Rentcharges Act 1977 is often wrongly seen as having abolished all rentcharges except for those securing service charge payments on freehold estates. That is, however, an over-simplification and what the Act does is to restrict rentcharges to: (i) estate rentcharges (securing payments for services for common facilities), and (ii) nominal rentcharges (which secure performance of covenants, typically those that touch and concern land). Thus, the nominal rentcharge renders positive covenants enforceable against the land even if owned by successors in title. This is therefore a useful tool for those drafting options. Note, however, that not all positive covenants can be constructed as rentcharges; for instance, a covenant just to pay money will not be secured by a rent charge unless it is one of a draft of development obligations, with the promise of the overage payment being part of the whole land transaction (so that it becomes entwined with the positive development covenants that can come within the scope of the 1977 Act).

It therefore becomes important to create a package of security, so that the overage is a meaningful part of the consideration (and not just window dressing or hope value). Accordingly, the best approach seems to be to back up the rent charge with an equitable charge and a legal right of re-entry annexed to it. Having said that, it will still be necessary to negotiate with the developer’s funder, who will still be concerned that the rent charge is following the land and therefore allows for enforcement against it. But, the rent charge will be straightforward to deal with if the developer gets into financial difficulties; it gives the rent charge owner the right to enter and take possession of the property and then realise the asset. Note that the rent charge owner does not have to take possession and nor does he have to take enforcement action immediately upon the developer getting into difficulties. In fact, the rent charge holder will have three separate remedies – the right to distrain; the right to re-enter and forfeit (although the developer will of course have the right to seek relief – but, since the seller’s concern is to be paid, that is not likely to be a problem); together with the right to appoint trustees to take and distribute the income from the property.

What is clear is that there is no single, simple solution when drafting rentcharges. Indeed, it is an area for the specialist (ie it is not an area in which you should be tempted to ‘have a go’). See [2006] 171 Property Law Journal 15. © Practical Lawyer