The little-known property law that can prevent you getting a mortgage

Existing and would-be homeowners have been warned that a little-known conveyancing law could prevent them securing a mortgage on a property – and affect its marketability when they sell.

Adrian Morley, a specialist in residential property at Swansea-based law firm Hutchinson Thomas, recently completed a transaction on a property that was subject to the terms of a Property Act written in 1925. The act stipulates that the owner of a house or piece of land is required to pay a rentcharge to the developer, or their appointed management company (‘the rentcharge owner’) to cover the repair of roads and amenities in the area – which is processed in the form of an annual fee. This specifically affects freehold properties, not leasehold properties.

Its existence is significant because the consequences of not paying it can be severe. If the owner of the property is more than 40 days late paying the charge, whether demanded or not, the rentcharge owner has the legal right to either take possession of the property or grant a lease of the property to its nominees. The nominees can then add and claim additional administrative and legal fees from the owner until the matter is resolved.

Though such severe consequences stemming from an unpaid rentcharge are rare, they are not completely unheard of. In a 2016 case, Roberts and others V Lawton and others, the court initially ruled in favour of the property owners. However, this decision was eventually over-turned. On appeal, the court held up the right of a rentcharge owner to take control of the property in the event the rentcharge is unpaid.

This antiquated law has shown no signs of disappearing either. Estate Rentcharges are now being imposed on most new developments as local authorities do not want to accept the responsibility of maintaining amenity areas and roads in new developments. Because the rentcharge owner can take possession of the property or grant a lease to its nominees without first advising the property owner’s mortgage company of its intention, purchasers are struggling to obtain mortgages on these properties.

Adrian Morley, specialist in residential property at Hutchinson Thomas, says:

“By looking at the recent case of Roberts and others v Lawton and others, we can see the emerging problem for buyers. Mortgage companies have no control over whether the estate rentcharge owner decides to serve notice on them prior to taking an enforcement action or not.

“Regardless of this, many mortgage companies have still not started to fully consider the impact on buyers. We find that when solicitors report the existence of an estate rentcharge to a lender, some refuse to lend without confirmation from the estate rentcharge owner that they will be given notice, whilst others refuse to lend at all.”

For expert legal advice about residential property law – contact Adrian on 01639 640521 or email: