Rentcharges Revisited (and the issue of enforcement of freehold positive covenants)

There is no other way to put it – rentcharges are a nuisance for property owners and property lawyers alike.

Not all properties are affected by rentcharges, but they are common throughout North Somerset and Bristol. This article examines the different types of rentcharge and considers what can be done – if anything at all – about them.

On 24^th July 2024, the law affecting rentcharges changed when Part 7 of The Leasehold and Freehold Reform Act 2024 (‘the Leasehold and Freehold Act’) came into effect. As a result, fixed sum, historic rentcharges no longer have the benefit of Section 121 of the Law of Property Act 1925 and the associated right to create a long lease or to enter the premises on non-payment.

While this is undoubtedly a positive development, it does leave practitioners wondering why the Leasehold and Freehold Reform Act has not dealt with estate rentcharges. Better still, why not introduce legislation whereby positive covenants are enforceable against subsequent purchasers in freehold land?

It is established law that although the benefit of a positive covenant can run at law, the burden of a positive covenant does not run so as to bind successors in title.

Back in 1984, the Law Commission’s recommendations would have enabled positive obligations to run with the land although, unfortunately, their proposals were not implemented as focus shifted to the introduction of commonhold, a form of ownership for multi-occupancy developments. Nearly 40 years on, there are only 15 commonhold developments in England and Wales (although it is touted by many in the current government as a solution to the existing leasehold ‘crisis’).

Estate rentcharges are one of only a few solutions to the issue of enforcement of freehold positive covenants against successors in title. Other options include:-

1.         Long leases – as the burden of a positive covenant can run with a leasehold estate, a long lease can be used to ensure that the covenants are enforceable. This does, however, require the owner to accept a leasehold title – as opposed to a freehold title – and will incur the unnecessary time and expense of negotiating a lease.

2.         Chains of indemnity – here, each new purchaser enters into a direct covenant with the original seller or their successor. They are therefore contractually bound. A restriction should be placed on the register (for registered land) to the extent that no disposition is to be registered unless the transferee produces to the Land Registry a deed of covenant in that form.

Remedies are also limited, as the covenantee (the person to whom something is promised in a covenant) will only be able to obtain damages rather than an injunction or specific performance.

3.         Benefit and Burden Principle – in Halsall v Bizell (1957), it was established that if a landowner wants to obtain a benefit, then it must submit to any corresponding burden. This may be by way of enforcing obligations in relation to private roads in smaller developments.

4.         Commonhold – referred to above, a Commonhold Association may be set up, with the various freeholders becoming members of the same. They will agree to be bound by positive and restrictive covenants via the Memorandum and Articles of Association.

The lack of commonholds having been set up can be attributed to there being no right to sublet in relation to a dwelling for more than seven years and thus affordable housing cannot be built into developments via shared ownership leases. In addition, mortgage lenders are concerned at the Commonhold Association being struck off - thus giving rise to a series of flying freeholds – resulting in many lenders being reluctant to offer mortgages.

While there are a few options available, these methods can be expensive, high-risk, time consuming and impractical and there is clearly a gap in current law which these methods do not address. Any reform will need to provide a practical yet simple method of achieving what can already be done, whilst minimising the financial burden.

The Leasehold and Freehold Act has been criticised by many for being rushed through parliament and for not going far enough, especially in relation to estate rentcharges. It is hard to disagree, as those living on developments where estate rentcharges are payable remain exposed to the dangers of Section 121 Law of Property Act 1925.

One cannot help but feel that this sorry situation – and the lives of tens of thousands of affected homeowners - would be improved if The Leasehold and Freehold Reform Act went just a little further allowed positive covenants to be enforceable against subsequent purchasers in freehold land. Sadly, this does not appear to be especially high on the agenda for the government. The wait goes on.