Should I avoid buying a house with an ‘estate rentcharge’?

I have had an offer accepted on a house built in 2016 in London. I’d be the second owner, but my conveyancer has spotted an “estate rentcharge”, which I’m told mandates freeholders to pay what seems to be a service charge for maintaining the estate grounds. The company that manages the charge isn’t providing the information our conveyancer is requesting. The commitment is circa £150 a year, but I’m worried about it increasing year-on-year. How does an estate rentcharge work and can increases be challenged?

Sophie Maryan, head of real estate residential in the London office of JMW Solicitors, says estate rentcharges are permitted by the Rentcharges Act 1977 and are payable by the property owner to the rentcharge owner, which is usually the developer or a company set up to manage the estate. The property owners on the estate may have a share in the company. If this is the case, you would have some say in how the estate is managed.

Estate rentcharges come in two forms: a fixed estate rentcharge, usually a nominal sum such as £1; and a variable estate rentcharge, which is similar to a service charge on a leasehold property and is a contribution towards upkeep of communal areas on the estate, for example, landscaping, lighting, roads and so on. This cost will vary year-on-year.

There are three main differences between a service charge on a leasehold property and an estate rentcharge. First, unlike service charges for a leasehold property, there is no requirement for a formal consultation process for major works. Second, there is currently no statutory mechanism to challenge the level of charges imposed by the rentcharge owner, other than to bring court proceedings.

Finally, there is no requirement on a rentcharge owner to serve a notice on the homeowner or lender giving them a reasonable period to remedy a breach, nor is there a right for the homeowner to apply to the courts for relief. This is problematic because if an estate rentcharge is unpaid the rentcharge owner can take possession of the property or grant a lease of the property to a trustee.

The rentcharge owner should provide an FME1 form when the property is being sold with information relating to the estate charges. Although this is not a legal requirement, it is standard practice under the conveyancing protocol and mortgage lenders may insist on this. We would recommend you gather as much information as possible in relation to the charges and potential increases. 

Though the only way to challenge charges is to bring court proceedings, there are limits on what can be charged, which does provide some protection. If the estate rentcharge was created under the Rentcharge Act 1977 the rent may be more than a nominal figure, but must represent a reasonable payment for the performance by the rent owner of the covenant.

The government has considered legislative reform to estate rentcharges, however little progress has been made to date.

How should I plan for living apart?

My wife and I have decided that we need some time living apart and we plan to separate imminently. We have been together for 38 years, married for 36, and our children are grown up and have left home. I plan to move out of the family home soon, and I wonder if there are any steps I should take now to protect my position? I am the financial breadwinner and my wife has been a homemaker throughout our marriage. We are both in our late fifties.

Henrietta Thomas, partner at Burgess Mee Family Law, says separation is emotionally stressful. You may feel your life is in limbo because you are unsure whether your marriage can be saved, but there are some simple steps you can take now to help manage your separation, whatever the outcome.

Prepare emotionally. Time apart could either prompt a reconciliation or cement your view that your marriage is over, but in the interim you should focus on effective, measured communication with your wife — and your children — despite the challenging circumstances. Build an emotional support network: let friends know what you are going through, and consider couples counselling with your wife or individual therapy sessions.

Plan financially. The most immediate concern when separating is where you will live. Since you plan to leave the family home, you may need to rent alternative accommodation and budget accordingly. As the breadwinner, you probably pay the bills for the family home, and you should continue to do so until you reach a financial settlement.

Conduct a financial inventory covering your respective income and liabilities, outgoings, capital and pension positions. Consider your interim and longer-term financial needs and perhaps each agree a fixed monthly budget and agree not to spend significant sums of joint funds without each other’s consent. If you already make monthly payments to your wife, these can persist if they meet her financial needs. 

Take screenshots of bank balances at the time of separation and ask financial institutions to require both your signatures for withdrawals from savings or investment accounts. Depending on the length of the separation, subject to legal counsel, you might consider ring-fencing any bonuses you receive from work.

Take specialist advice. Moving out of the matrimonial home involves legal and tax considerations, including capital gains tax implications if your absence is prolonged. If you ultimately pursue a divorce, your wife will be potentially living alone in a large house with little incentive to reach a financial settlement, particularly if it necessitates the property’s sale.

So obtain family law advice about divorce and its financial aspects sooner rather than later, but note the statutory requirement for a marriage to have “irretrievably broken down” before a divorce application can be brought. Consider the various modes of resolution available, including solicitor-led negotiations, mediation, collaborative law and single lawyer advice. 

As for the financial settlement, England and Wales is a discretionary jurisdiction; the family courts provide a bespoke solution according to each case’s facts. The court will view the contributions of a wife and mother as equal (although different) to those of a primary breadwinner. The starting point will be to divide matrimonial assets equally, unless either parties’ needs dictate otherwise.

You will also need specialist advice regarding the appropriate division of any pensions, in line with the Pensions Advisory Group’s recommendations, to achieve equality of income given your proximities to retirement age.

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.

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