The rent-charge “scam” and 5 ways to avoid it

The rent-charge “scam” and 5 ways to avoid it
Don't get hit with a suprise rent-charge. Photo: master1305 via Bigstock

Sudden charges in rent without any prior notice can feel like a nightmare. Even more so when you realize the charge is legal and you can do nothing about it; like it’s some perfectly crafted crime you can’t help.

It sounds like a story straight out of a Hollywood crime movie, but unfortunately, such charges exist in the real world. And the shocking thing isn’t only that: this is even perfectly legal!

Rentcharge, also known as the “Chief Rent”, has been around the early 1900s. A rent-charge is the common law’s solution for builders and workers to develop the land without a prime payment to the original landowner.

By selling the land for a fraction of the capital sum (or in some cases for no price at all), owners come to an agreement to receive a continuous income from the new building. This contract even extends to the property’s subsequent owner until the terms of the agreement have been met by the property owner.

The 1997 Rentcharge Act

Within the recent years, the UK parliament sought to abolish the common form of traditional rent-charge; which resulted in the property law that we now call the 1997 Rentcharge Act.

The 1997 Rentcharge Act ultimately capped most existing relevant rent-charges to expire by 2037, as well as prohibit the application of any new rent-charges subsequent to the parliament’s approval, though still subject to a few exception.

Rentcharge “Scam”

Typical homeowners are not expected to easily learn the ropes of property purchase; even more so in knowing what a rent-charge is. Over time, this has been taken for granted by some conveyancing firms.

Some deed may include a rent-charge state duly paid annually by the property owner “whether formally demanded or not”, which means homeowners are subject to the rent-charge payments without prior appropriate background.

The idea of rent-charges, although is expected to expire by 2037, has long been abused by rent owners (the party receiving rent-charge income) and growing investment companies to penalize and legally charge unsuspicious homeowners.

Mitigate The Risk of Rentcharge “Scam”

Most rent-charge victims are homeowners/buyers who rely on their own DIY conveyancing research alone (which we find with a great lack of sufficient information). Hiring a professional conveyancer to do the conveyancing process for you may mitigate this risk of being rent-charge “scammed”. But to make our readers knowledgeable about the background of rent-charge, we listed a few ways how to avoid being potentially tricked by sellers on your future transactions.

Following this simple checklist can help you navigate through your transactions with just enough background to not be blinded nor intimidated by the legal procedure.

5 Ways To Prevent Rentcharge Scam

  1. Inspect Your Deed
    First and foremost, inspect your deed to see if the property you are purchasing is subject to any form of recharge. Consult your conveyancer to tediously run through these sensitive details with utmost care.
  2. Ask For Receipts
    If charged with rent-charge, pay on time to avoid any possible penalties and always demand a receipt for every dime being transacted. These receipts will serve as your actual proof and line of defense for all the exchanges made, chances you are able to redeem them in the future.
  3. Get Info From Your Neighbors
    Getting information from your neighbors can be very helpful in your rent-charge case. In some rare cases, multiple properties could be sharing one land. Meaning one rent owner can charge income from different properties so long as it is within their land perimeters.
    Learning if your neighbors are being charged, as well as the amount being billed is equally important in mitigating the continuous charges.
  4. Be prepared for the Administration Free
    Get an Administration Fee as a proof for every rent-charge transaction. This can be an additional payment, but the administration fee can help you potentially a larger amount of money to be penalized by the rent owner if the Statutory Lease is actually registered on your property.
  5. Redeem Your Rentcharge
    In most states, the Department for Communities and Local Government lets homeowners redeem their previous charges if they decide to resell the property. The money redeemed can be a great advantage for the now-seller in facing other additional costs along the way.

Always keep these 5 ways in mind to ultimately mitigate the risk of falling into a rent-charge scam. Not only is it limited to avoiding the risk, but learning the basics can also help you navigate through your future negotiations.