property Act 1925 is a right of entry onto the property if the rent charge is unpaid.
This can cause an issue for a lender who needs to know if there are any onerous covenants relating to the property, since if the rent charge includes the right to enter onto the property for the non-payment of the charge, another party’s right of entry onto the property would be a concern.
Section 121 of the Law of Property Act also gives the owner of the rent charge the right to grant a Lease for a term of years over the title to the property, for the non-payment of the charge. This of course creates an issue for the property owner and would inevitably affect the future sale of the property and its value.
Lenders unfortunately do not have an agreed or common position in relation to estate rent charges. Sometimes the conveyancer will insist to the developer that the relevant sections of the Law of Property Act are excluded from the transfer relating to the property; or indemnity insurance can be taken out on completion.
The conveyancer will need to check the UK Finance Mortgage Lenders’ Handbook with regards to their position on estate rent charges.
The issue of estate rent charges can equally apply to older properties. Often the seller is required to put indemnity insurance in place, at their cost, to cover what is seen as a defect in the title.
While it is of vital importance estate rent charges are closely examined, the issues raised are capable of resolution.