Residential Newsletter: Winter 2019/2020

Meet the Team: Maxine Endicott

How long have you worked at Freeths and why did you decide to join this firm?

I've worked here for one and a half years. I relocated to Oxfordshire with my husband in 2017 and was drawn to Freeths because it has a very well established local reputation in Oxford (formerly being Henmans); but it also had the reputation and support of being a wider national firm.

Why did you choose to specialise in Residential Conveyancing?

It wasn't an area that I was initially interested in when studying law, but I did a seat in residential property as a trainee and really enjoyed it.

What has been the most complicated transaction you've been involved in during your career?

I have been involved in setting up a number of new build sites for developers and then selling the plots. There are always unexpected difficulties on site set-ups including: Help to Buy; easements to and from neighbouring land; planning; building regulations and final warranty requirements. Every site is different and they all have their own complexities.

If you could have a meal with anyone, alive or dead, who would it be?

The Queen. I'm a royalist at heart and would love to meet HRH. I'm not sure she'd tell me many secrets, but it would be very interesting nonetheless!

Tell us an interesting fact about yourself.

I love to play music and have learnt musical instruments since I was very young - my mum was my music teacher! I have achieved Grade 5 in Saxophone and Piano, as well as Grade 8 in Flute.

Rent charges: in focus

Following hot on the heels of the ground rent controversies faced by leasehold tenants, the use of estate rent charges on new build developments has now come under the spotlight.

What is a rent charge?

Under the Rent charges Act 1977, a rent charge is defined as “any annual or other periodic sum charged on or issuing out of land” except for rent payments arising under a lease or any interest payments.

Terminology:

• Charged land - the land that is subject to rent charge
• Rent - the sum payable under a rent charge
• Rent Owner - the person who is entitled to receive the rent payable under a rent charge (e.g. the estate developer or management company)
• Rent Payer - the person who owns the charged land (i.e. the freehold owner)

A rent charge is created by deed and imposes a charge on the land. The rent owner can usually enforce non-payment of the rent against the owner of the charged land using a number of methods, including an action for debt or exercising a right of re-entry where this is specified in the rent charge deed.Key points to be aware of include:

• Rent charges are usually indefinite so will be payable forever, although they can be created for a fixed period;
• A rent charge is a legal interest in land and can bind successors in title of the charged land;
• A positive covenant expressly requiring the rent payer to pay the rent will not run with the land but a successor in title will be bound by the rent charge itself and may have given a direct covenant to pay the rent;
• Where the original rent owner also owns land, the rent charge does not pass automatically to any buyer of that land - it would need to be specifically assigned.

The history

Back in the 19th century, rent charges were prevalent in certain areas of the country, including Bristol, Bath and Sunderland, as a method of providing consideration for landowners. Land was sold to developers, at little or no financial cost, to build residential properties. The homes were then sold to buyers as freehold properties subject to a rent charge specifying the rent owner as the original landowner. The landowner then received an ongoing income from the homeowner, rather than being paid a lump sum by the developer at the outset. Over time, developers began to impose rent charges for their own benefit. In the 20th century, rent charges became unpopular with owners of the charged land and the rent owners themselves, and, in 1975, the Law Commission recommended reform. The Rent charge Act 1977 prevents the creation of new rent charges and caps the life of existing rent charges at 60 years, meaning they will automatically cease in 2037. However, one key exception to the prohibition of new rent charges is the estate rent charge.

What is an estate rent charge?

This type of rent charge is imposed on freehold properties, usually in a housing estate development, for either of the following purposes:

• To allow the rent owner to enforce positive covenants against the owner of the charged land, i.e. the “covenant supporting” rent charge.
  • The amount of rent which is payable under this type of rent charge is restricted to nominal amounts only, e.g. £1 per year.
• To contribute towards, or pay fully for, the costs incurred by the rent owner when performing services that benefit the charged land either solely or alongside other land, i.e. the “service charge” rent charge.
  • Under this type of rent charge, the amount of rent payable can be more than a nominal amount but must be a reasonable figure that provides payment to the rent owner for the performance of their service covenants.

Recent focus

Concerns have been raised that some residential property developers are using rent charges inappropriately, calculating the rent payable by reference to periodic increases or inflation based indices. It has been suggested that this is the latest means of unscrupulously enhancing an income stream. As covenant supporting rent charges should only seek to recover a nominal rent, any attempt to recover more could be challenged.

Large housing developments will often use a management company to provide services relating to the common parts, including maintenance and insurance. The service charge rent charge is the vehicle used to provide the management company with sufficient funds to carry out these services by creating an effective obligation on each homeowner to financially contribute. If a homeowner views the sums demanded, e.g. the management fees, as excessive, they can dispute them.In our experience, most developers continue to use estate rent charges legitimately.  For example, if public open spaces or roadways are not adopted by a local authority, the ongoing maintenance of these areas can be secured as part of an estate rent charge mechanism.

With the Government promising to provide new rights to homeowners to challenge unfair charges, the wings of some property developers will be clipped. But it should not be forgotten that without estate rent charges being used to recover legitimate maintenance costs, the long term success of many housing developments would be in jeopardy.

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STOP PRESS: News on Cladding Problems

Following on from the article by Kristal Dales in our Summer 2019 Newsletter, an independent expert advisory panel has now issued advice on the measures building owners should take to review ACM and other cladding systems to assess and assure their fire safety and the potential risks to residents of external fire spread. In January 2020, the Government published a consolidated note entitled “Advice for Building Owners of Multi-storey, Multi-occupied Residential Buildings”. That document brings the panel's advice together in a single document.

The Royal Institution of Chartered Surveyors, the Building Societies Association and UK Finance (formerly the Council of Mortgage Lenders) have also agreed an industry-wide process, to be used by valuers, lenders, building owners and fire safety experts, in the valuation of high-rise properties. The External Wall Fire Review process requires use of a new form - the EWS1 Form.  UK Finance has more information on its website.  In the long run it is hoped that this new regime will provide reassurance in the valuation process for sellers, buyers and surveyors and that nil valuations will be a thing of the past.

The Core Residential Team

If there is anything in this newsletter you would like to discuss, please feel free to contact our Residential Property team, who will gladly assist you.