The Court of Appeal recently heard a rare case about estate
rentcharges, a subject which seldom comes before the courts.
A rentcharge is a periodic payment charged on land other than rent
payable under a lease or interest. Nineteenth century developers
often imposed rentcharges to provide them with a continuing income
after the plots on the development had been sold. The Rentcharges
Act 1977 prohibited the creation of any new rentcharges of that
type but the Act permits "estate rentcharges". An estate
rentcharge is a rentcharge created to enable the "rent
owner" (that is the person to whom the rentcharge is paid) to
enforce the performance of covenants by purchasers of the land, or
to collect service charges from them.
Positive covenants, such as an obligation to erect a fence or
maintain a road or to contribute towards shared maintenance costs,
are not normally enforceable against purchasers of freehold
property (as opposed to the person who originally entered into the
covenant). An estate rentcharge is one way of circumventing that
rule. It works by giving the rent owner a right of entry, that is a
right to take possession of the property, if the covenant is not
complied with. A rentcharge is therefore a very effective mechanism
but it is seldom used in practice because the right of entry is
seen as disproportionate and likely to be unacceptable to
mortgagees.
A rentcharge of more than a nominal amount is only permitted by
the Rentcharges Act if it is a reasonable payment for the
performance by the rent owner of covenants for the provision of
services, carrying out of maintenance or repairs, effecting
insurance or making any payment for the benefit of the land
affected by the rentcharge or for the benefit of that and other
land. The recent case, Smith Brothers Farms Ltd v The Canwell
Estate Company Ltd [2012] EWCA Civ 237, concerned the meaning
of that provision.
The case concerned a rentcharge used to collect contributions
towards the cost of maintaining private estate roads. Smith
Brothers owned land on the estate and were required to pay both a
fixed contribution towards the cost of maintaining the estate roads
and also ninety per cent of the cost of maintaining a road over
which they had a right of way. They argued that the rentcharge was
void because it was of more than a nominal amount and it was not a
reasonable payment because it was unreasonable to have to
contribute towards the maintenance of roads over which they had no
right of way.
The Court of Appeal upheld the validity of the rentcharge. The
court explained that the services were provided for the benefit of
the estate as a whole and did not need to benefit the
landowner's land directly. To be valid under the Act, the
rentcharge could relate to a covenant for the benefit of both the
land affected by the rentcharge and other land. As long as the
rentcharge was created for the legitimate purpose of contributing
to the cost of the performance of a covenant for the benefit of the
landowner's land, then it would be valid from the outset
once and for all. It would not cease to be valid if the amount
calculated from time to time was not reasonable, but the rentcharge
could not be used to recover a particular payment which was not
reasonable.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
