Freehold Estate Rentcharges

Also known as “Service Charge Estate Rent Charges” Freehold Estate Rent Charges have become a hot topic of conversation lately. We explore why below.

What is a freehold rentcharge?

If you live on a new build estate you may be familiar with rent charges. Essentially, it’s an annual fee paid to a third party, usually the original developer of the estate, for the upkeep of the communal areas, (such as playgrounds, private roads and parking) within the development. This is in addition to any maintenance charges that are applicable to the estate.

Why is it a concern?

Where estate rentcharges are left unpaid the party who owns the benefit of the rentcharge could take possession of a freehold house, lawfully excluding the homeowner from their house thereby making the house virtually unsaleable if the rentcharge remains unpaid for 40 days. In other circumstances leases can be granted over the property. Most lenders are also reluctant to lend on properties that have such an onerous obligation in the deeds.

How can I sell or buy a property that has a rentcharge?  

One way in which you can sell or buy a property with a freehold rent charge is to enter into a deed of variation with the person who has the benefit of the rentcharge, to exclude s121 of the Law Property Act (giving them the powers in the first place). This would then stop them from taking possession of the house, lawfully excluding you from your house and could make the house more appealing to buyers.

This deed can be drawn up and completed as part of the conveyancing process. However, please do bear in mind that this may attract additional fees with your solicitor as well as the freehold rent charge owner’s solicitors too. On some occasions a further premium may also be required to be paid in consideration of entering into the deed.

A further option is to obtain an indemnity insurance policy to further protect your lender’s interest. This is usually a one-off premium that is based on the sale price but typically is only required where you are buying the Property with a mortgage.

Your lenders may also have specific requirements in this respect.

If you own a property which is subject to an estate rentcharge or are looking to purchase a property on a new build estate it’s important that you obtain professional advice to ensure the value of your investment is protected. Please contact Poonam Shah on 020 7436 5151 or to discuss your conveyancing requirements.