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Rentcharges were originally created as a way builders to construct homes without paying the landowner a high fee for the space, with the landowner profiting from an annual payment that the eventual freeholder owner of the house would have to pay. This guide explains the hurdles with selling a home with a rentcharge, and provides tips on how to still get a fair and fast offer.
- What does it meant to have a property with a rentcharge?
- Buyers may have concerns about a home that has a rentcharge
- Is it possible for a seller to just ignore a rentcharge at their house?
- Trying to end a rentcharge at your property before selling it
- Four ways to sell a house that has a rentcharge
- Frequently asked questions about selling a home with a rentcharge
What does it meant to have a property with a rentcharge?
Freeholder property owners – those who are outright legally own a house and the land on which it was constructed – can in some cases be subject to a fee known as a rentcharge.
First introduced during the Edwardian and Victorian eras in the UK, this was a way for developers to build new properties on land throughout the country without need to pay the landowner very high premiums. Instead, the landowner would agree to sell their land to the builder for either no cost or a significantly reduced amount, and in exchange they would receive a legally binding annual income from whoever became the freeholder owner of the new home.
You’ll most typically find rentcharges applying to properties throughout Weston Super Mare, Bristol and other locations in North Somerset, but they can be found in other areas.
Note that rentcharges only ever apply to freehold properties and not leasehold homes, where someone owns a flat or other property for a set number of years as specified in a lease agreement with the freeholder, and they pay the freeholder an annual ground rent.
A law enacted in August 1977 known as the Rentcharges Act imposed a long-sought ban on the use of rentcharges at most properties, as the UK government’s website explains. The law automatically terminates all existing rentcharges by July 21, 2037, or at the 60-year mark from the original date that the rentcharge was first owed by the freeholder – whichever comes later.
The only major exemption from this upcoming ban is for what’s known as estate rentcharge, which applies to reasonable or nominal payments that a freeholder makes to help the landowner pay for certain repair or maintenance of the land where the home exists.
And the termination date for other rentcharges is still more than a decade away, so owners of these properties have to deal with the potential problem of this fee when trying to sell a home.
Keep reading to learn about why buyers might be reluctant to make a decent offer for a property that has a rentcharge, as well as your options for potentially contesting one of these fees before attempting to sell. But if you’re looking to sell fast and with minimal effort, this guide also offers tips on how to best attract a competitive and quick offer when selling with a rentcharge.
Buyers may have concerns about a home that has a rentcharge
The person or company that freehold property owners must pay this fee to is known as the rentowner and, as you’ll see later in this guide, they can pursue legal action to collect the charge. This threat, particularly if it includes seeking penalties for non-payment, can therefore act as deterrents that might make it harder to get potential buyers interesting in your home.
Generally, rentcharges are set at a fairly low amount at roughly £10 – once a very high sum but now considered what is known as a peppercorn, or nominal, fee. But it’s the not the amount of this fee that will drive a buyer away, instead it’s the legal issues linked to this charge.
There are many instances where people have ignored rentcharges or forgotten they exist. The rentowner is entitled to impose penalties for non-payment in as little as 40 days after not receiving the fee from the freeholder. The rentowner could then sue the freeholder to enforce the payments, including the fees, and effectively force owners to pay thousands before selling, and this potential enforcement action is described in more detail in the guide’s next section.
The worry about the possibility of being subject to legal action could be enough to make someone lose interest in your home, especially if you currently have unpaid rentcharges.
In some cases, problems with high rentcharges at a property could make it all but impossible for a buyer to get a mortgage to purchase the home, as explained by John Hodges Solicitors. And without a mortgage, the sale will not be able to proceed.
Home loan providers will have the same broad concerns about legal liability making the property hard to sell, especially if they need to do so should the borrower default on their mortgage. In that case, the lender would move to resell the property with the aim of using the sale proceeds to recoup the outstanding mortgage debt amount. But they likely won’t approve a mortgage if they think that it will be impossible to sell the home again because of the rentcharges.
Is it possible for a seller to just ignore a rentcharge at their house?
If you’re the owner of a freehold home that has a rentcharge, you might be wondering whether you can simply ignore paying the fee and suggest to a buyer that they do the same.
Generally, this is considered an extremely unwise approach to take, because the law tends to side with rentowners when it comes to paying this fee. They only have to wait 40 days for payment and after that time they can sue you to collect the overdue rentcharge, and they also have the legal right to impose penalties that can easily reach hundreds or thousands of pounds.
Currently, rentcharge owners have broad authority to enforce their annual charges and take potentially drastic steps to recoup the money if you try to avoid paying it, as Bennett Oakley Solicitors says.
The solicitors’ website highlights the example of a 2016 court case known as Roberts and others v. Lawton and others where the company Morgoed Estates Ltd. handled roughly 15,000 property rentcharges and some of those had arrears. The company then moved to grant 99-year, zero-rent leases for these homes to its directors, and this was authorised under the Law of Property Act 1925, in particular section 121. The affected homeowners then had to pay the overdue fees plus expensive penalties before they could even attempt to sell their properties. And a judge found that the company was legally allowed to take the actions it did.
Therefore, if you have a rentcharge at your property then it is in your best interests to pay it each year. And if you have arrears with your rentcharge that will make it impossible for a typical buyer to get a mortgage to fund the purchase of your home, you may want to look at options like contacting a quick buyer such as LDN Properties that has experience buying such homes.
Trying to end a rentcharge at your property before selling it
There are a handful of options to consider if you would prefer to terminate the rentcharge at your property before attempting to find a buyer for it, as noted by the Beyond Law Group. Whether or not these options are feasible for you will depend on your own situation.
Wait until 2037: This is an extreme solution, but you could wait until rentcharges automatically terminate by law in July 2037 and then it will no longer apply at your property. But there will not be many homeowners looking to sell who are willing to wait more than a decade to do so.
Buy out the rentcharge: You could approach the rentowner and ask them how much it would cost to effectively buy out the rentcharge and remove it from the property, making it no longer an issue when selling – but the price could exceed your planned budget with selling.
Express release: This is similar to buying out the rentcharge, but in this scenario the rentowner will first get in touch with you with a price offer for ending the charge. Just beware that this can be a very costly option and therefore not viable if you’re trying to reduce your selling costs.
Indemnity insurance: If a mortgage lender is reluctant to grant a loan for someone to buy your home, you could ask the buyer to see if the company will get indemnity insurance that might solve its concerns about legal liability and recouping their costs in the event of a default.
If none of the above strategies are feasible for you because of time, money, effort or any other factors, then do not despair that you won’t be able to find a buyer for your home.
You still have great options to sell your property for a competitive and quick offer, including by getting in touch with a fast home buying company like LDN Properties that should be able to finish the steps for purchasing your house in a just a handful of weeks. The next section of this guide offers more details on this option for selling as well as three other methods.
Four ways to sell a house that has a rentcharge
When you’re ready to search for a buyer for your home with a rentcharge, the next step is to decide on which selling method to use. Your typical choices are selling with an estate agent, selling to a quick property buyer, selling at an auction or selling without any help.
There are clear pros and cons linked to the options, ranging from the advantage of being able to sell your home within a handful of weeks when selling to a quick home buyer like LDN Properties through to the downside of paying high fees when selling at an auction. Finding the right method for the sale of your home will depend on your unique wants and needs.
One way to narrow the list is to write down your main aims with selling, such as how long you can wait to find a buyer, your willingness – if any – to pay commission and your preferred sale price. Next you can compare all of these important factors against the specifics of the four methods below and this should assist in finding the one that best pairs with your scenario.
Selling with an estate agent
There isn’t much work you’ll need to do when selling through an estate agent because it’ll be their duty to handle most of the tasks, starting with putting together a listing that includes photographs of the home and describes its main features, and they’ll advertise this online, in their office and in local newspapers. They will also organise viewings to give people tours of your property, hear offers from buyers and ideally take one to exchange of contracts.
But some estate agents might have zero experience with selling homes that have a rentcharge, and this suggests they could find it difficult to get buyers interested in your property. Check with individual companies if they have this experience and don’t sell with those that lack it.
Selling with an estate agent will also add to your expenses because you will have to pay them commission if they succeed in selling your home, and this is deducted right away from the sale proceeds. Usually, the fee will be within a range from 1.15 percent to 1.40 percent of your property’s final sale price although it could be higher or lower than this amount.
And it can also take a long time to sell this way, so you should not be surprised if it takes many months or even more than a full year. Remember also that a buyer could make an offer but then change their mind and cancel it, causing the sale to collapse – and they can do this without penalty if contracts are not yet exchanged. You would then have to start again with trying to find a buyer, which could add much more time to your overall selling schedule.
Selling to a quick property buyer
One of the easiest ways to sell a home with a rentcharge is by contacting a quick home buyer, like LDN Properties. These companies have the funds available upfront to purchase properties immediately, reducing the timeline to few short weeks, which covers the vital steps of exchanging contracts and paying the homeowner the full sale proceeds.
A great reason to sell this way is that quick buyers are known for making quick and fair offers to buy almost any type of home regardless of its age, condition, location, shape, size or type.
Launched more than 15 years ago, LDN Properties buys all types of homes throughout the UK, with a long list of purchases and offers made that includes not only houses with a rentcharge but also properties with an enforcement notice, homes with an absent freeholder, flats without a bathroom or kitchen, properties that have significant storm damage, houses of multiple occupancy, homes that have a section 20 notice, flats located near to traffic lights, half-finished properties, homes with a loft conversion, penthouse flats, timber frame houses and many other varied examples.
These companies also commit to never charging sellers commission, which will help you to reduce you expenses with selling, particularly when compared to selling via an auction or an estate agent, where you’ll have to pay fees that will be taken out of the sale proceeds.
Selling at an auction
With an auction you will choose a reserve price – the lowest value at which you are willing to sell your home – and then people will place bids on it, with your goal being to get many bids that push the final sale price very high and hopefully results in a decent profit for you.
But a single bid at the reserve price is a binding sale and the buyer could sue you to enforce it if you try to walk away from it after the auction. That’s why you must choose a reserve price that should generate a profit even after paying the auctioneer the fees they will charge.
And those fees are usually priced at 2.5 percent of your property’s final auction sale price, with the money taken out of the sale proceeds right away. You could ask individual auctioneers if they are open to reducing their rate of commission or having the buyer pay a share of your costs, because either of these strategies can help with reducing your expenses.
Auctioning is far from the fastest way to sell a property because there’s a wait of many weeks or longer between when you choose this method and when the auction takes place. And if the home sells, the buyer usually has about a month to sign all of the required legal papers and complete the other tasks necessary to formally complete the sale of your property.
Some auctioneers may also not know how to sell a home with a rentcharge, which implies they won’t know how to get auction attendees interested in placing a bid. Always inquire with auctioneers about whether they have successfully sold a property like yours before and try to avoid using the services of any auctioneer that is not able to prove such experience.
Selling without any help
Another option for selling is doing so without any assistance from an auctioneer or an estate agent, but this can become a very time-consuming and stressful way to sell a property.
You will have the sole responsibility for creating and advertising a listing for your home, scheduling viewings and fielding offers from buyers. Unless you have experience with selling properties with a rentcharge, or you have a qualified friend or family member that can help you at no cost with the sale, you might be looking at more than a year before finding a buyer.
One of the only obvious benefits of selling via this approach is that you will not have to pay any commission to a third-party like an auctioneer or an estate agent, which lowers your costs. But you might find that this saving is eliminated by the funds that you will need to spend on advertising your listing and the various other steps involved with selling your home.
If you want to avoid fees but find the idea of selling without any help too daunting, you should consider selling your home to a zero-commission quick buyer like LDN Properties. By selling to one of these companies you would enjoy the same no-fee advantage of selling on your own, but you would get the added bonus of enjoying a much faster sale. That’s because quick buyers can usually finalise the purchase of almost any home within a few short weeks, and that covers the crucial steps of paying the seller the full proceeds as well as the exchange of contracts.
Top queries and answers about selling a home with a rentcharge
LDN Properties, launched in 2003, has bought several houses that have a rentcharge, and here you’ll see our answers to some top queries we get about selling this type of home:
Your top questions when selling property with a rentcharge
The concept of rentcharges was first introduced during the Victorian and Edwardian eras in the UK, and they sought to encourage developers to build homes at a reduced cost, through an agreement where landowners sold land to builders for free or at a low price, in exchange for the future freeholder homeowners paying the former landowner an annual income.
Although rentcharges are typically only about £10, if you have one at your property you could discover that it is much harder to get buyers interested. That is because they could worry about the potential for the rentowner to pursue litigation to recoup any unpaid rentcharges with hundreds of thousands of pounds of penalties added on top to the underlying charges.
You should never simply try to pretend that you don’t owe a rentcharge because it will create many more financial and legal problems than simply paying the fee each year. Rentowners don’t have to issue a formal demand for a late payment, so they could simply wait until you’re 40 days late on paying the fee and then launch what would be a very costly enforcement action.
You only have a few available strategies for trying to challenge a rentcharge at your home, and some or all of these may not be compatible with how fast you want to sell, your budget and more. Options include waiting until 2037 when rentcharges expire, attempting to buy out your rentcharge, or getting the buyer to have their mortgage provider obtain indemnity insurance.
The four usual ways to sell a property with a rentcharge are trying your luck with an auction, getting in touch with a quick buyer such as LDN Properties, selling with the services of an estate agent or selling without any third-party help. There are pros and cons associated with all four of these methods, such as how individual methods take and whether they charge any fees.
Contacting LDN Properties or another quick home buyer will usually be the quickest option for selling this type of home because the timeline should be just a few short weeks, and this covers the final steps of exchanging contracts and paying the seller the proceeds. But it can take at least several months to sell with an estate agent, at an auction or on your own.
If you opt for selling your property using the services of either an auctioneer or an estate agent then you will need to them commission and this will be subtracted from the eventual sale proceeds, which will increase your expenses. But if you sell to a no-fee quick buyer like LDN Properties or you sell without any assistance then you won’t pay any commission.
