The Problems with Rent Charges on New-Build Freehold Homes

Estate rent charges are commonly used by developers of new housing estates. They are a means of funding works to communal areas and ensuring that homeowners comply with obligations imposed by positive covenants. The rent charge is registered on the property title and will therefore bind subsequent owners.

Such rent charges can pose difficulties for purchasers of new-build freehold homes when trying to secure a mortgage. This is because of the severe remedies provided by the Law of Property Act 1925, where rent charges are not paid.

Where rent remains unpaid for 40 days, the developer is entitled to grant a lease over the property or enter the property to take possession over the land. There is no requirement to give prior notice to a mortgage lender who has an interest in the property.

These remedies are causing some mortgage lenders to be unwilling to lend against properties where there is an estate rent charge. If it can be shown that the right to these remedies have been excluded, or notice must be served on the lender before any enforcement action, this may be acceptable to a lender.

UK finance raised the need for reform of the law in relation to rent charges in reply to a Law Commission consultation in 2016. The Government announced a plan for reform of the law in England in 2017; proposing to abolish the remedies granted by the 1925 Act. The Government has repeated their intention to introduce reform in answers to questions in parliament. However, in the latest Queen’s speech in May 2021, there was still no timetable given.

As things stand the law remains unchanged. When buying a new-build property, it is advisable to check early on whether there are rent charges registered with the property, and check with potential lenders about their requirements.

The contents of this article do not constitute legal advice and are provided for general information purposes only.