Are Rent Charges The New Service Charge?

Author:Ms Emma Ridge
Profession:Wrigleys Solicitors

Developers are adopting new practices in response to the proposed ban on leasehold houses.

The problem with long leaseholds has been well documented over the last couple of years. It has become more and more common for developers to retain the freehold on residential developments and offer long leases (over 250 years) of the homes on the estate. These leases are subject to ground rents and service charges which can escalate over time, often in accordance with a formula set out in the lease. In some cases, homes eventually become unsaleable due to the level of charges they are subject to.

The proposed ban on leasehold houses aims to address this issue. However there have been reports in the press recently of developers using rent charges and restrictive covenants when selling freehold homes to impose similar a cost burden to the cost burden under leases. If left unregulated, this could result in a greater cost to buyers than under the leasehold regime.

Rent charges

Rent charges are akin to service charges in leasehold property, in that they oblige residents to pay a regular fee for the maintenance of common parts. In residential developments, these are usually areas such as private roads, private street lighting or grass verges.

Rent charges are not, however, subject to the same regulation and requirements of reasonableness as the charges that are made under leasehold legislation. For instance, there is no cap on the amount by which the rent charge can rise and no duty to consult residents on expenditure over certain limits. If you do not pay your rent charge, the rent charge owner has the right take back possession your home with no compensation.

This is also no right to relief from forfeiture as in leases. This means a court cannot step in to prevent a rent charge owner (normally the developer) from taking possession of a home if the rent charge is unpaid by the homeowner. This is very draconian indeed.

Restrictive covenants

In addition...

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