Roberts & others v Lawton & others [2016]:

Arrears arising under rentcharges and rentcharge leases

The background

Morgoed Estates, a company which manages rentcharges, granted 99-year leases of each of the properties for which it managed rentcharges in favour of its directors who were the appellants in this action. The appellants applied to register the leases at the Land Registry, their intention being to charge the property owners for a surrender of each lease, encompassing the arrears, Morgoed’s own administrative costs and expenses and the costs of preparing the lease.

The Land Registry referred the applications to the First-tier Tribunal, which held that the leases were unregistrable ‘mortgages by demise’, an historical term whereby a lease was granted over a property and brought to an end when the loan had been repaid. The appellants appealed to the Upper Tribunal.

The law

Rentcharges are now rarely introduced, but historical methods of enforcement remain. Under s.121 of the Law of Property Act 1925, statute permits leases to be granted to trustees over properties where a rentcharge is held and in arrears. Those leases are capable of registration at the Land Registry, and are surrendered by the rentcharge holder upon payment of rentcharge arrears, however small the sum. Specifically, leases can be granted:

“to raise and pay the annual sum and all arrears thereof due or to become due, and all costs and expenses occasioned by non-payment of the annual sum…or otherwise relating thereto…”

The Upper Tribunal found that the leases were not ‘mortgages by demise’ as they made no provision to be brought to an end upon payment of arrears and charges; rentcharge leases end only when they are surrendered with no automatic fall-away mechanism. A rentcharge lease is capable of grant and registration if arrears have been outstanding for more than 40 days, regardless of whether payment has been demanded correctly or at all, whether a settlement has been offered or refused or whether the rentcharge holder has demonstrated its entitlement to the sum.

The decision

The Upper Tribunal ordered the registration of the leases, allowing the appeal of the rentcharge leaseholders. Although the UT commented on the historical nature of the remedy, it was nevertheless tied to the provisions of the Law of Property Act 1925.

J B Leitch comments on the decision:

“The case is important to both property owners and management companies. Owners are advised to check carefully the terms of their rentcharges, ensuring that these are paid on time and in the correct sums. For management companies and rentcharge owners, the ability to rely on this seemingly historical remedy is a useful fallback where arrears recovery is proving difficult. The Land Registry now has a precedent case for registration which, for as long as s.121 LPA 1925 remains on the statute books, should prove effective although clearly more efficient methods of rentcharge arrears recovery are now available.”